MSFT: The 'Surface' may be irrelevant, but is this the Beginning of the End for Microsoft?

Is the Microsoft Surface "too little, too late" or another Big Play that will crush the competition?
It is only, as Android devices are, similar to the iPad in design, features, construction and price, not a "must have" device.

It isn't the "game changing", revolutionary device that the iMac, 'Air', iPod, iPhone or iPad were.
[The Macbook Pro has led with its frame construction, retina display, thunderbolt, no-drives and more, but is perceived as evolutionary not revolutionary.]
  • Will the MS-Surface disrupt the market with innovation, price or functionality? No, not nearly.
  • Will the Microsoft Brand enhance sales and bring a large, loyal cadre of followers? No, not nearly.
  • Will another "me-too" device gain traction in the consumer market? No, not nearly.
  • Does this product improve or leverae their dominance in Business desktops? No, not nearly.
The world owes a lot to Microsoft: they made possible the PC Computer Revolution, but does that mean they have any advantage, even competence, in the new world of mobile devices? Apparently not.

Perhaps the biggest surprise and most exposed party, is the other half of "Wintel": Intel.
Microsoft have first released an ARM product, the "Surface RT": this is a major disruption and one that Intel won't regard as friendly, even though the business variant will be Intel-powered.

There have been a huge number of large, successful, even long-lived computer and software companies that have died in relatively short order as technology has evolved. IBM nearly went under in 1991/2 and no longer dominates even the Business Computing landscape. The 1970's BUNCH, Digital Research (CP/M), DEC, MIPS, SGI, Prime, Sequent, Pyramid, Tandem also spring to mind. Just because you laboured for years, defined and dominated new markets, doesn't make you immune from the march of technology.

The ultimate example of the lifecycle of a technology leader might be Kodak, seeking bankruptcy protection in 2012 after a century of innovation, even though twenty years ago it invented its own nemesis and replacement: digital cameras.

Why would Microsoft think itself immune from an ironclad Law of Nature: Things Change?
The root problem is Microsoft still want to be All Things to All Users. They're executing "Dominate the World or Bust!" when their glory days, when this may have been possible, are long gone. Instead of focusing on the smaller, lucrative markets they "own", they are acting as if it's still 1990, they are a small upstart disrupting the computing world and customers love them. It can only end in tears.

Malcolm Gladwell discusses what new markets companies can, and cannot, adjust to in "Creation Myths: Xerox PARC, Apple and the truth about innovation". Not seeing disruptive change is part management culture/mindset, part "good marketing principles" (don't cannibalise your own market) and part "vision": it's hard to see disruptive trends when you're making a profit and using tried and true responses that have always worked. Right up until they stop working and the company is faced with impeding disaster...

Reinventing computing came at a price: Rob Pike, author and notable software developer, wrote in "Unix: the Good, The Bad and the Ugly" about the downside:
Unintended consequences: (Bad)
  • Machine became irrelevant
  • Therefore cost was only factor
  • Therefore hardware got lousy, widely variable
  • Therefore software had to cope, became non-portable.
The success of PCs is in large part due to the fact that, by making all hardware equivalent, good software enabled bad hardware. (Ugly)
Microsoft is a company underpinned by a single idea, "A computer on every desktop", built on two products, MS-Windows and MS-Office, staffed by hackers and coders not Software Engineers or Designers, driven by a culture of extreme competition ("exterminate competitors") and I'd argue has been the World's Best Marketing firm: they were able to convert "just functional" operating systems and software into the standard for desktop PC's, globally, and convince consumers that "this is normal" and buggy, insecure software is both "commercial quality" and "fit for purpose".

Microsoft are almost always technology followers, not leaders, typically coming to market late and then capturing it through aggressive technical and marketing moves. [The exception is "Active Directory". Impressively melding a long list of open, robust products into the best large-fleet system around.] The list of once dominant companies they've put out of business is long...

