Microsoft is Missing Apps the Same Way They Missed the Early Internet

It seems odd to me that Microsoft of all companies is so drastically behind the curve when it comes to apps for Windows 8 and Windows Phone. When you think about it, Microsoft of all companies was in the best position to create a better software buying experience, via an app store than anyone. Windows had 97 to 98 percent market share for the bulk of the PC era and software played a key role in that dominance. Why was there no Windows app store until the end of last year? ((Updated: There was a Windows Marketplace but came no where close to the app stores I am talking about)) It just makes no sense.

Similarly, Microsoft was in a growing position in smartphones with Windows Mobile. They had tinkered with software stores but the experience never really gained significant traction. Companies like Handango helped fill the gap but again much of what existed then is gone now.

The most robust third party mobile developer network I witnessed when I joined Creative Strategies 13 years ago was the Palm developer community. In fact, the Palm developer community in terms of passion, excitement, and quality of applications being developed, reminds me a lot of today’s iOS developer community. Microsoft never enticed the same commitment and passion for their mobile platforms as the Palm community, even when they gained share and Palm itself began shipping Windows Phone. Despite their efforts Microsoft is still today struggling with weak developer interest.

As I think about this situation that Microsoft is in, it reminds me of the situation they were in with Internet Explorer for so long. They missed the boat on leading the Internet revolution and now again they have missed the boat on leading the app revolution. All while they were in the best position to lead in both.

The Network Effect

Both Palm and Apple achieved the network effect.

In economics and business, a network effect (also called network externality or demand-side economies of scale) is the effect that one user of a goods or service has on the value of that product to other people. ((Alpheus Bingham and Dwayne Spradlin))

The economics in turns of monetary opportunity for developers, as well as the critical total addressable market achieved by both Palm and then with Apple, created a strong network effect. This is still going strong for Apple today.

Interestingly, despite Microsoft’s position in PCs, I would argue they never achieved the network effect. ((Happy to debate this point.))

You may have noted that I did not include Android in the network effect discussion. While it’s true Android has the lions share of the smartphone market, we also know just looking at Android’s market share does not singularly indicate the strength of a platform. Engagement is consistently reported as lower on Android than iPhone and developers are continually facing economic challenges of making money with Android.

Being in Silicon Valley I get to meet and talk with a lot of software startups. Android to many of these software companies I meet with is treated as a secondary priority. Rarely, do I meet with a company creating software for Android first or only. If this platform was doing well for the masses then I would imagine we would see more exclusive applications and I would see more software startups getting funded for Android only development. This is simply not the case. Android is benefiting from the network effect of iOS, however, as developers are generally taking their iOS first apps to Android eventually. Android has achieved a degree of the network effect by default, and on the heels of the iPhone.

This network effect is a key area that is driving both iOS and Android. This network effect has created long tail applications.

Long Tail Developers

Chris Anderson helped popularize the concept of the Long Tail with his book called The Long Tail: Why the Future of Business is Selling Less of More. (link) The concept in short is that there is value found in having large quantities of something (apps in this case) which appeals to smaller groups of people. Another way of describing would be simply to say having a successful long tail model means having massive quantities of niche content. [pullquote]Popular apps may be the most profitable but long tail apps are often the most discoverable[/pullquote]

A successful long tail strategy, the one that I would argue creates the highest degree of loyalty to a platform or service, is one that has all the mass market goods (the popular items) but also and large quantities of goods that appeal to smaller groups of people. When we apply this theory to apps only iOS and to a degree the Google Play store are in the discussion. Popular apps may be the most profitable but long tail apps are often the most discoverable.

Imagine being a Windows Phone or BlackBerry user for a moment. Your friends or family members are all talking about the new apps they discovered or are using, for things like health and fitness, education, gardening, sports, etc. They all rave about these great apps that they love and are adding value to their lives. These apps don’t exist on your platform and probably won’t for a long time if ever, unless a critical mass is acquired. Which, of course, is not going to happen without long tail apps and long tail app developers. Its a chicken and egg problem.

