Microsoft: Failing By Design

on November 21, 2013
Reading Time: 6 minutes
Microsoft Achieved Its Goal

Microsoft had one of the greatest corporate mission statements of all time:

“A computer on every desk and in every home, running Microsoft software.”

And guess what? Incredibly, THEY ACHIEVED THEIR GOAL! ((For a wonderful take on this, I highly recommend Ben Thompson’s article entitled: “Skating Towards The Goal“)) There IS a computer on nearly every desk and in nearly every home, and nearly all of them run Microsoft software…

…but then what?

For Over A Decade, Microsoft Has Been Playing Not To Lose

Ben Thompson compared Microsoft to the great ice hockey legend, Gordie Howe, and I heartily agree with the analogy. Like Howe, Microsoft has great strength, durability, and a willingness to mix it up. There is also great virtue in Microsoft’s single-minded pursuit of a goal, and its absolute refusal to be deterred from that goal. However…

Those who know how to win are more numerous than those who know how to make proper use of their victories. ~ Polybius

Microsoft’s dominant traits worked magnificently when they were striving to become the king of the hill; when they were aggressively pursuing a clearly defined goal. Those very same traits became counter-productive when they became king of the hill and there was nothing left to achieve; when they stopped playing to win — because they had already won all they had set out to accomplish — and started playing not to lose, instead.

“Ultimately it was Bill’s decision. When you’re king of the hill, you are driven to play defense and protect.” ~ a former Microsoft executive

In truth, I very much like the “king of the hill” metaphor as a way of describing Microsoft, because Microsoft was not just great at climbing the hill, but they were masterful at pulling down, and climbing over, the bodies of the corporations that were ahead of them. But again, what good are those skills once one has reached the pinnacle?

Without a clear goal to head towards, Microsoft lost their focus. With nothing to look up toward; they turned their gaze downward, onto their competitors, instead.

Our friends up north [at Microsoft] spend over five billion dollars on research and development and all they seem to do is copy Google and Apple. ~ Steve Jobs

After a competitor had achieved a product breakthrough, Microsoft belatedly attacked. They were the slow follower — not so much going where the metaphorical puck had been, more like chasing opponents all over the ice, throwing vicious body checks, missing, then crashing into the boards just after their opponents had gracefully skated by.

After a decade of exhausting themselves by skating all over the ice for no apparent reason, all that Microsoft was left with was a warehouse full of unsold Zunes, Kins, and Surfaces, a server full of unused Bing searches, and a wistful memory of fifty billions in lost expenditures.

I spent a lot of my money on booze, women, and fast cars. The rest I just squandered. ~ George Best

The Ballmer Era Is Over

Any jerk can have short-term earnings. You squeeze, squeeze, squeeze, and the company sinks five years later. ~ Jack Welch

Microsoft’s revenues tripled during Ballmer’s tenure to almost $78 billion in the year ended this June, and profit grew 132% to nearly $22 billion. But while profit rolled in from Microsoft’s traditional markets, it missed epic changes, including Web-search advertising and the consumer shift to mobile devices and social media.

“Steve was a phenomenal leader who racked up profits and market share in the commercial business, but the new CEO must innovate in areas Steve missed—phone, tablet, Internet services, even wearables.”

I disagree that Steve Ballmer was a phenomenal leader. He fell into the classic trap of protecting his cash cows and chasing short-term profits. In my opinion, during the Ballmer era, Microsoft looked as silly (and as ineffective) as a one-legged man in a butt kicking contest.

What Ballmer Is Leaving In His Wake, Ain’t Pretty

The time to repair the roof is when the sun is shining. ((John F. Kennedy)) Once it starts to rain, it’s too late.

A quick overview of some of Microsoft’s current woes:

1) Microsoft is LOSING money on phones. And that’s not counting the purchase of Nokia.

Conservative+Tablets+vs.+PCs+Shipments

2) Tablets are decimating the Notebook and Desktop markets.

All you need to know about tablets is that they will drive more innovation in personal computing the next 10 yrs than the PC ever did. ~ Ben Bajarin (@BenBajarin)

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3) PC shipments fell 8.6% in the third quarter, the sixth consecutive quarterly decline.

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Microsoft’s software was on 17% of all personal computing platforms sold last quarter. Apple’s was 13%. (Tablets, smartphones, PCs) ~ Ben Bajarin (@BenBajarin)

Having a “monopoly” on notebooks and desktops will soon be equivalent to having a “monopoly” on non-colored soda products — a distant third of three.

