Business/Finance

Investment as usual: Microsoft, Facebook and the strategy of business

When Windows Vista was released earlier this year it was greeted by yawns and much boredom. Dell and other hardware retailers declared that users were demanding that they keep their existing operating system range.

Microsoft, with so much invested, must have been somewhat nonplussed. Open-source fans (and Apple, at the other end of the spectrum) rejoiced. Clearly computer users were tired of Microsoft and wanted a change.

Microsoft is constrained in releasing new software. As the world’s dominant operating system (and desktop publishing software) provider they have a large pool of legacy users – such as myself – who expect to upgrade and take decades worth of data with them onto the new platform. As they discovered with Windows Hotmail, sometimes your existing client-base doesn’t want to upgrade, no matter how exciting you make it.

Maybe the open-source movement is correct? Maybe not having that legacy gives Linux and Apple a mega-advantage?

The confusing truth is quite the opposite. For what computer buyers wanted instead of Vista was Windows XP; first released in October 2001. As far as computer development is concerned, XP is from the Stone Age.

Although, perhaps not that surprising.

The Excitement of 2001

I remember getting my first 386 computer back in the 1990s. It was a huge leap over the X86 I’d had in school, and over the 286 fellow students were using. But it was quickly surpassed by 486s and Pentiums.

Each generation brought with it tremendous advantages in speed and software power. In 1997 I was installing IBM’s OS/2 Warp at a major insurance company as we revamped their network, upgrading them from their mainframe system.

Back then Microsoft was fighting off IBM and other incumbent 900-pound gorillas. I hated OS/2. It was fundamentally idiotic and impossible.

With each iteration Microsoft learned and improved. When XP came out it all seemed to come together.

It’s easy to mock Microsoft, but it’s just as easy to mock Toyota or Hyundai or any of the motor manufacturers that aim squarely in the middle-market. If you’re a super-geek (Linux) or super-artiste (Apple) then Microsoft seems very middle-class.

But 90% of the work I do (and most office-workers) is word-processing and spreadsheets. I haven’t needed a faster machine or better office package since 2001. I still use my same version of Office and XP from then. It’s stable and more than sufficient.

Many people felt the same way. Hence the rather hum-drum response to Vista.

Changing Direction

Microsoft appears to have realised that this may happen many years ago. The first Windows Mobile packages came out in 2000 – very early in the mobile phone revolution. Windows, who still doesn’t have a phone of their own, had to develop solid relationships with hardware manufacturers.

The largest incumbent is Nokia, still hanging on to Symbion, their native operating system (and one I find frustrating as all hell). After years of struggle Microsoft seems to be releasing well-respected software.

And, while the computer desktop may have gone into a terminal holding pattern, the world of computer gaming has exploded into a $25 billion industry. These customers don’t want the same each time and are demanding ever higher performance.

More importantly, no-one playing on Playstation 3, or Xbox 360, or Wii seems to want the software to be open-source. They want to play the games, not muck around coding.

Microsoft has gradually built up a reputation and, with Halo 3, has bumped up into the big-time.

Apple, Facebook, and the Strategy of Business

By now you think I’m having a snog-fest with Microsoft. I could just have easily written about Apple’s no less exciting return to form.

Both companies, in their own way, have followed consumer trends; experimenting off their existing consumer-base and finding new markets with new products.

While open-source concentrates on the desktop, existing incumbents have been looking – with some success – for the next big thing.

Rupert Murdoch, pariah of the left-fringe, proves how successful a wait-and-see attitude can be. This old-media titan stood his ground and then bought MySpace in July 2005. The purchase price of $ 580 million was more than returned with a $ 900 million advertising deal with Google only seven months later.

Google may dominate the web but they do so with a single product. Realising their vulnerability, they too are entering new markets. Google has also attempted to cement their control of the Internet by offering a new platform for interoperability between social-networking sites. It is no surprise that MySpace is amongst their first backers, while Facebook is holding off.

So, what does this teach us?

Monetising Facebook (parlance for “making a profit”) was always going to be difficult. Microsoft seems to have come up with an elegant approach. Mark Zuckerberg, owner of Facebook, has said that 80 Facebook applications (developed by tiny firms) have more than 1 million subscribers each.

Now massive brands, like Blockbuster and Coca-Cola, have been brought in who are going to take a look at this data and develop their own applications.

The lesson for all those new-age open-source developers is this: if you happen to hit on something that really works, hang on to your socks. Could be that someone bigger and wealthier is going to come in and copy your idea.

It’s no good sobbing about the “unfairness” of this. Who were Linux open-source developers copying when they developed Open-Office? Copy-left indeed.

It is the nature of business, this constant reinvention to stay ahead and keep customer’s whose only loyalty is to their own self-interest.

I think we can safely ignore the desktop for a little while (until the genuine next big thing) and watch the fireworks on mobile platforms and social networking.

Perhaps we’ll see a new brand develop; perhaps we’ll see the return of old brands we were laughing at. But it will be about selling things.

Not giving them away.

