Microsoft Adrift

You got to dance with them what brung you

There is an old Southern saying that nicely sums up Microsoft’s current direction: “You got to dance with them what brung you.” Microsoft’s success as a software company is due largely to their dominance with the Windows Operating System; an OS that dates back to the mid–80s. 30 years is an impressive achievement in IT.
I’ll spare you the gory details of that history which makes for a fascinating (if geeky) read in this wonderful Ars Technica history of OS/2.
In short, everything that Microsoft achieved over 3 decades was accomplished by focusing relentlessly on dominating the Operating System (OS) with Windows and then building an iron curtain of integration and consolidation around the OS. It didn’t happen all at once. There was a time, as recently as 2000, when WordPerfect, Lotus 1–2–3 and Notes were perfectly viable alternatives to MS Office; when Exchange did not rule the world of email; and when Novell (and its famously “never need rebooting” servers) ran the network.
But Microsoft’s strategy eventually changed this. If your OS was Windows, WordPerfect would be fine, but Office would be better. Novell might be okay, but network integration with Windows was going to be more efficient. Outlook fit Exchange and Windows like a glove. Netscape was usurped by Internet Explorer. Not necessarily better technology, but better integrated. It was beautiful…well, maybe not beautiful, but it was easy to figure out. No one ever got fired for choosing Microsoft.
IT staff did get fired for straying too far outside of Windows. Trying to use a Mac in this world could be painful. Forget about Linux desktops. The history of OpenOffice speaks for itself.
Microsoft succeeded on its strategy of completely dominating the OS with Windows.
Windows was them what brung Microsoft. And so Microsoft continued to dance.

Windows a good great OS

And while it’s easy for naysayers to attribute a lot of this to nefarious corporate scheming, or the ruthlessness of pre-Gates Foundation Bill, the truth is that by 2001 Windows had become, in fact, a really good Operating System. By 2001, Windows XP had achieved 2 critical traits vital to the success of any OS:
First, it was incredibly stable, thanks to development of the Windows NT OS, which had, remarkably, risen from the ashes of the failed and flawed Microsoft-IBM OS/2 collaboration. As early as 1993, Bill Gates established the strategic goal of building “a high-performance, fault-tolerant, platform-independent, and fully networkable operating system.”
Second, it was user friendly, thanks to a user interface that had originally launched with Windows 95 With Windows 95, Microsoft established that it could build a friendly Graphical User Interface (GUI) that could compete with anything else on the market. (Leaving aside the jokes that it took Microsoft 10 years to build a viable competitor to MacOS).
In 2001, the evolved, Start-menu driven UI of Windows 95 and the core, rock solid OS of Windows NT merged into Windows XP. As of December 2013, according to wikipedia XP is still running on almost 30% of all PCs.
Just…let…that…sink…in. 13 year old operating system. Still on 30% of all PCs. Tell me you’re not impressed by that.

Can the winner take almost all???

XP was the culmination of Microsoft’s victory in the Platform Wars and we all settled in to the relative ease of a world where Microsoft would take care of everything for us…as long as we used Microsoft.
But…as history, politics and economics teaches us…totalitarian strategies are inherently fragile.
The “winner take all” strategy means dominating all sectors and all niches. End-to-end domination of the technology stack means owning every part of that stack. This is very difficult to do well and to do consistently. As soon as the environment shifts, it is imperative to catch up quickly And in the world of technology, the environment is always shifting.
This is basically what happened to Microsoft. By 2007, Microsoft was forced to fight two new wars at the same time.

The Mobile War

2007. iPhone. Game changer.
Quite possibly the biggest technology game changer of all time. As it settles into the rearview mirror, historical perspective suggests that might be the case.
Not that it was a complete surprise. Microsoft had been releasing a variety of mobile versions of Windows for almost 10 years at that point. Windows Mobile was already on version 6 when the iPhone launched.
But the iPhone was doing something radically new and different and Windows Mobile was…still…Windows. Microsoft was still dancing with them what brung you. And it wasn’t working because, honestly, who wants to use Windows on a 3″ screen with a tiny stylus? Did anyone enjoy trying to play music with Windows Media Player on a Windows Mobile phone?
Nobody does. Nobody did. Ballmer wasn’t worried though, he laughed off the iPhone for almost a year. Eventually Microsoft was forced to accept that Windows Mobile was losing.
Incidentally, Andy Rubin, who was in the middle of developing a BlackBerry-like version of Android for Google was not laughing at Steve Jobs. He was scared. He recognized the game change immediately and Android immediately changed course in 2007. It still took Android almost 2 years to catch up.
By 2009, Microsoft finally halted development of its Windows Mobile platform and spent over 2 years developing the Windows Phone 7 replacement. The earliest versions of Windows Phone 7 launched in late 2010, right after the launch of the iPhone.
The iPhone 4.

