So now that Steve Ballmer has announced he’s leaving, the usual suspects – and some on-high commentators who also seem to be missing the mark – have gathered to criticize Microsoft via Ballmer. I am no unthinking fan of Microsoft, and I have had my share of strong disagreements with their strategies and solutions over the years. However, I have found myself in the last decade defending them frequently, simply because their critics seemed to fundamentally misunderstand them. And now, here we go again.
Let me start by a quick thumb-nail sketch of Microsoft’s history and nature as I see it – not at all the typical view presented these days. First of all, Microsoft started by finding itself (by virtue of a lucky contract with IBM, then dominant in PC hardware) with an incipient monopoly in operating system software. The key word here is software – that uniquely flexible foundation for building “meta-solutions” that adapt more rapidly than anything else as technology and customer needs evolve. Microsoft, even then, had two valuable characteristics: it could create foundational software like Microsoft Word that was “orthogonal” – it was relatively user-friendly because the commands it offered were relatively compact and powerful – and it could keep at a solution until it got it right. As a result, Microsoft was able to use its favored position in operating systems to create an effective monopoly in office-system suites, especially when the Windows version of its operating system led to the success of the mouse-using “graphical user interface.” All of this pretty much happened in the 1980s.
Also in the 1980s, Microsoft took the tack of “rough and ready” versions of the operating system open to developers, and it took great pains to nurture those developers. Here, I am talking about the ecosystem of developers in their time either outside of their employer, or in small companies dedicated to producing Windows versions of applications. Apple, by contrast, wanted to control the “quality” of the operating system and sell hardware, so Apple’s share rapidly shrank to the entertainment and education markets, while Microsoft took a larger and larger software share of PCs that were now becoming ubiquitous and the machine of choice as cheap scale-out servers. And so, by the end of the 1990s, Microsoft had adapted enough to the Internet via Internet Explorer to ensure a strong presence in scale-out server farms (the ancestors of the cloud), in businesses, and in the PCs usually used to access the Internet.
What followed in the decade of the 2000s was not so much the encroachment of competition from the likes of Google and Apple as saturation of existing markets. Under Ballmer, Microsoft adapted to federal regulation by making a sort of peace with its enemies, from Sun to Apple to IBM, so that Microsoft joined the pervading “coopetition” approach to the market. Far more importantly, Microsoft got business customers in its “DNA” by hires and investment, so that Microsoft was able to balance its customer markets with a secondary but still very important business market relatively impervious to saturation of the customer market.
Over the last five years or so, however, Microsoft has finally begun to stop seemingly defying gravity in its rapid revenue growth. Microsoft could see the handwriting on the wall, and has been trying to establish a strong position – necessarily, via innovation – in new markets. It has had some success in innovating, and therefore reaping a strong market position, with video-game Kinect, and Windows 8 does represent some needed innovation in its present markets. However, this is too little to move the revenues dramatically in what is a very-large-revenue company. And it’s not clear what will change that.
What’s blocking Microsoft is fundamentally the hold of Apple and Google on developers of smartphone apps. It’s not that Microsoft has lost its own developers, but if it wants a good revenue jump it needs an equal or greater mass of developers in some other market where it is a credible competitor. And recent moves to establish its own app-development encouragement suggest that it’s not doing enough to create a relatively friendly app-dev environment in mobile smartphones/tablets.
The Usual Misunderstandings
You see very little of this in today’s commentary on Steve Ballmer. There’s notes about how he didn’t understand Microsoft’s friction with US and EU governments about its monopolies – actually, that has died down, precisely because he did enough to defang much of it. There’s the “dominance of iOS on mobile” – granted, Apple’s laptops have also made major inroads in the PC/laptop market, but that still leaves Windows with the overwhelming majority of sales and existing boxes, and, as noted, the non-smartphone/tablet market is saturated but not in a major decline, especially if you look at IBM Windows-PC sales compared to Unix/Linux. There’s “it’s all about Apple design”, while a cursory inspection reveals that Samsung Galaxy based on Google Android is more than competitive with Apple design these days, and Samsung is seeing the results in its sales. I’ve already noted the exceptions to the “Microsoft can’t innovate” mantra.
Then there are the more global economic commentators – now that they’ve finally realized that computing software matters, although they’re still underestimating the importance of software compared to hardware. Prof. Krugman posited that Microsoft might do OK despite Apple’s seemingly obvious and eternal dominance, because it is now focused on business. Um, no, Microsoft’s revenues and employees are still not primarily focused on business. Microsoft will do OK because its present markets are saturated, not defunct, because Apple’s relative “innovative” status is going away where it counts, in the actual products, and because Apple is not doing enough for its own developer ecosystem. Hence, as the need for larger-form-factor products for the enduring popularity of longer blog posts (like this!) persists, Microsoft will get its share via not-dead-yet laptops and their hybrid variants.
Or, we can cite Alex Tabarrok as simply noting that Microsoft’s stock jumped when Ballmer announced his resignation. Sorry, the stock market is notorious for predicting 9 out of the last 3 recessions, as the old saying goes.
Above all, commentators continue to misunderstand the ongoing global economic contribution of software to such factors as productivity and “technological” advances. Microsoft’s commitment to a developer ecosystem and its “orthogonal” designs (in the best cases) are simply examples of how the software industry enables a welter of new applications that actually do, once the dust finally settles, produce fundamental innovation that leads to productivity improvement as measured by our economic statistics.
Resignation? Who cares? I don’t. Microsoft? Who cares any more? I do; and you should. For all the reasons no one seems to be talking about.