There’s a classic example in b-school circles that’s used to explain mis-guided (or at least, mis-placed) development and investment emphasis. It’s applied to buggy whip manufacturers who, even after the automobile started to stake out a growing stake in the transportation marketplace, kept on building (and improving) their products while serving a vanishing and doomed customer base. A story from Microsoft’s home-town newspaper, The Seattle Times, by Sharon Pian Chan entitled “Big Year for Windows 7, but is Microsoft in a PC rut?” delivers the implicit analogy that Microsoft’s purported emphasis on desktop OSes puts it in the same league as buggy whip manufacturers of yore. But at the same time the story reports that Windows 7 “…is the fastest selling OS Microsoft has ever made” and then goes on to quote IDC analyst Allen Gillen that “…the [desktop OS] market is expected to almost double, from 299 million units to 590 million units…” in the period from 2009 to 2014.
In fact, though the one-year period from late October 2009 through November 2010 witnessed Windows 7 sales of over 240 million copies, most analysts expect 2011 results to eclipse those numbers. Even with a modest 1 percent drop in market share forecast by 2014, Microsoft should easily sell “…hundreds of millions more operating systems than it is selling now.” With a 90 percent market share, that translates into sales of 531 million units in 2014, more than double this year’s 240 million copies. My basic, blockheaded application of the “rule of 72′s” tells me that this represents a substantial and perhaps even enviable annual growth rate of 18%.
So where’s the fly in this otherwise fabulous and highly profitable ointment? According to Chan, the real future action is in tablet PCs and smartphones, a market where Microsoft is a bit player. In particular , smartphone sales numbers dwarf PC sales numbers by an order of magnitude or more, and tablets are expected to consume an ever-growing share of the PC marketplace as well. I think this is a facile but interesting analysis, one that fails to account for several important ways in which Microsoft continues to rule its (possibly shrinking but still very healthy) world:
- heavy-duty notebooks and desktops will remain important for serious, computing- and labor-intensive work for the foreseeable future, even as e-mail, social networking, and Web surfing migrate to other devices
- all those devices and PCs must still turn to servers to get their information, connections, and services, and Microsoft remains a major player in the server OS marketplace
- Microsoft is one of the few companies able to spend on a par with Google when it comes to acquiring and developing key technologies to remain competitive and/or dominant in its chosen marketplaces (if you don’t believe me, think back to the mid-90s when MS “discovered the Internet” and shortly thereafter blew away Novell and overtook Netscape as the leading Web browser in 3 or 4 short years)
I wouldn’t count the wizards of Redmond out of this race, or discount the importance of their OS experience and savvy. That said, the company has made mis-steps before, and must cope with increasing organizational intertia and red tape as it grows larger. MS has indeed sometimes had to pedal like crazy to get back in its races, and has by no means won all of them. The proliferation of digital access devices does pose a problem for this company, and it will be very interesting to see how quickly and effectively they can respond to new markets and opportunities, and if they can maintain major market share in the brave new digital worlds continually being discovered. I wouldn’t put them in the same league as the buggy whip manufacturers just yet, though…