The Cloud War

Also in 2007, Google unveiled its cloud-based Google Docs services that appeared to take aim at Microsoft’s weaknesses in the cloud. (It’s always hard to fully comprehend Google’s actual intentions). In 2008, Microsoft’s cloud presence was largely defined by Hotmail. Hotmail.
And so Microsoft had to fight another war in its efforts to maintain universal dominance. Who in their right mind would try to beat Google in cloud and Apple (and Google!) in devices at the exact same time?
Of course, up until that point, Microsoft had won every battle it had fought. It ruled technology. Microsoft had won the PC Platform Wars. Microsoft had won the Office Productivity Wars. They won the Internet Browser Wars. It would be a tough fight, but surely they would win again.
Microsoft’s strategy of “winner take all” had been so successful for so long, it was hard to imagine them going any other way with it.

Winning, Losing & Holding Ground

The strategies of large corporations take time to change. They are embedded in the history and culture of the organization. They are, as the phrase goes, part of its “organizational DNA”.
Office 365 has been, by and large, fairly successful. Microsoft has leveraged the dominance of Office to build a competitive cloud solution. It took them almost 6 years to do it. Fortunately, they only had one competitor (Google Apps) to contend with, and that competitor seemed, at times, barely engaged in the fight.
(I sometimes wonder if Google Docs was little more than a rope-a-dope ploy by Google to goad Microsoft into fighting two battles at once so that Google would have time to develop Android. “Don’t look at Android…look over here at this cloud office thingy.”)
If Microsoft seems to be holding their own in the Cloud, the same cannot be said for Mobile OS. The Windows Phone market share is somewhere between 1–3%, and this presents a serious problem for the company whose strategy requires total domination. A recent analysis by Tomi Ahonen suggests that things are getting worse for Windows Phone.
As Benedict Evans put it in Episode 13 of the @cubedfm podcast:

“What is their actual objective? Is their objective to write the kernel for the majority of computing devices on earth? That probably shouldn’t be the objective, and even if it is, it’s too late. It’s gone. So do they fall back on their [stated] objective of a 15% market share, which you can just about conceive they might be able to get, but, again, is still complete failure.”

The one what brung you

Until recently, Microsoft seemed committed to riding the Windows horse. Committed to making the dominance of Windows a centerpiece of their strategy. To be fair, the very existence of the company (at least at its current size) depends on the massive revenue coming from Windows.
Instead of thinking like a small startup whose killer app is Office 365, Microsoft decides not to develop a version of Office 365 optimized for the iPad. Or Android. Does Microsoft actually think that this strategy will get 100s of millions of users to trade in their iPads for Surface Pros?
And instead of pouring company resources into making Office 365 amazing, they have spent half a decade on the Quixotic pursuit of turning Windows into an “everywhere you go” OS that is supposed to work equally well on a phone, a tablet, a phablet, a laptop with a screen that can swivel 360 degrees. Instead, they shoot themselves in the foot by alienating their tradtional customers with a version of Windows that is logically inconsistent and difficult to use. In essence, abandoning the very traits (stable and user-friendly) that made XP such a success in the first place.
None of this makes sense for a company trying to achieve market dominance with a cloud based platform. It makes perfect sense, on the other hand, for a company trying to leverage their cloud platform to dominate the Operating System.

The Windows Strategy

And this really becomes the existential problem for Microsoft. For a company to succeed they need to be clear about who they are and what they do. Apple makes the best devices in the world. Google builds the best cloud services in the world. Hitherto, Microsoft has been a Windows company.  They made the OS that ran all devices. Everything still connects back to this strategy of maximizing Windows sales and market share. That is no longer a viable strategy.
While Microsoft has plenty of strengths and assets, making that sort of fundamental change to your identity is not an easy task. It’s significantly less easy at a company of 100,000 employees. To say nothing of a legendary founder looking over your shoulder.

Not too late

There is plenty of time. Microsoft retains a complete lock on Office. 90% of the world’s PCs run Windows. Microsoft has a mountain range of cash and a horde of incredibly talented software developers. Microsoft now has a CEO who maybe seems to get it.
What Satya Padella means by “mobile first, cloud first” is hard to discern just yet. Only time will tell. But Microsoft faces serious challenges and opportunities. And what happens next will have a profound impact on how all of us use technology.
For a much briefer, and much better, overview of the situation facing Pandella and Gates, I strongly encourage you to read Ben Thompson’s latest Stratechery post.