The advent of a new Microsoft CEO has much of the IT industry wondering aloud about how this will, or should, affect the company’s direction, strategy, and plans.
Most of the speculation and opinion centers on how to “turn around” Microsoft, and how to make Microsoft “relevant” to the overall IT market again, especially to the traditional enterprise IT/software marketplace. Even new CEO Nadella has come out of the gate emphasizing a need to innovate, and to become more of a front-line IT leader.
The underlying theme to most of this conversation is that the company has somehow failed or is failing, is on the precipice of business and/or technological disaster, and must change direction, increase speed, and charge to the front of the pack in order to be considered a leader.
Saugatuck believes that, while Microsoft certainly makes its share of mistakes, and does have some significant challenges to address and overcome, the company is in no danger of losing relevancy or influence, is as innovative as any similarly market-dominating IT provider, and does not need to be “turned around” in order to achieve or maintain its position in a changing IT marketplace.
Why is it Happening?
Microsoft is being seen and described as irrelevant and lacking innovation in the above manner(s) mainly because it is a traditional IT Master Brand, a term coined by Saugatuck many years ago to identify and describe those firms that dominate IT markets, customer relationships, and channels (731MKT, Gorillas In Our Midst: Articulating Saugatuck’s “Master Brand” Model, 01May2010; and 732MKT, Gorillas In the Cloud: Applying Saugatuck’s “Master Brand” Model to Cloud IT, 05May2010).
Master Brands tend to be older, established, and relatively large firms. They tend to move slowly and carefully, because they have massive and highly complex systems of intellectual property, customers, partners, and shareholders to protect. They also tend to make the vast majority of their money developing for, catering to, and working with entities that are not early and aggressive adopters of the latest technologies. As a result, even though most have the best market intelligence available, they tend to be relatively slow to respond to market shifts.
These characteristics lead many, often the loudest, industry watchers to discount the presence and influence of Master Brands, like Microsoft, when technology preferences, delivery styles, and usage patterns begin to shift. Typical positions and arguments include the following: Master Brands are not agile enough; they cling to fading markets or technologies for too long; they lack the innovation and drive that smaller IT firms exhibit; and, of course, they’re not Apple. In short, they are buggy-whip manufacturers.
All of these arguments are correct to a great extent. Microsoft, for example, is certainly not an agile respondent to market changes; the company certainly is clinging to its Windows-driven technology and business model; and Microsoft does not exhibit the same brashness and excitement that is to often equated with “innovative companies.” As a result, Microsoft has been described as not “relevant.”
A brief examination of Microsoft’s recent and current IT market presence and activity gives the lie to that position. For example: While Apple and Google/Android have certainly experienced significant growth in the range and number of developers in their respective ecosystems, Microsoft maintains the largest and most diverse software developer and reseller ecosystem today. This enables a much wider, deeper, and richer set of sources and opportunities in more types of environments and markets, which forces Microsoft to adapt at the same time.
In mobile markets, where Microsoft had practically no market presence just two years ago (or less), the company now holds between 5 percent and 10 percent market share in smartphones and tablets, and Windows-based smartphones are among the best-selling branded-software smartphones in the fastest-growing mobile telephony markets. Even the company’s much-publicized, $900M mistakes with its first-generation tablets amount to only about 1/20th of one quarter’s total company revenues.
Meanwhile, the Windows OSes (look for a Lens360 blog post soon on the relatively-ancient XP OS) retain greater than 90 percent share in the established PC marketplace which continues to grow worldwide, although numbers of PCs sold and shipped annually do continue to decline.
When it comes to innovation, very few businesses of any type or size respond well to innovative, leading-edge technologies or offerings, because innovation disrupts business. To maintain relevance and revenues, Master Brands like Microsoft must play to the biggest possible crowd which means being later to market, and typically adapting innovations into established solutions and ways of doing business.
The company is both relevant and innovative on the individual/consumer front through its Xbox game consoles and related services. In most markets, Xbox consoles are either the best-selling, or tied with Sony for the best-selling, of the gaming consoles. And while the company certainly has made some very high-visibility mistakes in mobile devices, operating systems, and user interface design, Microsoft has shown a willingness to admit mistakes, redesign solutions and re-enter markets with more successful solutions.
Yes, but what about Cloud? Doesn’t Microsoft risk losing its dominance and relevance because it’s not innovating fast enough to keep up with Cloud-based software and services providers? Doesn’t it need to turn the entire company around and move toward Cloud as fast as possible? No, not based on observations of what the company has been doing. Where none existed just a few years ago, Microsoft has built admittedly through a series of fits and starts a workable Cloud-centric software business model, one that importantly builds upon its existing ISV, developer, and partner ecosystem. The company has been spending significant amounts of time and money working with established ISVs, developers, resellers, and other partners to help them adapt their own business and offering models to include Microsoft’s Azure Cloud platform and services. This morning, NBC announced that Windows Azure has been selected as the Cloud encoding and hosting platform provider for the NBC’s production of the 2014 Olympic Winter Games in Sochi, Russia.
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This blog was originally published at Saugatuck's Lens360 blog on February 6, 2014. Published with permission.