by Adam Hartung | Feb 29, 2012 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Innovation, Leadership, Web/Tech
This week people are having their first look at Windows 8 via the Barcelona, Spain Mobile World Congress. This better be the most exciting Microsoft product since Windows was created, or Microsoft is going to fail.
Why? Because Microsoft made the fatal mistake of "focusing on its core" and "investing in what it knew" – time worn "best practices" that are proving disastrous!
Everyone knows that Microsoft has returned almost nothing to shareholders the last decade. Simultaneously, all the "partner" companies that were in the "PC" (the Windows + Intel, or Wintel, platform) "ecosystem" have done poorly. Look beyond Microsoft at returns to shareholders for Intel, Dell (which recently blew its earings) and Hewlett Packard (HP – which says it will need 5 years to turn around the company.) All have been forced to trim headcount and undertake deep cost cutting as revenues have stagnated since 2000, at times falling, and margins have been decimated.
This happened despite deep investments in their "core" PC business. In 2009 Microsoft spent almost $9B on PC R&D; over 14% of revenues. In the last few years Microsoft has launched Vista, Windows 7, Office 2009 and Office 2010 all in its effort to defend and extend PC sales. Likewise all the PC manufacturers have spent considerably on new, smaller, more powerful and even cheaper PC laptop and desktop models.
Unfortunately, these investments in their core expertise and markets have not excited users, nor created much growth.
On the other hand, Apple spent all of the last decade investing in what it didn't know much about in 2000. Rather than investing in its "core" Macintosh business, Apple invested in the trend toward mobility, being an early leader with 3 platforms – the iPod, iPhone and iPad. All product categories far removed from its "core" and what it new well. But, all targeted at the trend toward enhanced mobility.
Don't forget, Microsoft launched the Zune and the Windows CE phones in the last decade. But, because these were not "core" products in "core" markets Microsoft, and its partners, did not invest much in these markets. Microsoft even brought to market tablets, but leadership felt they were inferior to the PC, so investments were maintained in traditional PC products. The Zune, Windows phone and early Windows tablets all died because Microsoft and its partner companies stuck to investing their most important, and best known, PC business.
Where are we now? Sales of PC's are stagnating, and going to decline. While sales of mobile devices are skyrocketing.
Source: Business Insider 2/14/12
Today tablet sales are about 50% of the ~300M unit PC sales. But they are growing so fast they will catch up by 2014, and be larger by 2015. And, that depends on PC sales maintaining. Look around your next meeting, commuter flight or coffee shop experience and see how many tablets are being used compared to laptops. Think about that ratio a year ago, and then make your own assessment as to how many new PCs people will buy, versus tablets. Can you imagine the PC market actually shrinking? Like, say, the traditional cell phone business is doing?
By focusing on Windows, and specifically each generation leading to Windows 8, Microsoft took a crazy bet. It bet it could improve windows to keep the PC relevant, in the face of the evident trend toward mobility and ease of use. Instead of investing in new technologies, new products and new markets – things it didn't know much about – Microsoft chose to invest in what it new, and hoped it could control the trend.
People didn't want a PC to be mobile, they wanted mobility. Apple invested in the trend, making the MP3 player a winner with its iPod ease of use and iTunes market. Then it made smartphones, which were largely an email device, incredibly popular by innovating the app marketplace which gave people the mobility they really desired. Recognizing that people didn't really want a PC, they wanted mobility, Apple pioneered the tablet marketplace with its iPad and large app market. The result was an explosion in revenue by investing outside its core, in technologies and markets about which it initially knew nothing.
Apple would not have grown had it focused its investment on its "core" Mac business. In the last year alone Apple sold more iOS devices than it sold Macs in its entire 28 year history!
Source: Business Insider 2/17/2012
Today, the iPhone business itself is bigger than all of Microsoft. The iPad business is bigger than the desktop PC business, and if included in the larger market for personal computing represents 17% of the PC market. And, of course, Apple is now worth almost twice the value of Microsoft.
