Say Hello To Microsoft 2.0

John Kirk / April 17th, 2014

Last week I said goodbye to Microsoft. This week I say hello to Microsoft 2.0. But before we look at where I think Microsoft is headed, let’s take a quick look at where they’re coming from.

The further back you look, the further forward you can see. ~ Winston Churchill

Microsoft 1.0 had one of the most successful business models of all time. But no matter how successful Microsoft became, management seemingly could not abide the thought of any other technology company sharing the spotlight of success.

  1. If a competitor was being successful with customers Microsoft wasn’t addressing, Microsoft had to have those customers as well.
  2. If a competitor was being successful in a market where Microsoft didn’t compete, Microsoft felt compelled to compete there as well.
  3. Most damning of all, if a competitor’s success could be attributed to its business model, Microsoft felt compelled to assimilate that business model and make it their own.

Microsoft wasn’t setting their own agenda. Instead, they were letting the successes of their competitor’s set the agenda.

Next to knowing when to seize an opportunity, the next important thing is to know when to forego an advantage. ~ Benjamin Disraeli

Thinking that adding another business model will make your company stronger is like thinking that adding another iceberg would have made the Titanic more seaworthy

No company can satisfy every customer. No company can satisfy every market. And as for simultaneously employing different business models, thinking that adding another business model will make your company stronger is like thinking that adding another iceberg would have made the Titanic more seaworthy.1

iPod

As an example, look at how Microsoft responded to the success of the iPod.

In 2001, Apple introduced the iPod to mostly tepid reviews. However, approximately two years later, Apple added iTunes integration. The iPod’s popularity skyrocketed, becoming the vehicle that both saved Apple from the technology graveyard and later propelled Apple to technology greatness.

Now what does any of this have to do with Microsoft?

Absolutely nothing.

And that’s the point.

The iPod was no threat to Microsoft’s overall business strategy. In fact, when iTunes came to Windows, the iPod STRENGTHENED the Windows ecosystem.

However, the iPod’s success drove Microsoft mad with envy. Like a spiteful neighbor, Microsoft couldn’t stand to see Apple enjoying any success, even in an area where Microsoft didn’t compete and had no compelling reason to compete. Without ever clearly addressing the question of “why” they needed to respond to the iPod, Microsoft decided that it had to crush the iPod with a competing product of its own.

At first, Microsoft came out with their own MP3 software layer called “Plays-for-Sure” and licensed it to their hardware partners. When that failed to make a dent in the iPod’s success, Microsoft abandoned its traditional licensing business model (and their so-called hardware “partners”) and, with the Zune, adopted a vertical business model — the very same vertical business model that Apple had been honing and perfecting for over thirty years.

The Zune experiment was a dismal failure. Are we surprised? The goal of strategy is to make our opponents play to our strengths — to play our game on our home field. Microsoft did exactly the opposite. NO ONE does vertical technology like Apple. Apple lives and breathes vertical. Yet Microsoft — with virtually no experience in using a vertical business model — challenged Apple where Apple was strongest; where Apple had an inherent advantage; where Apple held the home field advantage.

It was a bloodbath. Not only did the Zune fail, it failed so spectacularly that it became the poster child for how NOT to compete with Apple2.

If you can’t imitate him, don’t copy him. ~ Yogi Berra

Multiple Business Models

If you don’t know where you’re going, you might not get there. ~ Yogi Berra

Business models are not cords of wood that can be stacked up, one upon the other. You do not grow better by adding a new business model; you grow confused. You do not become bigger by adding a new business model; you become bloated. You do not become stronger by adding multiple business models, you become stranger.

MBM
FAKE CAPTION: The Simplest Known Explanation Of Microsoft 1.0’s Conflicting Business Models

A good business model — like a good argument — should be consistent, self-supporting and contain no inherent contradictions. You can tell when you have a good business model by how little internal friction it causes. You can tell when you have a bad business model by how your company always seems to be at war with itself.

