Disruption: What Microsoft Got Wrong

Steve Wildstrom / September 25th, 2013

Surface screenshot (Microsoft)Ben Thompson of Stratechery has deservedly been the talk of the tech world this week for his analysis of disruption theory, What Clayton Christensen Got Wrong. Thompson argues (and if you haven;t read his piece you should) that Christensen actually has two theories of disruption: new market disruption, in which incumbent fail to respond to basic technological change and low-end disruption, in which companies’ business models are undermined by commoditization and their inability to compete with cheaper, “good enough” offerings.

There has been a tendency to look at the struggles of Microsoft as a case of low-cost disruption. Sales of Windows PCs are suffering because customers are settling for cheaper tablets and smartphones that are good enough for their needs.  Certainly, Microsoft itself seems to look at the market that way: Its ads for the Surface focus on features the iPad lacks (“I’m sorry, I don’t have a USB port,” the tablet says in a wistful Siri voice) and Surface’s lower price.

Unfortunately for Microsoft, this misses the point. Windows has been hit by new market disruption, not its low-cost cousin. Many people–certainly myself–use an iPad not because we are willing to settle for it but because we find it meets our needs better than a laptop. I have a laptop, several of them to be precise, both Mac and Windows, but whenever I am not at my desk (where I use desktops) I will almost always go for my iPad or, if the spirit moves me, a Samsung Android tablet.

The problem from Microsoft’s point of view is that I use the tablet not because it is good enough but, for most of the jobs at hand, better. It’s always there, always on, and easily kept on my lap. Dedicated apps generally perform their chores with less fuss than their desktop equivalents.

Most studies show that tablet owners also tend to own conventional PCs. They just use them less. And because they use them less. they replacement less often, which is very bad for sales. I’m ready to replace my iMac, which I use for media production, with a newer and much faster version. Waiting 20 minutes to render six minutes of video was the last straw. But my nearly four-year-old Windows desktop is likely to go on chugging along for another year or two (on Windows 7, most likely.)

Microsoft’s response to this has been to offer a tablet that is as PC-like as possible. It is telling that the Surface (or Surface Pro) is rarely shown in ads without a keyboard. It runs a PC operating system. This Twitter dialog between Ben Bajarin and Ian Betteridge gets to the point:

tweets-surface

Surface’s  greatest point of differentiation is that in can run Microsoft Office, applications that are all but useless without a keyboard and mouse. But from Microsoft’s viewpoint, it’s better, it’s cheaper–what’s not to like?

Except that customers didn’t like the Surface, to the tune of a $900 million inventory writedown on the original version. And I don’t think they’ll be much fonder of its replacement, which offers better performance but an updated version of Windows RT, rather confusingly called Windows RT 8.1, that is only a modest improvement (at least it does limit the frequency with which the mouse-dependent Windows Desktop pops up.) It is still too PC-like and too bereft of apps to appeal.

Some companies caught by new market disruption really don’t have a chance. Kodak, for example; even if it had dominated the market for digital cameras, there just wasn’t enough money in that business to to make good the losses from film, paper, chemicals, and photofinishing services. Microsoft has the money and the opportunity to get out ahead of new markets. But like so many other incumbents, it could not loosen its grip on its lucrative legacy to seize the future. And for this it will pay dearly.

 

 

 

Steve Wildstrom

Steve Wildstrom is veteran technology reporter, writer, and analyst based in the Washington, D.C. area. He created and wrote BusinessWeek’s Technology & You column for 15 years. Since leaving BusinessWeek in the fall of 2009, he has written his own blog, Wildstrom on Tech and has contributed to corporate blogs, including those of Cisco and AMD and also consults for major technology companies.
  • N8nnc

    I’m curious – what were the relative sizes of chemical & digital photography?

    • steve_wildstrom

      Here’s an order-of-magnitude comparison: A 36-exposure roll of Kodak Ektachrome slide film with processing costs more than $25. For the same $25, you can buy a 32 gigabyte SD card capable of holding 3,200 very high resolution images and nearly infinitely reusable.

      Kodak was never a very big camera maker. Even in the height of the Brownie and Instamatic days, the cameras were devices to sell film and processing.

      Kodak tried very hard to make a play for printing of digital photos as a services, in kiosks, and at home, but the printing business has withered as people display their pictures on phones, tablets, and online.

      • Glaurung-Quena

        “but the printing business has withered as people display their pictures on phones, tablets, and online.”

        Not to mention that general purpose printers rapidly became able to handle photo printing. Actually I think general purpose printers became able to print “good enough” color photos (everything short of a framed glossy color 8×10) a few years *before* digital cameras took off.

  • Anders CT

    That sums up what I think about the Surface Pro: Would I ever want to use AutoCAD, Visual Studio or InDesign on a 10 inch tablet? No, not unless each of those heavy apllications was rewritten from the ground up with a touch-optimized tablet-friendly user interface. Conversely, in tablet-mode the Surface Pro is expensive, hot, has short battery-life and an empty app-store. Microsoft seems to think, that if you combine two inferior user-experiences into one device it will sell for a thousand dollar.

    A hybrid device will make sense to me only when it is better than the combination of a dedicated tablet and a dedicated laptop. The Surface Pro 2 just isn’t.