We hear, all the time, to invest in what we know. But it turns out that is NOT the best strategy. Trends develop, and markets shift. By constantly investing in what we know we become farther and farther removed from trends. In the end, like Microsoft, we make massive investments trying to defend and extend our past products when we would be much, much smarter to invest in new technologies and markets that are on the trend, even if we don't know much, if anything, about them.
The odds are now stacked against Microsoft. Apple has a huge lead in product sales, market position and apps. It's closest challenger is Google's Android, which is attracting many of the former Microsoft partners (such as LG's recent defection) as they strive to catch up. Company's such as Nokia are struggling as the technology leadership, and market position, has shifted away from Microsoft as mobility changed the market.
Microsoft's technology sales used to be based upon convincing IT departments to use its platform. But today users largely buy mobile devices with their own money, and eschew the recommendations of the IT department. Just look at how users drove the demise of Research In Motion's Blackberry. IT needs to provide users with tools they like, and use platforms which are easy and low-cost to leverage with big app bases. That favors Apple and Android, not Microsoft with its far, far too late entry.
You can be smarter than Microsoft. Don't take the crazy bet of always doubling down on what you know. Put your focus on the marketplace, and identify shifts. It's cheaper, and smarter, to bet early on trends than constantly trying to fight the trend by investing – usually at an ever higher amount – in what you know.
by Adam Hartung | Oct 27, 2011 | Current Affairs, Defend & Extend, In the Whirlpool, Innovation, Leadership, Web/Tech
There is a big cry for innovation these days. Unfortunately, despite spending a lot of money on it, most innovation simply isn't. And that's why companies don't grow.
The giant consulting firm Booz & Co. just completed its most recent survey on innovation. Like most analysts, they tried using R&D spending as yardstick for measuring innovation. Unfortunately, as a lot of us already knew, there is no correlation:
"There is no statistically significant relationship between financial performance and innovation spending, in terms of either total R&D dollars or R&D as a percentage of revenues. Many companies — notably, Apple — consistently underspend their peers on R&D investments while outperforming them on a broad range of measures of corporate success, such as revenue growth, profit growth, margins, and total shareholder return. Meanwhile, entire industries, such as pharmaceuticals, continue to devote relatively large shares of their resources to innovation, yet end up with much less to show for it than they — and their shareholders — might hope for."
(Uh-hum, did you hear about this Abbott? Pfizer? Readers that missed it might want to glance at last week's blog about Abbott, and why it is a sell after announcing plans to split the company.)
Far too often, companies spend most of their R&D dollars on making their products cheaper, operate better, faster or do more. Clayton Christensen pointed this out some 15 years ago in his groundbreaking book "The Innovator's Dilemma" (HBS Press, 1997). Most R&D, in most industries, and for most companies, is spent trying to sustain an existing technology – not identify or develop a disruptive technology that would have far higher rates of return.
While this is easy to conceptualize, it is much harder to understand. Until we look at a storied company like Kodak – which has received a lot of news this last month.
Kodak invented amateur photography, and was rewarded with decades of profitable revenue growth as its string of cheap cameras, film products and photographic papers changed the way people thought about photographs. Kodak was the world leader in photographic film and paper sales, at great margins, and its value grew exponentially!
Of course, we all know what happened. Amateur photography went digital. No more film, and no more film developing. Even camera sales have disappeared as most folks simply use mobile phones.
But what most people don't know is that Kodak invented digital photography! Really! They were the first to create the technology, and the first to apply it. But they didn't really market it, largely because of fears they would cannibalize their film sales. In an effort to defend & extend their old business, Kodak licensed digital photography patents to camera manufacturers, abandoned R&D in the product line and maintained its focus on its core business. Kodak kept making amateur film better, faster and cheaper – until nobody cared any more.
Of course, Kodak wasn't the first to fall into this trap. Xerox invented desktop publishing but let that market go to Apple, Wintel suppliers and HP printers as it worked diligently trying to defend & extend its copier business. With no click meter on the desktop publishing equipment, Xerox wasn't sure how to make money with it. So they licensed it away.
DEC pretty much created and owned the CAD/CAM business before losing it to AutoCad. Sears created at home shopping, a market now dominated by Amazon. What's your favorite story?
It's a pattern we see a lot. And nowhere worse than at Microsoft.
