When does Microsoft stop being Microsoft?

An astounding twenty years ago, my father bought Bill Gates’ book, “The Road Ahead”. A business book barely interested me at that age, but it came with a CD-ROM (contents above) that showed an exciting future, much of which will sound familiar today. It seemed only natural that Gates’ company, Microsoft, would play an integral part in this future. Who would have guessed that Microsoft would fail to be the leader of so many of today’s dominant technologies? In smartphones, they are reduced to competing for the “middle ground” with Sony, as Apple and Google innovate. In television, again, Apple and Google, as well as the likes of Amazon, Netflix. In gaming, it has lost the console crown to Sony’s Playstation 4. And its famous OS, Windows, went through significant problems in its most recent iteration when myriad complaints about the absence of a Start button and a generally perplexing UX caused a volte-face that served as an embarrassing period for the company.

Since Satya Nadella took over as chief executive last year, there has been much talk of change in the way Microsoft does business, and indeed, in which businesses it will continue to operate in. But how much should Microsoft change before it loses touch with its roots? When does Microsoft stop being Microsoft?

In an article published in The Economist last month, the newspaper detailed how any business project that seemed to operate in an adjacent or transformative area for Microsoft – and thus by implication weakened the focus on Windows – was given short shrift during the days of Gates, who was known to utter in disbelief: “WHAT are you on? The ‘fuck Windows’ strategy?”. The Economist goes on to write that many of the companies best innovations were killed at the hands of this “strategy tax”. This phrase reportedly makes Mr Nadella shudder now, and he encourages innovations in areas that interest people. This has had noticeable effects; Microsoft wares are no longer confined to a walled garden. Office programs are available on smartphones, and the company is working more closely with Linux, an open-source platform that erstwhile chief exec Steve Ballmer once referred to as a “cancer”.

This previous reluctance to embrace open-source drove initial (and hugely profitable) success. But today, as computing moves to the cloud, The Economist writes, “this model is breaking down. Software is becoming a service delivered over the internet and mostly based on open standards”. Although it innovated in the right areas – specifically cloud computing and smartphones – its reluctance to allow people to run anything on these platforms but Windows OS not only narrowed their offering but allowed for competitors, the likes of Amazon and Apple, respectively, to move in. It is thus interesting to note that Nadella’s motto for Microsoft is “mobile first, cloud first”.

It is interesting to note that Mr Nadella rose to the top via Microsoft’s cloud business (Azur), rebuilding revenues by “letting customers use their own choice of software”. Office is available as a freemium model, and he has reached across the aisle in making it available on Android and iOS devices. The company allows Office 365 users to save their files “on the servers of Box, an enterprise-software firm. ‘They used to treat us like arch-enemies’, says Aaron Levie, Box’s boss.” Importantly, the ways of working have changed there; agile work practices are now in place, with products being tested and released iteratively under the umbrella “Garage”.

These changes are evidently not merely cosmetic. It does seem to be part of a renewed focus (that may even involve the spinning off of Xbox). It is key changes like this that IBM – a behemoth once surpassed by Microsoft, which is in its own throes of evolution as it looks to consulting and a partnership with Apple – is also engaging in. There are challenges though. On the subject of clawing back the hearts and minds of mobile developers, Microsoft co-founder Paul Allen told The New York Times recently, “It’s very challenging to carve back market share”. It speaks to a larger problem around talent. Marco Iansiti of Harvard Business School commented recently “Microsoft has lost a lot of great people”. Furthermore, its cloud and mobile focus could be dangerous; while its cloud services revenue is growing, it will not be enough to be make up for losses elsewhere. In mobile, the purchase of Nokia is increasingly seen as a misguided decision. Such challenges are compounded by the fact that, as Allen says, Microsoft has “more competitors than any major C.E.O. in the world” has to deal with. Faced with such fundamental change to the business on its own Road Ahead, it should be of small comfort that Boston Consulting Group published a report in April entitled “There’s no such thing as corporate DNA”, with the subheading “Why You Have to Be Prepared to Change Everything to Endure“.

Microsoft’s ‘New Coke’ moment – On knowing when your customer is dissatisfied

Microsoft has been trying its hand at a bit of innovation of late in an attempt to raise some of its lost brand equity, and stem the larger market decline in PC sales, which has recently started accelerating. (On a side note, Deloitte have a caveat to these figures, saying the true measurement is in usage, not units).

One of the ways this innovation has come about is in the release of its Surface product, which has interested many but earned the ire of erstwhile manufacturing partners as Microsoft has pursued its own path, making the product in-house. Its new operating system, Windows 8, has struggled to gain traction with consumers. The president of Fujitsu, one of Microsoft’s partners, declared interest to be “weak” back in December last year. The most obvious step-change from previous iterations is the slate screen that greets users upon booting up. On proceeding through this, users then come to a more familiar Windows layout.

In yesterday’s Financial Times, Microsoft said it was preparing to “reverse course over key elements of its Windows 8 operating system”. Envisioneering analyst Richard Doherty was quoted as saying it is the biggest marketing fiasco since New Coke. The only difference being, Doherty comments, that Coca-Cola acknowledged their error three months in, whereas Microsoft is pushing eight months now since launch; Coca-Cola conversely paid more attention to what its customers were saying about the product. “The learning curve is definitely real”, said head of marketing and finance for the Windows business, Tami Reller.

