Month: May 2008

As a Mac convert, my interest in the decline/irrelevance of Microsoft is more observational and less practical. Every so often, I look at prices for Windows laptops, just ’cause, and then think, “There’s nothing I’d need one of these machines for.” But I’m fascinated by the sight of MS in this state of disarray, and not just because of my adoration of failure. Their inability to adapt to the new world isn’t simply a failing on the part of their executives; rather it looks like a big-ol’ example of the sclerotic nature of empires.

There are plenty of sites devoted to this issue, but a few articles on the topic of MS’s problems ended up in my RSS feed in the past week, so I thought I’d share them with you. It began with a BusinessWeek cover article about the company’s failed bid to acquire Yahoo (a bid that may develop into some sort of partnership/buy-in option, according to this weekend’s reports). The piece discusses MS’s rationales for the deal and its online ad strategy to battle Google, but a red flag went up for me after this passage:

“Microsoft’s biggest fear is that once you start putting Google [software programs on the Internet], then the price Microsoft can charge for its software will erode markedly,” says David B. Yoffie, a professor at Harvard Business School. “Just the threat means that Microsoft has to be able to offer advertising as a choice.”

Mull that one over: Is Yoffie saying that, because the internet is making MS’s core business — operating systems and office software — irrelevant, MS needs to, um, spend $45 billion to buy an also-ran in the business of selling ads on the internet? Doesn’t that seem like a non sequitur? Just because selling ads online is Google’s core business, why would it mean that MS has to go whole-hog after that market?

• MS core competencies: building & selling operating systems and office applications
• Google core competencies: building search engine & selling text ads

I think Yoffie’s argument would make more sense as, “MS’s lead business is eroding in the long term, so the company is looking for new business opportunities.” But trying to justify this enormous acquisition in terms of “sticking it to Google” looks like folly to me.

(Oh, and another key point of the article is that MS is trying to undercut the foundation of Google’s ad revenues by arguing that ads from search results aren’t as valuable as ads that are served up on regular web pages, tailored to individual users by tracking their movements on the web. That is, MS can serve advertisers better by following them around and snooping in on their web usage.)

This article by Chris Seibold approaches the MS dilemma from another angle. He contends that MS’s big problem is that it got away from its old practice of bullying smaller companies and stealing technologies, and tried to become a “me too” business. Seibold sees the XBox, the Zune, and online advertising as dilutions of MS’s mission, which is building software.

I’m not sure how viable that strategy is, or whether it’s simply a way of consigning MS to a slow death. In the pharma industry, which I’ve observed for almost a decade, the “me too” business plays a necessary role. And at least these “me too” therapies fit into the basic business of pharma companies. MS’s decisions to get into a gaming platform war with Sony, or compete with the iPod and the iTunes store, are markedly different than a pharma company devoting R&D dollars to go after a promising field a few years behind a competitor’s project.

In the NYTimes this weekend, Randall Stross reports on the Single-Era Conjecture, “the invisible law that makes it impossible for a company in the computer business to enjoy pre-eminence that spans two technological eras.” He points out that MS had years to prepare for a transition into the internet age, but failed to make the leap in any meaningful way.

Stross also makes the point that MS’s online business was profitable just a few years ago, but that’s because it was centered on users paying MS for dialup access. Once the broadband infrastructure grew out far enough, the online unit began posting a loss, tied as it was to an obsolescing business model. This one really gets at my question of whether MS is just too big to keep up.

But the article that really sums out the trouble MS is having turns out to be another BW one on the phenomenon of major corporations choosing not to upgrade to MS’s new Vista operating system.

That’s that core competency I was talking about: building and selling an OS. Vista reached the market years late, has memory-hogging features that appear designed to get users to buy new hardware, and still manages to have compatibility and driver issues. Acquiring Yahoo (or just its search-ad biz, as is rumored) isn’t going to convince people to start upgrading their computers & OS.

Any of my geekier or more business-oriented readers have thoughts on this?