To arrive at a contradiction is to confess an error in one’s thinking; to maintain a contradiction is to abdicate one’s mind and to evict oneself from the realm of reality. ~ Ayn Rand

Say Hello To Microsoft 2.0

With the changeover from Steve Ballmer to Satya Nadella, Microsoft has entered into a new era.

We can’t quite be sure yet exactly WHERE the good ship Microsoft is headed, but we can be very sure that Microsoft’s new Captain, Satya Nadella, is steering Microsoft in a radically different direction.

Microsoft is no longer pretending that its Office software suite will help it sell more Surface tablets. They have accepted the reality that Office should be untethered from their Windows operating system and from their Surface tablets so that it can be free to reside on Microsoft devices, Apple devices, Google Chrome devices…and as many other personal computing devices as possible.

It’s but little good you’ll do a-watering the last year’s crops. ~ Eliot Adam Bede

Microsoft is also no longer pretending that they can make a profit from selling mobile operating systems. They have accepted as reality the fact that Apple’s bundled hardware/operating system model and Google’s freemium operating system model have reduced the price of mobile operating systems to zero.

Face reality as it is, not as it was or as you wish it to be. ~ Jack Welch

Free

Microsoft offering free Windows on phones and tablets is nontrivial. This is a big move, as it changes their business model entirely. ~ Aaron Levie (@levie)

Month’s back I stated Microsoft needed its “hell freezes over moment.” I wonder if giving Windows software on smaller screens for free is it. ~ Ben Bajarin (@BenBajarin)

For a company which has been too long stuck in the fog of Redmond, it’s a remarkable turnaround. ~ Kontra (@counternotions)

Microsoft is re-inventing its business model which is the same as saying Microsoft is re-inventing themselves.

Say goodbye to Microsoft 1.0. Say hello to Microsoft 2.0.

Entrepreneurship is essentially identifying the path that everyone takes; and choosing a different, better way. ~ Sheldon Adelson

Horizontal

A coming together, a cloud for everyone and for every device; the first step on a journey. ~ Satya Nadella

Microsoft is going to a horizontal business model with a services layer above device platforms that isn’t dependent on any one operating system and provides Cloud services to all operating systems. Microsoft 1.0 was about Windows on every computer. Microsoft 2.0 is about MICROSOFT on every computer. It’s a subtle distinction with huge implications.

Horizontal business models thrive on cooperation and abhor confrontation with their vertical partners. Microsoft 2.0 — and its horizontal business model — wants its products to run almost everywhere, therefore it wants to be friendly with almost everyone.

Before Microsoft moved to a horizontal business model, try to imagine the following Twitter exchange taking place:

Welcome to the #iPad and @AppStore! @satyanadella and Office for iPad ~ Tim Cook (@tim_cook)

Thanks @tim_cook, excited to bring the magic of @Office to iPad customers #cloud4mobile ~ Satya Nadella (@satyanadella)

Or try to imagine John Gruber being on-screen at Microsoft’s Build conference:

This is odd/interesting. MS highlighting Apple watcher @gruber’s Vesper as an Azure developer/customer #bldwin ~ Mary Jo Foley (@maryjofoley)

jobs_macworld_1997In my opinion, John Gruber on screen at Microsoft’s Build Conference in 2014 is the poor man’s equivalent of when Bill Gates towered over Steve Jobs at Macworld in 1997.

Sometimes I’ve believed as many as six impossible things before breakfast. ~ Lewis Carroll

We didn’t know it then, but in 1997 Steve Jobs had just stooped to conquer — he had just conceded the PC wars to Microsoft thereby setting the table for his later post-PC triumphs. I think Microsoft — on a lesser scale — is doing the same today. They’ve conceded the post-PC wars…because they want to win the next war – the war for the Cloud.