IDC research tells a discouraging story for businesses relying on PC sales

Today’s FT featured an editorial entitled “Steve Ballmer was right to gamble on change”. Opening with a quotation by Bill Gates, saying that to “win big you sometimes have to take big risks”, the editorial cites Kodak as a primary example of a company that refused to take risk, and ended up succumbing to creative destruction at the expense of trying to protect legacy revenue streams. We’ve written before about Kodak and creative destruction. The editorial calls for a revival of a “climate of creativity” at the company, and certainly that is what Ballmer is trying to instill, very nobly and with good reason. Zeitgeist’s bone of contention is with the following, seemingly logical statement,

“…disruptive innovations are disruptive precisely because the new technology does not appeal to traditional customers. Instead, it appeals to the customers of the future.”

We would argue that Microsoft’s customer base is made up overwhelmingly of what might be considered “traditional” customers. Users who find familiarity with a long-established incumbent, who have no interest in OS alternatives like Linux, Apple, Android or Mozilla. They are not looking for a revolution. By all means change your product, but it must evolve, not look like a completely different way of computing when you switch it on. This point is confirmed nicely by a recent piece in Harvard Business Review, which details how to get customers to value your product more. The author, Heidi Grant Halvorson, describes the importance of knowing the right emotional fit for your customers’ mindset. The article elaborates,

“motivational focus — whether he tends to view his goals as ideals and opportunities to advance (what researchers call “promotion focus”), or as opportunities to stay safe and keep things running smoothly (“prevention focus”). While everyone has a mix of both to some extent, most of us tend to have a dominant focus.”

We would argue that users that prefer Microsoft Windows OS to other systems would strongly fall into the latter category. Change is perhaps inevitable, but Microsoft are choosing a precarious path with such radical changes aimed at a group little interested in such fundamental alterations to the way they interact with such an integral device.

How imaginary crocodiles could have saved Nokia

Why dominance means nothing if you stop delivering.

Zeitgeist reported recently on the number of high street names issuing profits warnings after an icy December kept shoppers away from their tills.

While these companies hang on hoping that things will improve (they won’t have liked the news this morning), other retailers have already bitten the dust.

The encroachment from online retailers onto traditional bricks and mortar stores is only going to increase as once dominant names slowly diminish into also rans, punished by their failure to adapt to progress.

While such a destiny is unfortunate for a lumbering organisation with a physical and costly infrastructure to maintain, for what should be a cutting edge technology company it is unforgivable.

A mere ten years ago, Finnish communications company Nokia dominated the mobile phone market. This rather quaint BBC story from from a decade ago reports that ‘Nokia has strengthened its grip on the world’s mobile phone handset market’ and that ‘for the first time, Nokia has a market share more than double that of its nearest competitor’.

Back when Nokia dominated everyone

The major competitors back then were Motorola, Ericsson and Siemens and mobile phones were for calling, texting and maybe even playing Snake.

The report concludes with a prediction from Forrester who anticipated that ‘five dominant players would control Europe’s networks by 2015’.

While that prediction may come true, it is questionable whether any of the dominant manufacturers from yesteryear will be among them.

This week’s  ‘leaked’ memo from Nokia’s CEO Stephen Elop claimed that the company was ‘standing on a burning platform’ and surrounded by a ‘blazing fire’.

This is not a pleasant place to be. As mobile phones became smartphones an ever increasing importance was placed upon a phones operating system, both in terms of functionality and usability.

Just as the old high street stores threw up websites that weren’t quite as good as the dedicated online retailers Nokia produced Symbian, an operating system that failed to impress anywhere near as much as the ones you’d find on an Apple, Blackberry or Android phone.

The smartphones of today

Elop’s acknowledgement of the problem has opened the door for a radical change in strategy to try and rescue the problem.

Rumours abound of a partnership with an existing platform.

“It could either be a very bad marriage or a marriage of two players that have not been very effective alone.” commented Magnus Rehle of Greenwich Consulting.

The two likely candidates are Android, which would essentially relegate Nokia to a manufacturer in competition with other Android handset makers, or Microsoft who have also struggled to ship as many copies of their Window Phone 7 operating system as had been hoped.

The former would be a rather bitter pill for a once dominant giant.

The latter, and arguably preferable option, would bring together two massive organisations who have struggled to assert their dominance in the category.

Neither party would comment though it has been reported that Elop had been in discussions with both Microsoft CEO Steve Ballmer and Google CEO Eric Schmidt.

An announcement is imminent, though as Hakim Kriout of Grigsby & Associates points out ‘Very few companies regain their leadership once they’ve lost it.’

Whichever route Nokia go down the lesson is there for brands in every category.

It is infinitely preferable to stay top of the pile than to have to climb back up after a fall.

Regardless of your current dominance, if you fail to keep up with what people want and expect from you, someone else will deliver it and take your crown before you’ve admitted there is a problem. Brands must avoid the complacency that dominance can bring.

Despite their size, Avis demonstrate the challenger attitude with their ‘We try harder’ ethos while Google are ‘always in beta’ .

If brands assumed that they were surrounded by crocodiles and stayed alert to change and ready to react, they’d be much more likely to avoid getting trapped by ‘blazing fires’.