Do you remember that Microsoft had the Zune player at least as early as the iPod, but didn't bother to develop the technology, or market, letting Apple take the lead in digital music and video devices? Did you remember that the Windows CE smartphone (built by HTC) beat the iPhone to market by years? But Microsoft didn't really develop an app base, didn't really invest in the smartphone technology or market – and let first RIM and later Apple run away with that market as well.
Now, several years too late Microsoft hopes its Nokia partnership will help it capture a piece of that market – despite its still rather apparent lack of an app base or breakthrough advantage.
Microsoft is a textbook example of over-investing in existing technology, in an effort to defend & extend an existing product line, to the point of "over-serving" customer needs. What new extensions do you want from your PC or office software?
Do you remember Clippy? That was the little paper clip that came up in Windows applications to help you do your job better. It annoyed everyone, and was disabled by everyone. A product development that nobody wanted, yet was created and marketed anyway. It didn't sell any additional software products – but it did cost money. That's defend & extend spending.
How much a company spends on innovation doesn't matter, because what's important is what the company spends on real breakthroughs rather than sustaining ideas. Microsoft spends a lot on Windows and Office – it doesn't spend enough on breakthrough innovation for mobile products or games.
And it doesn't spend nearly enough on marketing non-PC innovations. We are already well into the back end of the PC lifecycle. Today more bandwidth is consumed from mobile devices than PC laptops and desktops. Purchase rates of mobile devices are growing at double digits, while companies (and individuals) are curtailing PC purchases. But Microsoft missed the boat because it chose to defend & extend PCs years ago, rather than really try to develop the technology and markets for CE and Zune.
Just look at where Microsoft spends money today. It's hottest innovation is Kinect. But that investment is dwarfed by spending on Skype – intended to extend PC life – and ads promoting the use of PC technologies for families this holiday season.
Unfortunately, there are almost no examples of companies that miss the transition to a new technology thriving. And that's why it is really important to revisit the Kodak chart, and then look at a Microsoft chart.
(Chart 10/27/11)
Do you think Microsoft, after this long period of no value increase, is more likely to go up in value, or more likely to follow Kodak? Unfortunately, there are few companies that make the transition. But there have been thousands that have not. Companies that had very high market share, once made a lot of money, but fell into failure because they invested in better, faster, cheaper rather than innovation.
If you are still holding Kodak, why? If you're still holding Microsoft, Abbott, Kraft, Sara Lee, Sears or Wal-Mart — why?
by Adam Hartung | Jun 16, 2011 | Defend & Extend, In the Whirlpool, Innovation, Leadership, Lock-in, Web/Tech
Dell is a dog. From $25/share a decade ago the company rose to around $40/share around 2005, only to collapse. The stock now trades around $15, rising from recent lows of about $10. The company’s value is only $30B, only half revenues of $61B, instead of the revenue multiple obtained by most growth stocks. But then, revenues have been flat for the last 4 years — so maybe it’s time to say Dell isn’t a growth stock any longer.
And that would be correct.
In the 1990s Dell was a darling. The company could do no wrong as its revenues and valuation soared. Founder and CEO Michael Dell was a highly desired speaker at fees of $100,000+. Michael Dell was quick to tell people his success formula, which was pretty simple:
- Do no R&D. Outsource product development to key vendors (Intel and Microsoft). Focus on price and cost. Be operationally excellent! Be the best, most focused manufacturer/assembler.
- Genericize the product. Make it easy to buy, thus cheap and easy to sell.
- Sell direct rather than through distributors so you lower sales cost.
- Use supply chain practices to drive down parts cost and inventory, making it possible to compete on price and collect your funds before paying vendors.
In short, focus on operational excellence to be really fast and cheap. Faster and cheaper than anyone else.
And this success formula worked!! As long as folks wanted personal computers, Dell was the game to beat. And the company reaped the reward of PC market growth, expanding as the PC – especially the Wintel PC – market exploded.