Horizontal v. Horizontal

When you have a Horizontal business model, Verticals (like Apple) are not your enemies, they’re your friends. Your enemies are other horizontal business models competing in the same space as you. Hmm, who else do we know who has a Horizontal business model and competes in the Cloud?

Microsoft is clearly gunning for Android more than Apple now. ~ Matt Rosoff (@MattRosoff)

Legacy Business Models

Even if I’m right and Microsoft is trying to move toward a pure horizontal business model, they are still burdened with several dysfunctional legacy business models. I expect Satya Nadella to employ a two-pronged strategy to rid himself of these cancerous business models:

1) Unprofitable strategies (like Windows RT, the Surface tablet, Windows Phone 8, buying Nokia, moving to a functional organization) will be undone. This will take some doing but the process has already begun.

2) Profitable strategies (like the cash cows of Windows and Office) will be milked until they’re “udderly” dry. Then those cash cows will be put out to pasture while Microsoft moves on to the next great thing.

If I were running Apple, I would milk the Macintosh for all it’s worth and get busy on the next great thing. ~ Steve Jobs [Observation made before returning to Apple]

Part of me feels, at times, that Microsoft’s base case for mobile is to wait it out until the next disruption hits the reset button. ~ Ben Bajarin (@BenBajarin)

The End…Or Is It The Beginning?

Success wayIt’s still early days for Microsoft 2.0.

Lots of good stuff at the Build keynote, but it feels like Microsoft is still in the fairly early stages of a years-long transition. ~ Harry McCracken (@harrymccracken)

Any prediction would be premature.

Never make forecasts, especially about the future. ~ Samuel Goldwyn

With Microsoft’s bankroll, there’s still time to make the transition from Windows everywhere to Microsoft everywhere.

It’s never too late to be what you might have been. ~ Mary Ann Evans (under the pen name, ‘George Eliot’)

Microsoft 2.0 is very, very late to the game. Or maybe I’ve been looking at this all wrong. Maybe Microsoft is very late to the post-PC game but very early to the Cloud game. If so, then Microsoft 2.0 may have been well worth the wait after all.

If a girl looks swell when she meets you, who gives a damn if she’s late? Nobody. ~ J. D. Salinger, The Catcher in the Rye

  1. Inspired by Chet Hurley []
  2. The iPod remained the poster child for how not to compete with Apple until 2007, when Steve Jobs famously introduced the iPhone and Steve Ballmer famously responded by laughing at it. []

John Kirk

John R. Kirk is a recovering attorney. He has also worked as a financial advisor and a business coach. His love affair with computing started with his purchase of the original Mac in 1985. His primary interest is the field of personal computing (which includes phones, tablets, notebooks and desktops) and his primary focus is on long-term business strategies: What makes a company unique; How do those unique qualities aid or inhibit the success of the company; and why don’t (or can’t) other companies adopt the successful attributes of their competitors?
  • shivraj

    Great article! I hope Microsoft makes a successful transition to the cloud.

  • Bruno Deserto

    Brilliant. It is good to see MS abandoning windows-is everyone-wants thinking to finally embrace reality.

  • FalKirk

    No one has been more critical of Microsoft than I. Yet today I’m feeling very optimistic about their future. Does that mean that I’m inconsistent or that I’ve changed my mind? (I am inconsistent and I do change my mind. But not this time.) I don’t think so. Rather, it is Microsoft that has changed.

    Part of Microsoft has been driving full speed ahead, part has been driving in reverse and part has has been applying the brakes. Although the old Microsoft continued to forge ahead, it did so to the smell of burning rubber and the sound grinding of gears. I’m hopeful that Microsoft (embodied by Satya Nadella) has finally made up its mind which way it wants to go and how best to get there. If so, there’s simply no telling how far they can go from here.

  • N.T.T.

    You’ll know Microsoft has changed when they abandon the name “Windows.” Until then, they haven’t.