Netscape with its definitive Mosaic Browser is just one. Microsoft could've paid Netscape a very modest license fee and given its users a robust, fast, standard and very functional browser. Or buy a small company with an inferior product, develop it, then add incompatible 'extensions', undercut Netscape and kill their business: executing their hallmark Embrace, Extend, Extinguish strategy.

So began The Browser Wars: needless, pointless and technically, beggaring belief. HTML was a standard, its intent was to unite the Tower of Babel that the world of digital documents had become. This led to an onslaught of incompatibility dressed as "creativity" and thousands of "must have" Bright Shiny New Things, like "Flash". Nearly two decades on, and the standards bodies are attempting, with HML5, to undo needless the damage done, quite unthinkingly and irresponsibly by Microsoft.

Microsoft regards standards as irrelevant, subscribing to Tanenbaum's dictum: The good thing about standards is that there are so many to choose from, while adding their own twist and its so easy to invent many of your own. The world experts in the many versions of Microsoft's SMB protocol that provides network file sharing and printing are not Microsoft, but the Open Source SAMBA project. They've performed the best, most rigorous testing of the protocol and of the various Windows implementations. SAMBA were responsible for the European Union court mandating Microsoft fully document and publish technical specifications to anyone willing to license them. Microsoft even disregards its own standards.

Standards are essential for any market progressing beyond "early adopter" to "maturity".
Consumers crave fungibility, the ability to seamlessly substitute one product for another.
Vendors crave exclusivity, the ability to lock-in customers to their product and their product alone.
Technical standards enable products to evolve and markets to grow: vendors get to share a much larger pie. Electrical Power distribution, automobiles, phones, mobiles radio, TV and now Internet devices have all made this transition to mass-market, staple consumer goods: Open Industry Standards are good for everyone, a lesson that Microsoft hasn't learned.

The smartphone and tablet markets are driven by accessible content: standard content formats that any device can access, going even as far as free "open content". The mobile device revolution is driving the definition and adoption of the HTML5 standard, hopefully as The One True Language of the Web.

Where has Microsoft been in the smartphone and tablet revolution?
It invented both... But like nearly all of their innovations, they failed in the marketplace.

This is a point that most commentators overlook: Microsoft has an abysmal record of Innovation.

Apart from the Microsoft Mouse, I can think of no other generally successful product outside their core PC software: Windows and Office. They had mobile computers and phones sewn up with Windows-CE and its phone derivative, defining and dominating a small market from around 1995 to 2005, the year of the iPhone. Then, like RIM's Blackberry, they were stunningly trounced by Apple.

Microsoft's most notable non-PC product is the X-Box, a division that took 7 years to declare a profit and who's results are still somewhat variable, possible failing. Microsoft are so (un)confident of their Brand, they hide their name and logo on the X-Box packaging. Microsoft know their Brand is toxic in the consumer world.

All this is prelude to my main thesis: Microsoft are terrible at Business and at Software, but became great because, like super sports-stars, they can exploit opportunity ('hustle') when needed.
Unfortunately, to become a great, long-lived technology company like Kodak, a lot more is necessary.

They took a single opportunity, providing software tools for the IBM PC, aggressively pursued and extended it, offering the Operating System and all utilities, negotiated exceptional contractual terms and then leveraged their commercial advantage with exceptional strategic marketing and tactical sales and technical moves. The whole Microsoft Empire is built on one lucky decision by IBM in the Baca Raton skunkworks designing the PC.

While the start was lucky, the outcome wasn't: the Bill Gates/Steve Ballmer teaming produced results the like of which I can't recall, if it wasn't the IBM PC, they would've become computing super-stars anyway.

There's a little recognised fact about the genesis of QDOS/MS-DOS (1.0), the product upon which Microsoft built its empire: it was designed to be compatible enough with CP/M, the dominant PC O/S of the time, by allowing mechanical translation of executables. To enable this, they had to copy the File Control Blocks exactly. [Dettmann and Johnson, "DOS Programmer's Reference" (QUE, 1992), p11]

This was a brilliant marketing and technical strategy on the part of Microsoft and "SCP" from whom they bought QDOS. It instantly gave them a raft of Applications and Software without ISV's (Independent Software Vendors) needing to do a thing... And gave the O/S developers a good technical specification to code against, and extend. Perhaps the first example of their "Embrace, Extend, Extinguish" model.