Dell’s problems today aren’t the result of bad management. Dell has been focused, diligent, hard working and very cost conscientuous. Dell made no horrible decisions, and made no serious mistakes in its strategy or tactics. Although for a while it was vilified for weaker support from outsourced vendors in India (again, a tactic used in all parts of Dell’s strategy) that was rectified. Largely for 2 decades Dell has continued to perform better and better at its internal metrics – its success formula.
Dell’s fall from grace was due to the market shifting. Firstly, competitors figured out how to do what Dell did pretty much as good as Dell did it. No operationally oriented strategy is immune from copy-cats, and Dell discovered other companies could do pretty much what they did. It becomes a dog-eat-dog world quickly when your discussions are all “price, delivery, service” and you can’t offer something truly unique. It may not be obvious when markets are growing, and there’s plenty of business for everyone, but oh how quickly it shows up in declining margins when growth slows.
Secondly, and more importantly, the market shifted away from Dell’s primary products. PC sales are now flat to declining, depending on marketplace, as customers shift from Wintel platforms to smartphones and tablets. Despite big acquisitions in data storage and services (to the tune of $5B the last couple of years) Dell still has 70% of its revenues in PCs (55% hardware, 15% software and services.) Most of that money was spent attempting to shore up the Dell success formula by extending its core offerings to core customers. Now all future forecasts show the market will continue to move away from PCs and toward new platforms, making it impossible to create organic growth, and pinching margins in all sectors.
So, were Dell’s executives dumb, incompetent, lethargic or some combination of all 3? Actually, none of those things – as CNNMoney.com points out in “Dell’s Dilemma“. They were simply stuck. Stuck with their own best practices, doing what they do really well, and continuing to do more of it. Unable to move forward, because most attention was focused on defending and extending the old core.
Nobody knows the Dell core better than Michael Dell. His return spells only less likelihood of success for Dell. As opportunities emerged in smartphones and other markets he found it simply easier, faster, cheaper and more consistent to wait on those markets while defending the core PC business. Key vendors Intel and Microsoft, critical to historical success, were not offering new solutions for these markets, or promoting sales in them. Key customers, the IT departments in government and corporate accounts, weren’t clamoring for these new products. They wanted more PCs that were better, faster and cheaper. Dell was looking for the divine light of perfect future understanding to change the company investments – and when it didn’t emerge he kept right on plunking money into the business headed for decline.
Inside consultants (Bain and Co. is well known to be the primary strategists and tacticians at Dell) and employee experts had never-ending opportunities to improve the Dell systems, in their efforts to defend the Dell sales against other PC competitors and seek out additional expansion opportunities in targeted offshore or niche markets. Suppliers wanted Dell to keep building and promoting PCs. And customers locked-in to old platforms were just experimenting with new solutions – far from adopting anything new in the volumes that would match historical PC sales. “If just the economy comes around, I’m sure sales will return” it’s easy to imagine everyone at Dell saying.
Now Dell is in declining products, with an outdated strategy chasing a larger competitor as margins continue to remain squeezed. Nobody wants to exit this business quickly, so prices are under ever greater pressure – especially since Android tablets are cheaper than laptops already – and smartphones can be had for free from the right wireless supplier.
It’s too late for Dell. The time to act was 5 years ago. Then Dell could have set up a team to explore the market for new solutions. Dell could have been the first to offer an Android phone or tablet – the company has plenty of smart folks who could experiment and figure it out. They could have championed the Zune, and created a download store for the product to compete with iPods and iTunes (the Zune is no longer supported by Microsoft.) But there were no resources, and no permission given to try changing the success formula.
As Chromebooks are launched (“The First Google Chromebooks are On Sale Now, Here’s Everything You Need to Know” BusinessInsider.com) Dell could have been the market leader, instead of Acer and Samsung. There’s even a chance that Dell might have blunted the huge market lead Apple created since 2005 if management had just created a team with the opportunity to really discover what people would do with these new solutions. There was a time a “strategic partnership” between Dell and Google could have been a big threat to Apple. But no longer.
Apple, which put its resources into pioneering new markets the last decade has seen its value explode many-fold. It’s value is over 10x Dell. Apple has enough cash to buy Dell outright. But why would it? Dell has become a niche player – and due to its lock-in to historical best practices and its old success formula has no opportunities to grow.
