10th
What happened to Microsoft?
Microsoft’s woes aren’t specific failures of strategy or execution: the company culture, structure, inertia, and ethos are so deeply flawed that it can’t recover. Microsoft can never do what Apple and Google are doing today. It’s too broken. Insert your Titanic metaphor of choice.
A sea change is occurring that is leaving Microsoft behind. But the metaphor isn’t the Titanic. It’s the music business.
Let’s acknowledge that Microsoft remains competive at least in its enterprise software and development tools. But that is a small space, not the vast, mass-market cash cows that made Microsoft rich.
So, where are the vast, mass-market software cash cows? They have vanished. Flickr? Free. Tumblr? Free. Facebook? Free. Gmail, Picasa, Google Calendar, Google Docs. All free. Ubuntu? Free. Firefox? Safari? Free. Wikipedia? Free. OpenOffice? Yeah, it’s free too.
Freeware is making mass-market software increasingly irrelevant. It used to be that when you wanted to perform a task on your computer, you needed a piece of shrink-wrapped software to do it, and Microsoft stood ready to sell it to you. Now, most of the tasks people do on their computers involves freeware.
All this talk about Vista is a red herring. I don’t think that Microsoft has been greatly outmaneuvered by Apple and Google in terms of pure product. Sure, it’s lost a little ground in the OS battles to Linux and Mac, but we’re talking a few percentage points of a slice of a pie that has more than doubled in size. And Windows has never, ever been up to par with the Mac OS. Microsoft has repeatedly demonstrated that as long as Windows is “OK” compared to the Mac OS, it will retain market leadership.
Microsoft’s best competitors - Apple and Google - aren’t it’s biggest problem. And it’s core weakness isn’t Vista, ot its Office suite, or its corporate culture (which, incidentally, is very successful at remaining entrenched with its large corporate customers).
It’s the entire Web 2.0 community which has largely rendered Microsoft’s core product irrelevant. And its core business weakness is that it is selling software intellectual property. Pure IP.
Apple decided a long time ago that in order to capitalize on its software IP, it needed to keep it tied to hardware. That’s why Apple doesn’t sell you the Mac OS, even though it had an Intel port back around 1990. Nor will it license the iPhone OS for other phones, or the iPod interface for other players. Apple ties its intellectual property to something tangible.
And Google has apparently decided that it wouldn’t sell its software IP either, but instead make money selling advertising through it.
The secret to Microsoft’s original success was that it wasn’t in the widget business: it was a pure software company. You invest in the development of the software, then you sell a hundred million copies - which have a negligible variable cost - for $500 a pop. That’s why Microsoft was able to outrun Apple throughout the 1990s. No real factories. No significant variable cost.
Microsoft’s business model was more like Geffen than Apple or Google. Commercial pop music is like software development: you develop a band (brand) through marketing and slick production and channel demand for the CD which has almost no variable cost and sells for $15 apiece. You sell pure intellectual property (recorded music), and make pure per-unit profit.
It’s a money-printing business. As long as people are willing to continue to pay for pure intellectual property.
But people are increasingly unwilling to pay for pure intellectual property. And artists - both software and musical - are increasingly willing to forgo current profits in order to reap popularity.
For the time being, enterprise software remains a safe haven for software sales. But the days of selling “user software” - tools for people empowerment - well, those days are as dead as the music business.
And they aren’t coming back.