    • FalKirk

      Actually, Microsoft has been dropping the name “Windows” from several of its products. And giving away Windows for free to screens under 9 inches is pretty radical. I don’t expect Microsoft to drop the Windows name so long as it’s making them money, but I do expect them to de-emphasize it. At this point, the original Windows is (and has been) running on auto-pilot. It’s a money making machine. Now Microsoft needs to find a new cash cow before the cash being made by the old cash cow dries up.

      • Chris Bordeman

        I think that most people missed that they aren’t just giving away Windows free on small devices. At Build, they actually hinted strongly that it was going to be free for all platforms, under 9 inches “to start.”

  • krabbie

    The future that I see is Apple and MS partnering, sort of, to fend off the onslaught of Amazon and Google. The two groups are polar opposites of each other. Amazon is the 21st century Sears with catalog(Fire) in tow and Google is MS 1.0. with Android “everywhere” in tow. The adults in the room are Apple and MS.

  • John – I agree with lots of what you say here. But I’m not convinced that Microsoft is going entirely horizontal. As long as Windows is still a big chunk of business for them, and as long as “devices and services” is the mantra, there’s a significant vertical element to the strategy still (which I’ve talked about in a couple of Techpinions posts). It’s possible that Nadella will slowly back away from those things, but with little change on the board that launched the Surface and bought Nokia’s devices business I don’t see them abandoning that side of things altogether. I don’t see it as much as a replacement of a vertical strategy with a horizontal strategy, but rather an augmentation of the vertical strategy with a horizontal strategy. In fact, other than the Zune and possibly the Xbox (a much more successful example of Microsoft doing vertical), Microsoft has always been mostly a horizontal company. What’s changing is the insistence on Office and Windows as siamese twins that have to remain conjoined for the company to succeed. Ultimately, Microsoft is becoming a company with a vast array of services (or software delivered through a service business model) which will run independently, but where Microsoft will make a strong argument that they run best when tied together, especially on its devices.

    • FalKirk

      Thank you for your thoughts, Jan. Even if I was 100% in the right, it would still take Satya Nadella years and years to untangle himself from the decisions of his predecessor. For example, Microsoft just finished buying Nokia. I think that should be undone. But it’s asking a lot for Nadella to get rid of Nokia when the ink on the purchase agreement is still wet.

      So we’ll have to wait and see and try to read the tea leaves with each and every Microsoft move. If I’m wrong, the moves I envision won’t happen. If I’m right, Nadella will make them as fast as he can…but that still might not be very fast.

      Here’s to all the wonderful Microsoft watching we’ll both be doing over the next few years. Cheers!

  • stefnagel

    Apple 2.0 was not Apple; Apple 1.0 died. When its IP was acquired by Jobs and NeXT in what can only be called a “glorious revolution” in technology, only then could this new entity become Apple 2.0.

    Alexander the Great, a bit of an innovator, said that, like Achilles, he would rather have a “short life with glory” than a “long life of obscurity.” So when did it happen that corporations became, like vampires, like frankenstein’s monster, entities with more rights than us? more life that us? Corporations, like Congress, need term limits.

    Let dying dogs die.

    • FalKirk

      “Apple 2.0 was not Apple; Apple 1.0 died.” – Stefnagel

      Vehemently disagree. You can trace the core elements of today’s Apple straight back to its founding.

      “Why should Microsoft resucceed?” – Stefnagel

      Let me turn that question on its head. Why shouldn’t they resucceed?

      I agree with you that not every corporation will go on. But that doesn’t mean all corporations must die. So long as the market is voting (with its dollars) for a company to survive, survive it will. And the very fact that the corporation is able to acquire those (dollar) votes means that its survival, by definition, is a good thing.

      • stefnagel

        “So long as the market is voting (with its dollars) for a company to survive, survive it will…. a good thing.”

        Just listened to Horace Dedui on CMD+Space #92: A New Lingua Franca. What I said above about Zombie Inc. goes directly into his discussion of the capitalist’s dilemma, in which corporations simply become Scrooge McDucks, do not redeploy resources to new innovation, starve other innovators of cash.

