(Originally written May 28. Posted with minor amendments, June 17.)
Updates have been short the past couple weeks on account of work responsibilities. Taking a quick scan, Apple recently surpassed Microsoft in market capitalization — meaning Apple’s total value (number of shares x price-per-share) is higher than Microsoft’s. No doubt many Mac fanatics around the world will get together this weekend to celebrate… the purchase of their iPads. Oh, and that market cap thing too.
A major rule-of-thumb in business is that the leader in one generation of technology, rarely stays the leader for the next. (A famous business book, The Innovator’s Dilemma, was written about this.) Basically, companies with a lot of customers… have to spend a lot of time supporting those customers / dealing with their needs. As such, they tend to miss out on the Next Big Idea.
Perhaps the most infamous modern example is the Maginot Line, which France built to stop another German invasion. France was on the winning side of World War I, so they reinvested in the trench-warfare military concept. The Germans lost, and were therefore open to new ideas. In the interwar period, military analysts in several countries had written about “blitzkrieg” tactics leading up to World War II, but outside Germany, the world’s militaries largely maintained the trench-based status quo. After all, from their perspective, the strategies weren’t broke, and didn’t need fixing. Similar things could be said about US military spending nowadays; stealth bombers and aircraft carriers are ineffectual against terrorists. What they need is counterterrorism and intelligence units.
Along the above lines, it’s not surprising that Microsoft has entered the “utility” phase of its existence, since computing is moving off the desktop. Redmond isn’t really a growth story, nor is it doing exciting stuff; it’s living off its existing customer base and has modest growth prospects. I’ve read that it has 94% of the desk/laptop computer OS market… but only 8% or so, of smartphone OS. (Indeed, it looks like Google is positioning itself to be the Microsoft of smartphones, with its efforts on the Android OS.) Microsoft owning a minority share of Facebook reinforces that “utility” perspective: it’s like how phone utility Bell Canada owned Nortel before eventually spinning it off.
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The seeds of Microsoft’s decelerating growth can be spotted in this review of Bill Gates’ predictions from 15 years ago, in his book The Road Ahead. (I borrowed that tome from the Dow Chemical plant library in Fort Saskatchewan in 1998. I suppose technology’s tendrils reach into any business, so a prudent plant manager wanted a copy.)
The columnist gave Gates a 2.5 / 8 in terms of predictions. Admittely, that’s probably better than the rest of us could manage. The crucial “miss” was that Gates didn’t accurately foresee the internet — perhaps ideologically bound to the desktop model of computing, at which his company was so successful. The first glimmerings of that came when Microsoft had to go all-out to win the browser war against Netscape.
Indeed, Microsoft completely underestimated Google, in no small part because the latter had remained a privately-held firm for a relatively long time, and was therefore able to cloak its rising power. As Sun Tzu put it in his incontestably supreme strategy manual, The Art of War, what Google did was “pretend inferiority and encourage [Microsoft’s] arrogance”.
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