Others posit that MS-DOS was meant to be a stepping stone to another, much better O/S product, Xenix, that Microsoft already had when IBM came knocking. Again, we can presume that their "doesn't play nice with others" DNA kicked in and they weren't about to pay anyone, especially AT&T the licensors of Unix, any part of their profits.

Microsoft still "owns" the Business market-segment, and while it has a Division or two focussed on this, doesn't seem to recognise that in its new products or strategies.

If you're a CIO or in charge of even 100 desktops, then Windows will seem by far and away "best" for you:
  • you can buy a zillion support guys (almost no gals) that know this environment.
  • the number of tools, vendors and contractors who support this environment ishuge.
  • you've got predictable costs, known applications and a large pool of technical talent.
Microsoft isn't content to run a small, focussed and extremely profitable business, they still want World Domination. The Surface isn't yet a "Bet the Company" decision, but the apparent strategy to annihilate any and all "competitors" is. Unless Microsoft management can learn to "play well with others", their last act will be to Extinguish their Empire.

Here's my shopping list of Microsoft has weaknesses:
  • Technology Myopia: "Everything is a PC".
    • This is false logic: If a PC has a CPU and mobile devices have a CPU's, then mobile devices must be PC's. No! Mobile devices and PC's both 'compute', but are as different as trucks and motorbikes.
  • Incompetent Software Engineering and Design:
    • Everybody else manages yearly Operating Systems releases, Microsoft takes three years. No, Mr Ballmer, you do not understand large-scale Software Development and Design.
    • Proof: The Longhorn Reset in 2003. Microsoft threw away 5-10,000 man-years of effort because they didn't/couldn't follow basic, standard Software Engineering processes and principles, as practised by every large Open Source Software project.
  • Incompetent Marketing, despite their apparent marketing brilliance.
    • Proof: The Microsoft Brand is so tainted it's all-but invisible on the X-Box packaging.
    • Microsoft pursue market share at any cost. This is massively stupid and counter-productive. There comes a point when Marginal Revenue is less than Marginal Cost to gain a sale: every sale past that point loses you money, yet Microsoft pursue these sales in reverence of their scared principle, "Market Share".
  • Poor or counter-productive people management.
  • Lack of Vision of CEO and Board.
    • Microsoft famously had over $50 Billion in accumulated profits sitting in low-interest accounts for years and squandered the opportunity.
    • Companies, with their high IRR (Internal Rate of Return), should always find it better to invest surpluses in their business, not in a bank.
    • They had the opportunity to become the best funded, most innovative Venture Capital firm in Silicon Valley, yet did nothing.
      • They knew intimately the potential and profitability of new, disruptive ideas and technologies, when unlike Xerox PARC and Bell Labs, did not try to spawn new businesses themselves or fund them.
  • "Market Share is King": Everyone in computing is their competitor.
    • They've taken on Google and failed.
    • They took on the iPhone, iPod and TV gadgets multiple times and failed.
    • They tried content (Encarta Encyclopaedia) and failed.
    • The merger or acquisition of Yahoo! that finally bombed...
    • and on and on and on.
  • Ballmer, the $10B Man.
    • Ballmer is as gutsy as all get out. Over the space of a few years he backed his belief in the company and rode the yearly share-price doubling to become a major stockholder in his own right, accumulating a net worth around $10B.
    • But after a decade as CEO, the company is in limbo and the share-price is drifting despite all their efforts to rejuvenate it...
    • Investment and mainstream media, not just IT media, are now seriously discussing Ballmer stepping down and letting in new blood. I guess the subtext is "before it is too late".
I've been asked "Can Microsoft keep Ballmer and change its fortunes?". I believe not. With Ballmer at the helm, they are on-track to because one of the biggest and best case studies in the next "Why Smart Executives Fail".

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