All companies risk becoming marginalized. Focusing on your core products, core technology vendors and core customers leads to blindness about the possibility of market shifts. You can work yourself to death, be focused and diligent, and remain dedicated to constant improvement — even excellence! But when markets shift it’s easy to become obsolete, and fall into margin killing price wars as growth stagnates. Just look at Dell. From darling to dog in just 10 years.
If you still own DELL, the recent price rise makes this a great time to SELL. Dell has no new products, and no idea how to move into new markets. It’s commitment to its core is a death knell. And without white space to do anything new, it can/t (and won’t) transform itself into a winner.
by Adam Hartung | Feb 15, 2011 | Current Affairs, Defend & Extend, In the Swamp, Leadership, Web/Tech
Summary:
- Nokia agreed to develop smartphones with Microsoft software
- But Microsoft’s product is without users, developers or apps
- Apple and Google Android dominate developers, app base and users
- Apple and Google Android have extensive distribution, and customer acceptance
- Microsoft brings Nokia very little
- Nokia hopes it can succeed simply by ramming Microsoft product through distribution. This will be no more successful than its efforts with Symbian
- Apple is the winner, because Nokia didn’t select Google Android
“For First Time Ever, Smartphones Outsell PCs in Q4 of 2010” headlined BGR.com. This is a big deal, as it creates something of an inflection point – possibly what some would call a “tipping point” – in the digital technology market. For over 2 years some of us, using IDC data such as reported in ReadWriteWeb, have been predicting that PCs are on the way to extinction – much like mainframes and mini-computers went. Smartphone sales last quarter jumped 87.2% year-over-year to about 101M units. Meanwhile PC sales, a market manufacturers hoped would recover as “enterprises” resumed buying post-recession, grew only 5.5% in the like period, to 92.1M units. No doubt the installed base of the latter product is multiples of the former, but we can see that increasingly people are ready to use the newer, alternative technology.
This week Mediapost.com reported “Tablet Sales to Hit 242M by 2015.” Both NPD Group and iSuppli are projecting a 10-fold increase wtihin 5 years in the volume of these new devices, which is sure to devastate PC sales. Between smartphones and tablets, as well as the rapid development of cloud-based apps and data storage solutions, it’s becoming quite clear that the life-span of PC technology has its limits. Soon we’ll be able to do more, cheaper, better and faster with these new products than we ever could on a PC.
This is really bad news for Microsoft. Apple and Google dominate both these mobile markets. As Microsoft has fought to defend its PC business by re-investing in Vista, then Windows 7 and Office 2010, the market has been shifting away from the PC platform entirely. It’s common now to hear about corporations considering iPads and other tablets for field workers. And it’s impossible to walk through an airport, or sit in a meeting these days without seeing people use their smartphones and tablets, purchased individually at retail, while leaving their PCs at the office. Most corporate Blackberry users now have either an Apple or Android smartphone or tablet as they eschew their RIM product for anything other than required corporate uses.
Nokia has largely missed the smartphone market, choosing, like Microsoft, to continue investing in defending its traditional business. Long the largest cell phone supplier, Nokia did not develop the application base or developer network for Symbian (it’s proprietary smartphone technology) as it kept pumping out older devices. Nokia is reminiscent of the Ed Zander led Motorola disaster, where the company kept pumping out Razr phones until demand collapsed, nearly killing the company.
So the Board replaced the Nokia CEO. As discussed in Forbes on 5 October, 2010 in “HP and Nokia’s Bad CEO Selections” Nokia put in place a Microsoft executive. Given that Microsoft had missed the smartphone market entirely, as well as the tablet market, moving the Microsoft Defend & Extend way of thinking into Nokia didn’t look like it would bring much help for the equally locked-in Nokia. Exchanging one defensive management approach for another doesn’t create an offense – or new products.
It wasn’t much of a surprise last week when the 5-month tenured CEO, Stephen Elop, announced he thought Nokia’s business was in horrible shape via an internal email as reported in the Wall Street Journal, “Nokia, Microsoft Talk Cellphones.” Rather quickly, a deal was struck in which Nokia would not only pick up the Microsoft mobile operating system, but would use their products to promote other extremely poorly performing Microsoft products. “Nokia to Adopt Microsoft Bing, Adcenter” was another headline at MediaPost.com. Bing and adCenter were very late to market, and even with adoption by early market leader Yahoo! have been unable to make much inroad into the search and on-line ad placement markets dominated by Google.