7 replies »

  1. I appreciate that MS wants to innovate, but the complaints I hear about Vista suggest that spirit of innovation isn’t the issue. I’ve had minimal opportunity to play with it but can tell you that I’ll never own a machine with that trainwreck on it. I haven’t heard a single person admit to liking it. And a number of people who have encountered it have told me they will switch to Apple before they use Vista.

    I’m already heading to Apple after the debacle a few months back where their routine update killed my USB ports and cost me the better part of a week to get fixed (and even now one of the ports is still dead).

  2. Gavin,

    The truth is confusing indeed. Because if Windows realized back in 2000 that their OS was stable and the best thing going, why release Vista at all? 🙂 And don’t overlook the fact that the newly-announced Facebook advertising system is being met with a serious negative backlash: http://www.businessweek.com/the_thread/techbeat/archives/2007/11/the_facebook_ba.html
    http://blogs.bnet.com/intercom/?p=1232
    http://gigaom.com/2007/11/09/facebooks-cruel-intentions/

    Microsoft is a huge, slow-moving company that is always behind the curve on these ideas because it simply doesn’t have the speed and clarity of direction to get ahead of them. Too much middle management, too many partnerships and clients to worry about pissing off, and too little in the way of real genuine innovation.

    Ironically, you are quite right in pointing out that they finally caught lightning in a bottle with XP (at least by the time of Service Pack 2), and I have found their mobile software to be a lot more stable and easy to use than Palm’s and other third-party developers. Not everything that comes out of the open-source world is better than the closed models of the larger companies, and many geek developers focus too much on making things cool and with lots of bells and whistles, rather than simply useful and easy to interact with.

    But consider this–if there was no demand for OS alternatives in the mainstream, would Dell ever have bothered to package any of their hardware with Linux: http://www.dell.com/content/topics/global.aspx/alliances/en/linux?c=us&cs=555&l=en&s=biz

    Open-source alternatives such as OpenOffice.org and free software suites like Google Docs and Zoho are still mostly embraced by the geek fringe. That’s as it should be–the geeks are always the first people to adopt something, much like social networking. Eventually the ideas will find the way into the mainstream and the larger companies will have to compete or die. That’s how it goes.

    Overall, I think you were actually onto something in your first paragraph, but that libertarian reality distortion field you have going around you warped the narrative into another tirade against open source. You’re right–it IS about selling things. But not everyone wants to be sold to.

  3. But not everyone wants to be sold to.

    This is maybe the silliest thing you’ve ever said. You live in America, where being sold to is every person’s highest aspiration.

  4. If that were true, Bones, then TiVO wouldn’t exist. 🙂

    Ah, that’s right. I forgot – now that TiVO is on the market people have stopped buying things.

    By the way, how are sales of TiVO and DVRs doing?

  5. Well, TiVo’s sales suck, but that’s due in large part to cable and satellite providers simply incorporating the technology into their own offerings:
    http://gizmodo.com/gadgets/home-entertainment/dvr-sales-down-the-pooper-by-49-tivo-hit-hard-211354.php
    http://www.forbes.com/2003/09/11/0911tivopinnacor.html

    As the Forbes article notes, being the innovator in any industry is oftentimes a guarantee that you will NOT succeed. But the genie’s out of the bottle:
    http://www.forbes.com/infoimaging/feeds/infoimaging/2004/11/23/infoimagingusatoday_2004_11_23_eng-usatoday_money_eng-usatoday_money_021650_3089454182464422039.html
    http://www.rockymountainnews.com/drmn/tech/article/0,2777,DRMN_23910_4483037,00.html

    Things like this may not be as ubiquitous as the iPod, but give it time. If Hollywood wasn’t shaken by the idea of zipping past commercials, you wouldn’t see the absurd levels of product placement in most modern TV programming today.

    I realize your whole schtick is driving home the point that Americans are a bunch of clueless, braindead morons who don’t deserve the freedoms and privileges they have, but out of a nation of 300+ million people, there’re a few folks out there that realize we’re meant for more than just to passively consume. 🙂

  6. I think this is kind of a funny (hmmm, not hahaha) argument.

    The Borg keep adding “features” (or bugs depending on your POV) that clearly no one wants or needs solely for revenue. Steve Jobs tells us that Apple is the greatest thing since, well, the last big Apple thing solely for the purpose of being chi chi. . . . . even if their big ideas did come from Bang & Olufsen, and a Brit Jonathan Ive.

    30 years on and it’s still a box. A commodity. A utility. And in the Borg’s case, not even a good one at that. And a boring one at that. Especially when the ISPs are capping traffic and you can’t even do things like download movies, much less anything else.

    And of course as most customers find, hitching their wagon to corporate strategies in terms of things like OS/2, well then they find out that corporations can also change direction too leaving them out their investment or locking them into something completely out of the mainstream, something IBM has a rep for.

    The question gets to be, why would I pay for something I can get for free. Certainly not anything MS. Apple only if it’s worthwhile like their new spreadsheet. Ubuntu of course. Why throw money out on needless stuff.

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