In thinking about the recent pursuit (now dropped) of Yahoo by Microsoft for it’s portal content and search engine technology, it does present a question. Over time Microsoft has generally been a smart, tenacious, hyper competitive adversary in most of the technology fields that it determines it wants a piece of… except internet services, content, and applications where it’s usually an also ran compared to Google and other net service providers. It’s also interesting to note that this second and third place status has been going on for some time now.
Why? They’ve got billions and are smart and motivated, why can’t Microsoft execute a successful net services strategy? What’s hanging them up?
Lack of vision?
They’ve never been the most farsighted company - they usually just use market dominance in an attempt to shape the market to their solutions, not the other way around. Look at “Windows mobile”, a lousy idea if there ever was one.
Microsoft’s chief play in dominating a market is getting their product bundled with Windows on new system installations. They really can’t do that with online services, and they don’t seem to have a good backup plan.
The internet is a totally different business than software. There is never a reason to expect a company that is good at one business to be equally good in an unrelated business.
I think it has a lot to do with their monopoly status, and I’m talking effective monopoly, nothing to do with if they are legally a monopoly. Monopolies, no matter what image they have outside, start to think that whatever they do is brilliant, because it sells. I saw this both in the Bell System and at Intel when AMD was screwing the pooch. When this happens you get further and further from what made you successful.
The business model of a net based company is totally different from that of a company selling to a computer based model. Google, after all, is basically an ad selling company, and what does Microsoft know about that? More worrying to them should be the Vista fiasco. That shows they can’t even do their core business right any more.
MS at first had no desire to mess with the internet at all. Gates thought that it wasn’t going to be much of a market, so when it did take off, they had to turn that giant supertanker of a corporation around and try to catch up. Meanwhile, smaller companies, which are more nimble, were able to quickly gain on MS in a number of areas (in particular Google and their huge amounts of cash), and since those companies had a “sexier” image than MS, it was easier for them to attract the talent.
Remember, also, what happened after XP was released and MS had to stop everything and patch the security holes. That cost them a lot of time and money (of course, if they had listened to folks when they were developing XP who were telling MS that security was going to be a big issue, they wouldn’t have had those problems).
Why should MS be competing with Google in the first place? Okay, they want to and they want to make money doing so, but too much diversification away from your core business is bad.
Wallstreet doesn’t care about that, they just want to see the stock price go up rapidly every day every year, and if that doesn’t happen, they’ll go somewhere else. Completely forgetting the whole market saturation prospect, where a company will slip into a consistent pattern of returns, but not sky rocket anymore. If MS doesn’t expand it’s market share, somehow, then the stock will be considered “tainted” any everyone will desert it.
Well, one issue is that the search companies probably have a lot of software patents (oh, the irony) locked in for search algorithms. So reinventing the wheel would involve either hefty licensing fees, or doing things in non-optimal ways.
What is Microsoft’s core business? Serious question.
Most of their profits come not from Windows but from Office. Office is being hit by competing free software suites, most of them offered over the internet. Businesses are still standardized on Office, but sooner or later the price of Office will have to come down, and its market share will dip a bit.
If operating systems aren’t returning profits and if software isn’t returning profits and the other operations Microsoft isn’t involved is isn’t turning profits (X-Box?) Microsoft has to look at where revenues are growing. That’s the internet. There just isn’t another source of billions of dollars out there.
Microsoft has already invested billions into the net in various ways and keeps coming out the loser. It has to find something that wins. Both the investment community and the coder community want to see that.
Look at the stock price. It’s just under $30. That’s where it was eight years ago! That’s right, if you had bought Microsoft stock eight years ago you would have gotten 0% return in stock price. And that was after the dot-com bubble burst. Buying the stock 10 years ago before the big run-up and you would have netted
zero for ten years. That’s an eternity in Wall Street. Even Microsoft can’t ignore that kind of pressure.
And so why should anyone want to work at Microsoft now? For the stock options? For the thrill of great new software? Google succeeds in this by making it the place people want to work at most. Microsoft hasn’t been this place since the 1980s.
Big and dominant as it is, Microsoft is in active crisis. Wall Street doesn’t think rationally, no matter how many economic textbooks you read. All it knows is that this internet thingy is the place where money is being made. Ergo, Microsoft has to make money in the internet. It’s that simple and that stupid.
Was going after Yahoo the right move to make to do all this? Few people think so. But desperate people make desperate moves. One time in ten they work out.
Motivated, I’ll give you. And competitive, in a way. But not particularly smart. They have exactly one trick - drive competitors out of the market by undercutting them in price, them jump the price up to cash in on the virtual monopoly you’ve just won. Worked with Dos, Windows, IE, Word (Office), Windows Server … not going to work with internet content because it’s already free. Monkey doesn’t know any other tricks and is too old (in 'net years) and inflexible to learn any.
And not just Office. The reason MS wanted to drive Netscape out of business was fear that the browser would become the effective operating system of PCs. How could they justify charging the price for Windows that they do (an increasing chunk of PC cost) if all users did was sit in a browser window and edit there, search there, communicate there, etc.
It may happen yet, but they did manage to slow it down by making IE the standard.
I think of the Google business model right now as advertisement sales. Sure, they established their position on the net through great software, but a search engine and portal and email system doesn’t return profit until you start selling ad space.
Google has a huge lead on Microsoft in that area, but I still think we’re pretty early in the internet era. The battle is just beginning, not ending, and I can’t imagine that Microsoft isn’t going to be fighting over every inch.
You still need an operating system on a computer.
And, Microsoft is getting into the online territory. Their AdCenter is the MSN version of Google’s AdWords, and it’s pretty nice.
They just have no market share on the net right now, but that kind of thing can be really flexible online.
And its why they are working very hard to turn the XBox into a media center.
Microsoft does not see a world where most people need PCs in their homes. People need a console that plays a few games, serves music and movies, and gives you internet access.
Guess what, those are markets where MS’s core businesses are going to be miserable.
And those markets are going to be supported by business back ends (music and movie services, online gaming download sites) that are not going to be running the limited scalability of Windows Server - unless Microsoft can control the front end and force that.
M$ is competing against Google because they want to expand their core business and they think they can wield their OS/Server Platform/MS Office dominance into that market. The market that they’re currently in is already saturated. There is no room for growth. The market like growth. So MS has to learn to diversify. My company is in a lot of things from IT services to alternative/renewable energy to entertainment. That kind of business is not going to be effectively run by one person and his trusted cabinet. It is going to need to be a full-on corporation answerable to a myriad of elements out of Bill Gates’ or any other person’s individual control.