    And then there is the naming disaster. Microsoft is selling two very different platforms that looks the same and almost has the same name. That is a recipe for confused consumers.

    • TheEternalEmperor

      I may be lacking imagination for this, but I’m hard-pressed to figure out what a touched optimized IDE would bring to the table. My main IDEs are Intellij Idea 12.x and Visual Studio 2010. I work on 3 monitors.

      Using this stuff on a 10″ screen sounds like Hell on Earth.

      • Anders CT

        Well, I do roughly one third of my development on a 10 inch convertible, mainly because it is convenient (for me) to develop on the target platform. But I’d agree that IDE’s are not the best candidates for touch-input.

        My point is more, that Micrsoft seems to think that desgning a “productivity tablet” (as the Surface Pro 2 is billed) is about designing hardware. It isn’t. It’s about designing productivity software with a touch-oriented user interface, that enhances the productivity of the user. And if you can’t do that, the words “productivity tablet” has no real meaning.

        The Surface Pro 2 is Microsofts version of a “Post-PC” or “New-PC”. That’s fair enough. The problem is, that its main selling point is the so-called “full windows experience”, or in other words, that it is an “Old-PC” under the hood. That to me illustrates fully why the concept does not work.

  • stefnagel

    We have a primitive and useless understanding of growth. We see organizations to be like dinosaurs; big is better. But the stresses that affect big orgs are not asteroidal and unique; they are seasonal and inevitable. We need to comprehend that organizations are more like beehives, that grow and develop in response to summer and reduce their size in winter. And by reducing their size, they survive to grow in another season.

    • qka

      Bee all you can bee.

      + ∞ !

  • DarwinPhish

    Its hard to tell whether Microsoft just can not see there are many, many valuable uses personal computers beyond office apps or if they think the only way they can compete is by leveraging their Office advantage. That is, do they lack imagination or confidence. Sadly I think its both.

  • lars

    The ways of the tablet marked are strange.
    Microsoft got half of it right and missed the other part.
    Their RT ARM tablet with “Metro” was the right way, then they blew it by adding Windows.
    iPads sell, Android tablets sell, but Windows dressed as a tablet will not sell.
    Or rather they will sell to those that want a very light Windows computer.
    I think that after having held everyone (except a small niche of Mac users) captive for the past decades with the Windows environment it is still useful, but not attractive.
    Tablets and new ways of using computing are attractive, diverting, exiting and fun.
    Microsoft has persisted in wanting to sell what they had, and not what the clients wanted.
    If they had sold the Surface RT ARM as something completely new they might have had a chance.

  • James King

    “Some companies caught by new market disruption really don’t have a chance. Kodak, for example; even if it had dominated the market for digital cameras, there just wasn’t enough money in that business to to make good the losses from film, paper, chemicals, and photofinishing services. Microsoft has the money and the opportunity to get out ahead of new markets. But like so many other incumbents, it could not loosen its grip on its lucrative legacy to seize the future. And for this it will pay dearly.” – Steve Wildstrom

    Exactly. This is disruption as a result, not disruption as a cause. It’s debatable to even consider what Microsoft is encountering as true disruption, because it had the benefit of time, resources, opportunity and, yes, even vision to stop the very companies eating its lunch in their tracks.

    Glad someone finally wrote it.

    • DarwinPhish

      Not quite. As Steve writes, its the market that gets disrupted. How incumbent companies react to the disruption determines whether they suceed, survive or fail.

      • James King

        This is semantics. And my point that it is debatable that Microsoft is actually experiencing “disruption” in its core markets still stands.

    • Anders CT

      Fujifilm is still around 🙂

      • steve_wildstrom

        Yes it is, and while not exactly booming, is a much healthier company than EK has been for years. It had the advantage of being more diversified and better managed. I do not mean to absolve EK’s management for the company’s collapse; they made many, many mistakes. I mainly want to dispute the notion that Kodak management failed to see the digital revolution coming or to respond to it.

      • James King

        I think Anders CT was trying to make a point to me re: companies surviving true disruption. I expected this response.

        I think this is the salient point:

        “It had the advantage of being more diversified and better managed.” – Steve Wildstrom

        From Wikipedia on Fuji Film:

        “The beginning of the new millennium witnessed the rapid spread of digital technology in cameras. Demand for photographic films showed a sudden plunge in line with the growing popularity of digital cameras. In response, Fuji Photo implemented management reforms aimed at effecting drastic transformation of its business structures. Even as early as the 1980s, the company had foreseen the switch from film to digital, so “it developed a three-pronged strategy: to squeeze as much money out of the film business as possible, to prepare for the switch to digital and to develop new business lines.”

        This actually proves a point I was attempting to make to DarwinPhish on another post re: adaption. I’ll take the hit to further the argument of more competent, proactive leadership when faced with disruption. Fuji Film is a great example that disruption doesn’t have to mean death, that it can be managed properly with good leadership.

  • Defendor

    The whole point of the iPad was never about capability. It was about experience. I got it the minute I saw the keynote. A laptop was already more capable from the beginning.

    iPad disrupted with a, more joyful way to do things, not more capability.

    So in a way Microsoft was disrupted by “Fun”. 🙂

    Microsoft still doesn’t get it, so they are still arguing more capability, and it seems they are still being disrupted by fun/joy.

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