Hi, two readings recently have really surprised me.

Firstly, Dawn Beaupariant from the public relations firm Waggener Edstrom contacted me regarding my Forbes column.  I learned this firm is the PR agency for Microsoft.  They took exception to my Forbes column ("Microsoft's Dismal Future").  But not because any facts were inaccurate. 

Rather, it was their point of view that because OS 7 is now the largest selling OS of all time that demonstrated it was a successful product.  Of course, when the television standard was changed in the USA to digital and everyone had to transition set-top boxes those also became big sellers.  But it wasn't because everybody wanted the new product.  More, it was the impact of a monopolist.  We all know Microsoft has had a near monopoly in PC operating systems (even though every year it is losing share to Linux), so the fact that they can force people to use a new one on new machines, or upgrade, is less than an enthusiastic market endorsement of the product.  For every "reviewer" who likes OS 7, there are 100 users saying "this gives me bells and whistles I don't need or want, and complicates my life.  Can I simply keep my old product, or do my work on my smartphone?"

The Forbes column didn't debate whether Microsoft was likely to remain dominant in PC operating systems – that is a foregone conclusion.  The issue is that markets are shifting away from PCs to mobile devices.  And Microsoft has lost 2/3 its market share in mobile operating systems.  And it is not developing a strong product.  If people keep shifting from PCs to Blackberry's, iPhones and Androids – and PC sales start declining – in 10 years Microsoft could dominate PC OS sales (and Office applications) but it may not matter.  Too bad the PR firm didn't get that.

Secondly, the PR firm claimed that Microsoft could put forward new products readily, leading to capturing dominant share in new markets.  Their one claim that Microsoft had accomplished this was xBox.  The PR person conveniently ignored the smartphone market, the Zune-style handheld market, the market for mobile applications (where Apple sold 2billion apps in its first 18 months), the search market (where Microsoft lags Google and would be nowhere without picking up Yahoo!'s declining business) and a host of other markets where Microsoft simply let the horse out of the barn.

To make matters worse, as Microsoft has invested to Defend the PC operating system and office products business, xBox is losing market share (exactly the point I made in the article – using the smartphone example instead)! According to IndustryGamers.com "PS3 'Steadily Increasing' Market Share Across the Globe" (Feb, 2010). Bad pick Dawn!

• The PS3 is dominant in Japan and Korea, and as of June 2008, has begun
  to outsell the Xbox 360 in Europe. It is also steadily increasing its
  market share in all other regions across the globe, including in the
  North American market
• PS3 sales have been surging (44%
  over the holidays) and SCEA senior vice president of Marketing and
  PlayStation Network, Peter Dille, recently insisted that PS3
  will eventually overtake Xbox 360

Most commenters have reflected my viewpoint, saying that they see Microsoft so horribly Locked-in to its old business that it is almost GM-like in its approach to new products and markets.  Not a good sign.  Those who defend Microsoft simply take the point of view that Microsoft is huge, has high share in PCs, and is very profitable in OS and Office Product sales.  Wow, just like people defended GM was in the 1970s comparing to offshore competitors!  These defenders completely miss the point that the marketplace is now rapidly shifting to new solutions, and the companies driving that shift with the most product are Apple, Google and Research in Motion (RIM)!  Microsoft may look like Goliath, but it would be foolish to ignore the slings of new technology being brought to the battle by these David's with their smartphones, Chrome O/S, mail products, etc.

I was struck this week at the backward thinking offered on the Harvard Business Review blog posting "Is This Innovation Too Disruptive for My Firm."  The author justifies companies sticking to their defensive positions, just as Microsoft is doing, simply because most companies fail at moving away from their "core."  He seems very content to offer that since most companies can't really move into new markets well, so they might as well not try.  Exactly what they are supposed to do as revenues dwindle in their "core" markets he never resolves!  I guess he'd rather management simply not try to grow, and go down valiantly with the sinking ship.

Quite concerning is that he takes up the mantle of "core capability."  He points out that most of the failures happen when companies move away from their "core" and therefore he recommends that all innovation remain close to the "core."  His big argument is that this is lower risk.  Well, Xerox remained close to core with laser printers – and how'd that work out for long-term value growth?  Apple remained close to its Macintosh core and was almost bankrupt in 2000 before jumping into music and smartphones.  Polaraoid stayed close to its core of instant film photography, and Kodak stayed close to its similar core.  Now one is erased from the marketplace and the other is a no-growth inconsequential competitor. 

Analogies are risky, but here goes.  For the HBR author, his arguement isn't a lot different than "Over the last 200 years we've noticed that ships which sail out past the horizon often never return.  Therefore, we recommend you never sail beyond the horizon.  Clearly, this is risky and returns are uncertain – so don't do it.  Ever.  Very likely, there is nothing out there you will ever capture of value."  Sort of sounds like those who wouldn't back Columbus – good thing he finally convinced Queen Isabella to give him 3 ships.

In 2008 and 2009 we've seen many great companies driven to bad returns.  Layoffs abound.  Growth has disappeared.  Listen to HBR, and behave like Microsoft, and you'll never grow again.  In 2010 we need a different approach – a different solution.  Companies must realize that focusing on "core" capabilities, customers and markets has rapidly diminishing returns these days.  You cannot succeed by focusing on Defending your business – even if it is a near-monopoly like PC operating systems!  Why not?  Because markets rapidly shift to new solutions that obsolete your products and even when you have high share, and high margins, sales can disappear really fast (like Xerox machine sales or amateur film sales – and probably laptop sales).  If you aren't putting a big chunk of resources into GROWING in new marketplaces, by using White Space teams to drive that learning and growth, you will eventually become an historical artifact.