Monday, February 15, 2010

Microsoft’s Creative Destruction
WSJ, 2/4/2010
San Juan Island, Wash.

This article is a striking example of the challenges highlighted in Christensen’s Innovators Dilemma—when large, highly profitable businesses suppress and in fact destroy innovation. I worked with Microsoft and they truly have the best and brightest folks; the problem is the power structure within the company and the success of their current businesses.

"As they marvel at Apple’s new iPad tablet computer, the technorati seem to be focusing on where this leaves Amazon’s popular e-book business. But the much more important question is why Microsoft, America’s most famous and prosperous technology company, no longer brings us the future, whether it’s tablet computers like the iPad, e-books like Amazon’s Kindle, smartphones like the BlackBerry and iPhone, search engines like Google, digital music systems like iPod and iTunes or popular Web services like Facebook and Twitter…….
…..At worst, you can say it’s a highly repentant, largely accidental monopolist. It employs thousands of the smartest, most capable engineers in the world. More than any other firm, it made using computers both ubiquitous and affordable. Microsoft’s Windows operating system and Office applications suite still utterly rule their markets.
The company’s chief executive, Steve Ballmer, has continued to deliver huge profits…… And yet it is failing, even as it reports record earnings…….
…… While Apple continues to gain market share in many products, Microsoft has lost share in Web browsers, high-end laptops and smartphones. Despite billions in investment, its Xbox line is still at best an equal contender in the game console business. It first ignored and then stumbled in personal music players until that business was locked up by Apple.
Microsoft’s huge profits — $6.7 billion for the past quarter — come almost entirely from Windows and Office programs first developed decades ago. Like G.M. with its trucks and S.U.V.’s, Microsoft can’t count on these venerable products to sustain it forever. Perhaps worst of all, Microsoft is no longer considered the cool or cutting-edge place to work. There has been a steady exit of its best and brightest…..
……Microsoft never developed a true system for innovation….
…. For example, early in my tenure, our group of very clever graphics experts invented a way to display text on screen called ClearType. It worked by using the color dots of liquid crystal displays to make type much more readable on the screen. Although we built it to help sell e-books, it gave Microsoft a huge potential advantage for every device with a screen. But it also annoyed other Microsoft groups that felt threatened by our success…..
….. Not everything that has gone wrong at Microsoft is due to internecine warfare. Part of the problem is a historic preference to develop (highly profitable) software without undertaking (highly risky) hardware. This made economic sense when the company was founded in 1975, but now makes it far more difficult to create tightly integrated, beautifully designed products like an iPhone or TiVo.
(refer to our posting on the importance of vertical integration to enable companies to optimize offerings that touch the emotive component of the value proposition

And, yes, part of the problem has been an understandable caution in the wake of the antitrust settlement. Timing has also been poor — too soon on Web TV, too late on iPods…..
….. The problem comes when the competition becomes uncontrolled and destructive. At Microsoft, it has created a dysfunctional corporate culture in which the big established groups are allowed to prey upon emerging teams, belittle their efforts, compete unfairly against them for resources, and over time hector them out of existence ….."

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