        Nope. Success defined as mere money or market is unacceptable.

      • stefnagel

        Why shouldn’t Microsoft resucceed? After ten years of its trying, I’d say cus it can’t. Hiring a new CEO means nothing; the culture of Microsoft is deadended, narcotized by its success. Like France still thinking it’s an empire. There is no there there.

      • stefnagel

        Apple 1.0 was, as I remember it, an avaricious and arrogant org. Then it lost its leader, its tech chops, its market, its developers and partners, and its revenue stream. If it wasn’t dead, it certainly did a fine imitation of dead.

        Apple 2.0? Much better. It’s a wiser, even humbler place today. Remember where Aslan comes back and winter ends? Like that.

      • Not sure I completely accept the Apple 2.0/1.0 split either. OS9 died with the advent of OS X, but the UI carried through. Apple’s Human Interface Guidelines has served Apple well (although some will say the last two iterations of OS X has lost some of the consistency.) And OS X has paid off, as it is the foundation of iOS.

        I disagree with @stefnagel:disqus’s call for term limits on corporations. Consumers vote with their pocketbooks/wallets. The weak die of natural causes. Call it succeed, or re-succeed, the strong will survive.

      • N.T.T.

        “Why shouldn’t they resucceed?” Because they’re still run by the same crew minus Ballmer; they just shifted the positions around. That doesn’t bode well for the future.

  • FalKirk

    Lou Miranda (@theNewLou) has been peppering me with intelligent questions on the “mobile first” part of Microsoft’s “Cloud first, mobile first” vision.

    In order to respond, I re-read the blog in which Satya Nadella espoused his vision for Microsoft. Here’s what’s interesting about that blog. The words “Surface, Windows, RT, Nokia, and Phone” don’t appear anywhere in that post. (707 words). Nowhere.

    Let me repeat that. The following words do not appear even ONCE in the blog espousing Satya Nadella’s vision for Microsoft’s future:

    Surface
    Windows
    RT
    Nokia
    Phone

    Steve Ballmer would have used all of those words in the very first SENTENCE of his description of Microsoft’s future. (To be fair, his first sentence might have been longer than 707 words.)

    I strongly encourage you to re-read the Nadella blog — you can find it here: http://techpinions.com/say-hello-to-microsoft-2-0/29382 — and then come back and let us know if you can any evidence that Nadella is planning on making hardware or employing a vertical business model.

    I’m looking forward to reading your thoughts.

    • jfutral

      And Ballmer would have begun that sentence with “Developers, developers, developers”, which was only used twice by Nadella (once in a way to imply they aren’t people! I’m not sure I disagree).

      Interesting “Windows” was still a tag.

      Joe

    • N.T.T.

      So he didn’t mention those things. That doesn’t prove they aren’t working on them.

      Microsoft has made too many seriously misleading public statements for me to trust them. It isn’t Microsoft 2.0 until they’ve acted like Microsoft 2.0 for a year.

      • FalKirk

        Nadella outlines his vision for Microsoft and he doesn’t mention “Windows” and you don’t think it means anything?

        I agree with you that it’s too soon to see where Microsoft is headed, but it’s not to soon to tell that they’re headed in an entirely different direction than they were just 70 days ago.

  • Whatever

    Everyone of those saying that Microsoft will die soon won’t be around to see it.

    • FalKirk

      Whatever made you successful in the past won’t in the future. ~ Lew Platt, Hewlett Packard

      The most successful businesses have an idea for the future that’s very different from the present. ~ Peter Thiel

  • currychicken

    I think its a great article written! Apple vertical and Microsoft horizontal, will be a amicable partnership for the behemoth titans of silicon valley. Just cross our finger the day when horizontal and vertical intersects at some point…

  • HighDefJunkies

    I’m just happy to have a Science Engineer at the helm again! Finally!

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