The End Of Microsoft ... As We Know It

Steve Ballmer's announcement of the Windows Surface tablet seemed to channel Steve Jobs: dressed in a dark shirt, a CEO making a glitzy product intro, and most remarkable, an integrated device strategy.

In the 1990s Microsoft triumphed over Apple with its stand-alone operating system (“OS”) strategy. Now Microsoft is abandoning its winning formula, and following its competitors:

• Microsoft has married its WinMo phone OS to Nokia.
• Google has its Nexus line of Android phones and an array of cloud services, and it just announced the Nexus 7 tablet to sail in the vanguard of its Android tablet strategy. Google’s acquisition of Moto gives it the option to provide flagship Android phones with tightly integrated OS and hardware.
• RIM has always had an integrated OS/hardware strategy.
• Apple has always had an integrated strategy. And Apple is gradually merging its mobile OS with its PC OS, and innovating with devices like the MacBook Air which sit in the gap between PCs and tablets [this post written on a MacBook Air, in the air].
• HP bought the Palm WebOS for mobile devices (but their first tablet was still-born)
• Apple and Google are the leaders in the burgeoning market for “Post-PC” devices, meaning devices that are truly personal, mobile, designed for communication and media consumption as much as work, and wirelessly connected (more). Why are post-PC device leaders employing integrated strategies, when Microsoft did so well focusing on the OS layer of the PC value chain?
  
• The tightly constrained resources of mobile devices increase the value of hardware/software integration: tuning the device, OS, and cloud to work together enables the best performance.
• Mobile devices are truly personal devices: usually chosen and paid for by individuals, for personal use as much or more than business. Buyers care about appearance, device quality/functionality, and the brand much more than they did with PCs (more).
• Mobile devices depend on cloud services to deliver value. Without the cloud, the OS cannot be competitive.

Microsoft has no choice but to learn to compete in the post-PC market. PC sales are flat to declining.

How likely is it that Microsoft will succeed? Windows won because it had more appeal to business users, who dominated the first phase of the PC market. It was feature rich, it looked like a “real operating system” to professional IT managers, and, by providing a standard interface between hardware and application software, it provoked fierce competition among hardware producers on the basis of price and “feeds and speeds”. And, Microsoft leveraged Windows to establish dominance of business productivity applications, on the basis of a vast array of features and business-friendly bundled marketing. But, Microsoft needed 20 years to produce a PC OS (Windows 7) that rivals MacOS in ease and pleasure of use [IMHO].

Now Microsoft needs to create products that evoke consumer lust, as Apple products do, or appeal to hip geeks, like Android. Neither of these things is obvious for the colossus of Redmond. Windows 8 is getting good reviews, and Microsoft’s success with Xbox is solid, but its on-line and music/video offerings have fallen far short. Consumer lust and hip geekiness are not in the core Microsoft DNA.

I was serving IBM (“the colossus of Armonk”) as a strategy consultant in 1993, when the board brought in the first-ever outside CEO, Lou Gerstner, to reconsider everything. IBM was losing out to the technology-based companies: especially Sun, Intel, Oracle, Compaq, and Microsoft. Gerstner faced a choice between doubling down to make IBM a leading edge technology firm, or focusing on services to big business. IBM had the technology chops on paper (in fact it had first developed much of the technology that was taking away its markets), and those markets were hot. But, IBM’s core DNA was selling to big business, and Gerstner determined that big businesses had major needs for help building strategic platforms from the technology cornucopia that was on offer, and they trusted IBM. Gerstner chose to stay with the key customers and bet on the core DNA. The result for shareholders has been good, but IBM no longer defines the future.

Microsoft is at or near to this same Rubicon: does it bet on its key customers and core DNA, or does it try to run with the fast crowd and define the future? I’m guessing that, ironically, it will ultimately make the same pragmatic choice as IBM. Either way, it will be the end of Microsoft as we know it.