In an earlier post, I was pondering where Microsoft was going with the Windows Mobile platform. As I mentioned in that article, it appears that they are now, at best, 3rd in the smartphone market which is somewhere they are not used to playing.
I find this fascinating, because it highlights a really interesting schism in Microsoft. On the one hand, you have the outrageously successful Windows and Office franchises, not to mention their development and tools platforms, where Microsoft’s ability to generate cash is well documented. Then on the other hand, you have the XBox, Zune and Windows Mobile.
You have to ask: what is the difference between Windows / Office / Tools, and these other products?
The answer is lock-in.
Regardless of the mechanism by which it was established, Windows has a huge lock-in factor with the vast number of hardware OEMs that build Windows compatible PCs and peripherals, and an equally huge (if not bigger) lock-in factor with all of the ISVs writing applications, using Microsoft’s portfolio of developer tools.
Office has lock-in too, but of a slightly different form. With Office, lock-in comes from the vast array of documents, spreadsheets and presentations that exist in businesses who use Word, Excel and PowerPoint for everyday business productivity. Even if someone could build a better word processor, spreadsheet or presentation application, users are still faced with the daunting task of porting existing documents to the new applications.
By way of example, I worked at a bank a couple of years ago that was contemplating an upgrade from Office 97 to Office 2000. The total real cost for this project included an amount for document conversion that dwarfed the software licensing and upgrade costs by a factor of 5. That’s a big hurdle for any business, and this just was an upgrade to a new version. The costs for changing to a new application would almost certainly have been prohibitive.
Don’t get me wrong – I am not suggesting that lock-in is a bad thing. If a business manages to build a product platform that can generate even a modest degree of lock-in, then they are on the way making a successful product. Look at the iTunes Music store and the iPhone AppStore if you need any clearer example of a great piece of lock-in!
The point here is that Microsoft is not successful competing when it is not dominating. In fact, the evidence of the Zune and the XBox suggests that when they try it, they end up loosing a whole lot of coin. Arguably so much coin that you would need to be extracting supernormal profits from something else to afford to sustain them. But that’s a whole other story …
Apple is a little different. Although they are certainly dominant with music players, Mac market share only pushes around 10% for desktop PCs, and although they do very well in laptop sales, they are not dominant to the same extent that Microsoft is with desktop operating systems.
The only time I have ever seen Microsoft succeed is when they only have daylight behind them. But I’ve seen Apple (and others: Porsche?) do very well when they are far from the front, at least on the measure of marketshare.
Which leads me to wonder about the future of these products, so I’ll go ahead and make some predictions:
1. I think the Zune will be the first to go because it really hasn’t worked at all. I wouldn’t be surprised to see that happen in the first half of this year.
2. The XBox is a little trickier. I don’t think anyone would have predicted the success of the Nintendo Wii, which turned what looked like a 2-horse race between Sony and Microsoft into something altogether different. I would expect Microsoft to keep hard at the games market, even if it is losing a lot of money doing so. A wildcard alternative scenario here is for Microsoft to divest from the XBox altogether. I don’t know who would buy it (Sony?), but I could see it doing better out on its own.
3. Unless something remarkable happens with Windows Mobile, I think it will continue to languish. However, I don’t see Microsoft giving up this franchise lightly because thre is just too much at stake in the mobile platform market. The only outcome I see for Windows Mobile is that it is forced into price competion against Linux. Good luck competing with $0.
Microsoft has entered these other markets largely, I believe, because of its subconscious desire to dominate. It’s in the DNA of the organisation and it seems like they don’t know how to operate any other way.
It’s possible that the current economic climate could bring about a change at the top. Things haven’t exactly gone swimmingly well for Balmer recently. I’m sure that a different CEO would see things differently, particularly if they came from outside the organisation, and these divisions would end up being not long for this world.
M@
PS: A confession: the reference above to iWork is a little cheeky on my part, because I still use Word, Excel and Powerpoint for pretty much everything I do. I am a proud owner of iWork, and I have even recently upgraded to iWork’09. However, I am an example of precisely the lock-in that I’m talking about. I have so many documents and templates, that it would take me a couple of weeks to port everything over from Office to iWork. Even though iWork opens and reads Office format documents, it doesn’t get them quite right, and when it comes down to it, I’m a bit of a pedant with document presentation, so I’d be forced to rebuild my templates in an iWork-like fashion before I really made the switch. And who has time to do that? Now, if the file formats were open and public, then the balance would be entirely different …