Or imagine your kids sports team starts using an application to help manage schedules and parents assignments, but it only exists on iOS or Android. Your favorite grocery store, market, magazine, favorite brand, etc., comes out with an app, but it’s only available on iOS or Android. Your kids schools offer mobile apps, but they are only on iOS or Android. The workout video series you just bought has an app but it is only on iOS or Android. I hope you see my point.

Windows Phone and possibly BlackBerry may get the popular apps from the big developers, but where the platform really suffers is in the long tail apps and content, which is the driving strength for the mass market with iOS and Android. Only iOS and Android are attracting long tail developers at the moment.

Developing a critical mass of long tail apps and the developers who will continue to make them, is the biggest single hurdle I believe Microsoft, BlackBerry, and any other platform that aspires to enter the market. Without them, these alternative mobile operating systems will continue to struggle to find customers for their products until the same long tail apps make it to their platforms. If they make it to their platforms of course.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

873 thoughts on “Microsoft is Missing Apps the Same Way They Missed the Early Internet”

  1. OK Ben, I’ll take you up on the debate. I would argue that Microsoft enjoyed extremely powerful network effects in the heyday of Windows–but they worked in a way that is largely irrelevant to the current situation. In the critical period of the 1990s, when Windows achieved its dominance, it was difficult to exchange data between disparate computers. Even if the same software existed for Windows and Mac, such as Microsoft Word, you were likely to run into serious compatibility problems transferring documents. As a result, Macs and Windows evolved into disjoint ecosystems with Windows an order of magnitude larger.

    Two things caused the network effect to lose its power. One was that the software incompatibilities were resolved, allowing files to be transferred freely among operating system. The more important change was the rise of the internet and the triumph of HTML as a common language. With content no longer locked within one system or the other, it no longer mattered very much which system you were in and Windows lost its stranglehold.

    The mobile device network effect could similarly evaporate if developers begin to write truly compatible apps for various platforms. We already see this happening with the iPhone and Android phones and I think it will accelerate with tablets now that Google is finally showing signs of taking tablets seriously. The big open question is whether the developers will ever support a third or a fourth ecosystem.

    1. I agree that any degree of a network effect for Microsoft existed within the enterprise. But if with that being the case, I don’t think a passionate developer community ever existed that would have created more powerful lock in. Thus the network effect was sort of a default one rather than a truly pulled one from the market like we are seeing today.

      Once we get into consumers it really all changed. Consumers, arguably, only bought PCs for the Internet and office. The didn’t spend hours at retail shopping for new software, in fact, most consumers installed very little Windows software at all.

      The network effect which existed for MSFT was the result of computing maturing. Which is why I agree with your last point completely.

      The network effect that existed for enterprises was more easily disrupt able once the market matured, since that is when choice plays a largely role. Once people who don’t need these devices for work began choosing for specific reasons. If software developers do start supporting then for Apple or Google to remain dominant the lock in has to move from network effect to ecosystem.

      But I remain convinced that there is such a head start from this network effect that it will take quite some time for the other platforms to catch up.

    2. “In the critical period of the 1990s, when Windows achieved its
      dominance, it was difficult to exchange data between disparate
      No kidding. Started with a Mac in 1989. Was forced to switch to Windows in 1997 because I could not exchange simple documents and graphic images with my customers using Windows.

      “the software incompatibilities were resolved, allowing files to be transferred freely among operating system”
      Exactly. I switched back to the Mac in 2005. File exchange just worked. And, with Intel processors, I could, if I had, run Windows.

      1. Good points. Any scenario where you can see a similar thing play out in mobile platforms? I have only one.

  2. Patterns of history. One of the long-term trends you can observe is that an entity (in this case Microsoft) may have great success for awhile, but then there is a tectonic shift and it falls to a lower position and never recovers. This has happened countless times throughout history and it’s especially true if the entity was not just successful but dominant in its time. Superficially there may be a wide variety of reasons for the change but in my view the real cause is a movement in the essential but invisible forces that operate in the world, and it is not possible to oppose them.