4) Windows lock-in is becoming irrelevant. ((Even the Windows lock-in is becoming irrelevant and losing power quickly. ~ Matthew Johnson (@anandabits)

You used to buy a Windows PC because everyone had Windows PCs. All the major programs were written for Windows and it became the de facto standard for almost every office and home on the planet. Windows ran the world and because of its wide reach, we all grew accustomed to the Office suite of applications. Writing a report? You used Word. Needed to do a presentation on plant life in the rainforest? PowerPoint and its atrocious sound effects were there to add glass-shattering emphasis to that clip art on slide two. Your email was stored in Outlook and your numbers were crunched in Excel and there was nothing you could do about it because nothing else came close to the power and reach of Microsoft Office.))

5) Long-Time Windows Users Are Fleeing The Platform. ((Why I’ve all but given up on Windows.))

6) Almost all of Microsoft’s Revenue is all sourced from software and software pricing is dropping to $0. ((The contrast couldn’t be more stark: 75% of MS’s revenue and 95% of its gross profit come from licensing. Apple now charges $0 for most software.))

7) Microsoft’s hardware offerings are not competitive. ((Apple’s Software revenues are more than double Microsoft’s Surface revenues. ~ Horace Dediu (@asymco)

So iPad Air weighs half as much as Surface Pro 2, has longer battery life, and costs $200 less. But hey – look at that kickstand! ~ Ian Betteridge (@ianbetteridge)))

8) Throwing advertising dollars at the problem isn’t helping. ((Apple spent $1.1 billion on advertising in the last 12 months. 0.64% of sales. (Microsoft spent $2.6b or 3.3% of sales yr. ended June). ~ Horace Dediu (@asymco)))

9) Hardware manufacturing partners are fleeing Windows.

If you don’t make a total commitment to whatever you’re doing, then you start looking to bail out the first time the boat starts leaking. It’s tough enough getting that boat to shore with everybody rowing, let alone when a guy stands up and starts putting his jacket on. ~ Lou Holtz

10) Microsoft’s consumer satisfaction rating fell to its lowest level since 2007.

11) Business model transitions are terribly dangerous.

Why Has Microsoft Tied The Hands Of Its New CEO?

Over the past several months, Microsoft has:

1) Committed To A New, Functional Organizational Business Structure;
2) Purchased Nokia for 7.2 Billion Dollars;
3) Ended Stack-Ranking; and
4) Committed to becoming a “Devices & Services” Company

We are watching Microsoft abandon nearly all the strategies that made them successful and embracing new ones in the hope of a future ~ Ben Bajarin

Well, yes and no. But mostly no. Because Wait! There’re MORE!

Microsoft has also committed to their old strategies of:

a) X-Box;
b) Turning Bing into a platform;
c) Maintaing both Windows RT and Windows 8; and
d) Manufacturing their own, Surface, Tablets.

Microsoft is like a sailor who has one foot on the departing boat but refuses to take his other foot off the dock.

Microsoft hasn’t just tied their incoming CEO’s hands — they’ve trussed him up like a turkey. Now ask yourself: “Why would Microsoft do that?” To my mind, there can be only one answer.

After finding no qualified candidates for the position of Microsoft CEO, the Board is extremely pleased to announce the appointment of…

The Microsoft Board Has Taken Charge Of Microsoft And Is Charting Microsoft’s Course

I do not subscribe to the idea that a Bill Gates return would be a good outcome for Microsoft. Indeed, much of what troubles Microsoft today is directly attributable to Gates, particularly the Vista disaster/distraction and the Windows obsession. ~ Ben Thompson

[pullquote]The Microsoft Board is going to TELL the new CEO what to think[/pullquote]

Too late. Gates, via the Board, is already back. He’s the reason Ballmer “volunteered” to walk the gang plank, he’s the reason Microsoft has been forging ahead so quickly with the functional business reorganization, the purchase of Nokia, the ending of stack ranking, the commitment to new policies and the recommitment to old. Microsoft doesn’t need to wait to see and hear what the new CEO thinks, because the Board is going to TELL him what to think.

Doubling-Down On The Wrong Strategy

It is better to run back than run the wrong way. ~ Proverbs

Prior to pushing him out the door, The Board’s mandate to Ballmer was to move faster.

Motivation alone is not enough. If you have an idiot and you motivate him, now you have a motivated idiot. ~ Jim Rohn

It’s clear to me that the Microsoft Board didn’t “get” why Microsoft has been falling behind over the past decade and, based on their recent actions, it’s just as clear that they still don’t get it.

The human body has two ends on it: one to create with and one to sit on. Sometimes people get their ends reversed. When this happens they need a kick in the seat of the pants. ~ Theodore Roosevelt

Microsoft isn’t failing because it’s not going fast enough — it’s failing because it’s going in the wrong direction.

If someone is going down the wrong road, he doesn’t need motivation to speed him up. What he needs is education to turn him around. ~ Jim Rohn

If the Microsoft Board could kick the person in the pants responsible for most of their troubles, they wouldn’t sit for a month. ((Inspired by Theodore Roosevelt))

In this business, by the time you realize you’re in trouble, it’s too late to save yourself. ~ Bill Gates

True enough.