Mr Elop went with what he knew, selecting Microsoft. I guess he’s the new “chief decider” at Nokia. His decision caused a break out of optimism amongst long-suffering Microsoft investors and customers who’ve gotten very little from the giant PC near-monopolist the last decade. Mediapost told us “Study: Surge of Support for Windows Phone 7” as developers who long ignored the product entirely were starting to consider writing apps for the device. After all this time, new hope beats within the breast of those still stuck on Microsoft.
But if ever there was a case of too little, and way, way too late, this has to be it. Two companies long known for weak product innovation, and success driven by market domination and distribution control strategies, are partnering to take on the two most innovative companies in digital technology as they create entirely new markets with new technologies.
RIM, the smartphone market originator, has seen its fortunes disintegrate as Blackberry sales fell below iPhones – even with over 10,000 apps. Today Microsoft has virtually NO apps, and NO developer base as it just now enters this market, “Google Searches for Mobile App Experts” (Wall Street Journal) as its effort continues to expand its 100,000+ apps base as it chases the 350,000+ apps already existing for the iPhone. Where Microsoft and Nokia hope to build an app base, and a user base, Apple and Google already have both, which theyt are aggressively growing.
Exactly what going to happen to slow Apple and Google’s growth in order to allow Microsoft + Nokia to catch up? In what fairy tale will the early hare take a nap so the awakened tortoise will be allowed to somehow, miraculously get back into the race?
Being late to market is never good. Look at how Sony, and everyone else, were late to digitally downloaded music. iPad and iTunes not only took off but continue to hold well over 50% of the market almost a decade later. Over the same decade Apple has held onto 2/3 of the download video market, while Microsoft’s Zune has struggled to capture less than 1/4 of Apple’s share (about 18% according to WinRumors.com).
Apple (and Google) aren’t going to slow down the pace of innovation to give Microsoft and Nokia a chance to catch up. Today (15 Feb., 2010) ITProPortal.com breaks news “Apple iPhone 5 to have 4 Inch Screen,” an upgrade designed to bring yet more users to its mobile device platform – away from PCs and competitive smarphones. The same article discusses how Google Android manufacturers are bringing out 4.3 inch screens in their effort to keep growing.
So, amidst the “big announcement” of Microsoft and Nokia agreeing to work together on a new platform, where’s the product announcement? Where’s the app base? And exactly what is the strategy to be competitive in 2012 and 2015? Does anyone really think throwing money at this will create the products (hardware and software) fast enough to let either catch up with existing leaders? Does anyone think Microsoft products dependent upon Nokia’s distribution can save either’s mobile business – while Apple has just expanded to Verizon for distribution? And Google is already on almost all networks? And where is Microsoft or Nokia in the tablet business, which is closely associated with smartphone market for obvious issues of mobility and use of cloud-based computing architectures?
The good news here is for Apple fans. Nokia clearly should have chosen Android. This would give the laggard a chance of leveraging the base of technology at Google – including advances being made to the Chrome operating system and its advantages for the cloud. No matter what the price, it’s the only chance Nokia has. With this decision the most likely outcome is big investments by both Microsoft and Nokia to play catch-up, but limited success. Results will not likely cover investment rates, leading Nokia to a Motorola-like outcome. And Microsoft will remain a bit player in the fastest growing digital markets. Both have billions of dollars to throw away in this desperate effort. But the outcome is almost certain. It’s doubtful between the two of them they can buy enough developers, network agreements and users to succeed against the 2 growth leaders and the desperately defensive RIM.
Like I said last month in this blog “Buy Apple, Sell Microsoft.” It’s still the easiest money-making trade of 2011. Now thankfully reinforced by the former Microsoft exec running Nokia.
by Adam Hartung | Apr 15, 2010 | Defend & Extend, In the Swamp, Leadership, Lock-in, Web/Tech
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.