  3. I think a weak link in your article is your comparison of now to then about the possibility of a MS app store. In the nineties, could you imagine trying to down load a OS or a large App over dial up? I think not. No one had a app store in the nineties, they had dvd/cd store or snail mail to get that stuff. The speed of the internet to the home has been the pivot to the app store and of course the smart phone hardware. MS’s dominance was with the corporate world, when the computer came home, those other internet hardware forces came to bear.

    1. Yes, I should have noted that. I wasn’t specifically talking about then but in the mid 2000s when it would have been possible and valuable.

      Think of how bad the out of box experience for most consumers was with notebooks. Transferring information, finding and installing new apps to keep you excited about using your platform etc.

      Consumers didn’t go stare at a wall of retail apps with excitement trying to find new things. Because there was a weak software distribution paradigm no large scale consumer developers jumped in. Consumers used and still use less than 5 key applications regularly on their PCs. I would argue that had MSFT developed a solid digital app store strategy for PCs in the 2004-2005 time frame, that they may have gotten more developer traction that could have carried over to their mobile efforts and would without doubt have helped their position with Win 8 today.

  4. if microsoft went back to it’s roots and just made software.. software for the pc and software for the mac.. they would have more money then they could spend. They are a software company; as such should spend their efforts making software. Period. If they did that we could all benefit.. mac and pc alike.

    1. Microsoft has been in the hardware business pretty much since the beginning. One of its first products was the SoftCard, a Z80 processor plug-in card that allowed the Apple ][ t run CP/M programs. While I’m quite sure Microsoft is losing money on the Surface and Surface Pro, its hardware operations as a whole, including mice, keyboards, gaming controllers, and Xbox, are nicely profitable. Killing the Surface probably would not have a material affect on Microsoft’s profits.

        1. It’s within that blue sector, which should be labeled “Entertainment and Devices.” But the reason it slipped into losses in the last couple of quarters is not a problem with Xbox or mice but because the unit also includes Windows Phone and Surface.

  5. Microsoft’s platform was WIN32. As long as any other competitor didn’t
    come with equivalent product, Microsoft was relevant. It is still relevant in Enterprise even though challenged.

    Web and Apps are about getting away from Microsoft dominance.
    So obviously Microsoft was never going to create it.
    It has hardly created any new category that it could get its
    own developers to port into. remember Windows for Alpha processors.

    The whole business of it takes Microsoft three tries to conquer a category
    all relied on WIN32.

    Those days are long gone and most of young developers don’t even
    use Microsoft products.

    With the rise of LLVM. Microsoft will even have to abandon its own tools
    because no one will pay for them.

  6. A good start to an interesting and germaine discussion. Network effect is often talked about as if it were only a numbers game, but it involves quite a bit more psychology and elements of user satisfaction than such an analysis might suggest.

    Windows is a fascinating example. For all of it’s colossal dominance, what “go to” applications did the long tail of network effect create to add value to that platform? The answer is only Office, made by Microsoft themselves. For all the countless applications written for the platform, Office is for many users the only reason to have a PC; alternatives are not known nor considered. When these users think of a job to do, it is conceived only in terms of what Office can do, which is one reason that there are so many spreadsheets that shouldn’t be spreadsheets, Word docs that shouldn’t be Word docs, and PowerPoint presentations that shouldn’t be presentations. If all you have is a hammer, all your problems look like nails.

    This was very successful “lock in”, but it isn’t shared with the wider community as are mobile apps in the long tail, and it produces sub-optimal results for users. So I’d agree with Ben that Microsoft did not harness a network effect; they created lock-in, which is far more ephemeral as users advance and age.

  7. A good summation of the issue is the idea of a multi-sided market. All platforms inherently are multi sided markets with at least 2 stakeholders – the end users and developers being 2 in most cases and depending on the case an advertising solution. You need to hit critical mass for all sides for adoption to really pick up.

    Apple got a little headstart with 5-6 million iphones seeding the consumer side of things and developers got interested because there already was a market available to target. In the current market there already is what was considered critical mass for the iphone available for windows phone (around 10 million devices out in the wild) )but the expectation from the developers of what constitutes a critical mass has changed.

  8. I do not even know how I ended up here, but I thought this post was good.
    I don’t know who you are but definitely you’re going to a famous blogger if you aren’t already 😉 Cheers!