Uncharted Waters

Oct 26 2015   12:47PM GMT

Microsoft’s Problem: How We Got Here

Matt Heusser Matt Heusser Profile: Matt Heusser


Microsoft LogoBetween operating systems, office tools, and developer tools, Microsoft had a near-monopoly – 97% of computing devices at their peak in 2000. The world moved on from Windows, though, to tablets, MP3 players, phones, watches, and now the internet of things.

It wasn’t for lack of trying. In the 21st century, Microsoft continued the strategy that won them the 20th — work with partners to popularize a great idea. Those older ideas includes an operating system, word processor, and windowed operating systems, while the delivery partners were IBM and every clone-maker ever.

The 21st century hasn’t gone as well as the 20th. The Zune, the various PC Phones, and the Surface never rose to dominance. It wasn’t for lack of trying; Microsoft was too early into the tablet market (twice!) while a least one feature of the Surface, the cover-slash-keyboard, was considered an “innovation” when Apple added it to the iPad three years later.

But the race is over, Microsoft lost. Microsoft’s Surface has a 1% market share; the Windows phone hangs around 2.6%. The few friends I have who have windows devices tend to spend at least four hours a day in Visual Studio – that is, they are Microsoft Programmers. The few who actually talk about those devices, as if that is a normal thing, are all Microsoft MVPs — the award Microsoft gives for long-time supporters.

For the first time in history they face a reality that is not exponential growth, nor compelling reasons to upgrade. There is a computer on every desktop, and WindowsXP seems to be just fine, thank you.

What now?

Let’s look at another story of expansion gone to bust.


In the late 1920’s, Radio Manufacturers (the compelling technology of the day) in the United States had a similar problem: Everyone already had a radio, and saw no compelling reason to upgrade. The exponential growth stopped, and just after that, the music.

What followed is something most Americans refer to as The Great Depression.

Bottom line: Microsoft needs a revenue stream.

Lean Startup Feedback LoopFans of the lean startup know one trick – conduct a lot of micro-experiments, see what works, and relentlessly tweak it. Ideally, Microsoft could combine that with it’s old business model trick, providing a platform, making money when other people license or use that platform.

Sadly, while XBox is a solid first base hit, it is unlikely to make a huge difference in Microsoft’s Annual Sales of 93 Billion.

Then, as I wrote this, Microsoft made two announcements: The Surfacebook, an incredibly powerful laptop-tablet, along with continued tweaks to it’s Office-365 product line.

The first is an entirely new market, while the second is a chance to collect monthly recurring revenue.

We’ll have more on this next time.

10  Comments on this Post

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  • TexMitchell
    The fact that you referred to Office 365 as "Office-360" is telling as to the accuracy of your facts and statistics.
    10 pointsBadges:
  • FTClark

    You mention the radio boom and there was the mainframe computer boom where IBM was the big player/monopoly. All companies, including Microsoft, need to learn and adapt the important pattern that all entities go through. Yes, humans also. There is the baby phase where things develop quickly but it is just the simple beginning phase. The teenage/young adult phase is finding the specific niche where progress develops faster in a more expansive phase. Then the mature adult phase where you keep building but in a more limited way. Unfortunately none of us, including companies, can avoid the aging phase where we start becoming less relevant.

    1,280 pointsBadges:
  • renaatmoerman
    I am in software now for over 30 years. The success of MS in early days was because it was cheap and easy (and it was not copy protected). Now MS software is expensive and complicated, not really a combination to attract young people ....  You should see the face of my customers if I tell them they need 3 server softwares (a hypervisor, a domain controller and a terminal server) to run a simple remote app ...
    20 pointsBadges:
  • greenleebill0
    Balmer sat on Microsoft's laurels for ten years while the rest of the world passed them by. Satya Nadella has ideas to reinvigorate things and I hope he succeeds. We really need more than Apple and Google doing all the innovation. It's tough playing catch-up when you've fallen so far behind, though. Microsoft is a software company but they're playing catch up in hardware while the physical desktop world is fading for consumers. Hardware is no longer a profit maker like it was in the '90s. It will be interesting to see how this all works out. 
    35 pointsBadges:
  • choosekraig
    I have to ask, are you actually serious or is this just a poor example of trolling? Do you not get out much, or read, at all?
    85 pointsBadges:
  • Ctech
    Microsoft is capable of coming around but they have to let go of a
    few things like.....expensive.....and expensive. I have been using linux for over 20 years and it does everytching tchatc is needed..plus it allows me to play(yes I said play) with innovactive new ideas..install my own servers...etc..etc. I just setup a complete business environment for a new venture my wife wants to try without spending one single dime, and it all works perfectly. Microsoft needs to quit modularizing their OS...if your going to sell it sell the whole thing. Not everyone enjoys systems work or will do linux but Microsoft could take some hints from the opensource world. Let the hobbyists play with all of it...the non-techies will buy it, right now they are simply irrelevent and need to re-introduce Microsoft to us. They used to be the one back in the DOS days and might could be again. By the way..internet required is what is going to finish off their XBOX systems as the internet is being slowly overtaken and we will all be on metered service if the big players get their way...help us to stop them and stop off at Stop the Cap.
    65 pointsBadges:
  • Matt Heusser
    Thanks Ctech!

    I am totally with you on the linux thing, specifically the internet of things, which I will cover int he next blog post, which I intend to submit later today! :-)
    5,075 pointsBadges:
  • Matt Heusser
     greenleebill0 - thanks for the comments, I agree with the sentiment, I think, though i wouldn't be as tough on Ballmer. He faced the innovators dilemma - he could take good, solid, first base hits, growing established business units by 10-30% a year, or he could take a huge risk on disruptive ideas that might destroy Microsoft - and he tried a middle way. That is a lot better than IBM, that tried to ignore personal computers right up until they couldn't anymore. :-)
    5,075 pointsBadges:
  • Matt Heusser
    as always, thanks for the insights  
    FTClark. Are you familiar with Porters work on cycles of business development?
    5,075 pointsBadges:
  • greenleebill0
    Thanks, Matt. I'm not an IT industry guru. I'm really just a programmer and businessman. I'm just judging by what I have seen. I don't see any Microsoft space shots like Mr. Musk or Internet via balloon like Google and Facebook. I haven't seen the innovation from Microsoft in the Balmer era like we saw from other companies around Microsoft. XBox seems to be a good game console (I don't play) but it's a GAME console. As for IBM, they at least, have come up with Watson. Where's Microsoft R&D taking them? The phone and tablet arena seems saturated, to me. I just don't think Balmer had the vision and innovative thought that is needed like Gates and Jobs and their ilk.
    35 pointsBadges:

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