How Microsoft built an empire and almost lost it all

 

Innovation is a key to driving continued growth and success. Those companies that can innovate, create new products, markets and services that can alter a competitive landscape and set those companies up for years to come. There are countless examples of novel solutions to existing problems that have made entire industries more effectively work, consumers better enjoy products and simply eliminated problems from our work streams and lives. Throughout the years, companies have created new solutions that have resulted in their complete dominance of industries. Apple created the iPod, Kleenex created the tissue and Microsoft created windows.

These companies built highly successful companies with innovations that those before hadn’t thought of. Let’s look at Microsoft.  Microsoft bought Windows to market. Now you may be saying, “Hey!  Microsoft stole the idea for Windows from Apple!, that’s not innovation!” and you would be correct.(Though to be honest, Apple got the idea for Mac OS from Xerox). Where Microsoft innovated was by looking at how Apple was building and selling their operating system and running in the opposite direction. 

Apple built the Mac as a fully vertical computer. Apple designed the software, computer, monitor, case, keyboard and mouse themselves. The only way to get a Mac was to buy it directly from Apple. There was no doubt that the Mac was an amazing iteration on the work that had been done by the Xerox team. It brought the simple ideas they had to light for the entire world, but it limited it’s reach by being tied to only the hardware Apple produced.

The innovation

Microsoft took the opposite approach. They saw that the graphical user interface of the Mac was the future of computing, but instead of building their own hardware and selling directly to consumers, they approached other computer makers and sold Windows to them. They could build the hardware and peripherals and Microsoft would build the software that ran on it. This allows lots of competition in the computer market and resulted in more options and lower prices for both businesses and computers. Since Microsoft’s software ran on IBM compatible computers, it meant that businesses could buy them without fear that their software wouldn’t run. Consumers would buy them comfortably in the knowledge that it would work the way they were used to at work. 

Microsoft quickly rose to become the most powerful company in the computer industry. Surpassing all of the hardware manufacturers and competing OS developers to totally dominate the computer industry. Where Microsoft went the industry followed. While Apple’s Mac OS was superior it simply couldn’t compete in the world that Microsoft had created and Apple almost went out of businesses as Microsoft became the most valuable company in the world. 

This rise was sustained not only because of the unique business model that Microsoft had employed, but because its founder and CEO, Bill Gates, was an engineer himself. He was excited by the technology and possibilities and worked to innovate and build a new future. Windows NT had networking that was easier than what had come before, Microsoft Office combined different types of common office tasks into a single suite of products. They were on top of the world and the industry. They were so big and powerful that the US Government sued them in 1998 on antitrust grounds, though the case was ultimately settled. 

The risk of a sales focus

In many companies those that have the most success in climbing the corporate ladder are the folks in the sales organization. They build solutions for customers and drive huge amounts of revenue. They are rewarded with more and more power and the best can quickly climb the ranks of any organization. Investors love sales people that are highly successful. They bring in tons of revenue and increase the investors profits and the value of their stock. Boards of directors are quick to reward these individuals with positions such as COO, CEO and president. While this may seem like  a smart move it is often a fatal mistake.

Sales people are excellent at convincing customers to purchase their product over competitors. They are always looking for an edge in how to deliver more of their product to their customers. When a company has so much success that they become a market dominating monopoly the sales people no longer have to try as hard. Of course, the customers will buy our products, what else could they do? When these salespeople become the leaders of the company they are averse to innovation. Rather than build new amazing solutions they want to maintain their monopoly and status quo. It’s easier to iterate on their existing product and continue to sell those upgrades to the same customers over and over. This thinking, however, leaves them blind to innovation and competitors that can quickly overturn their entire business model. 

In the year 2000, Bill Gates stepped down as CEO and Steve Balmer replaced him. Steve was not an engineer but a marketing executive. Steve had taken the innovation that Bill and his engineering team and successfully marketed it to every part of the globe. If you owned a computer it probably ran Microsoft WIndows and Microsoft Office. Their products were simply how you did work. Steven continued the formula that Microsoft had used before by selling directly to other manufacturers who then sold on to consumers and businesses. This worked well for another 10 years but then something happened.

Missed opportunities

The computer industry rapidly began to shift aware from traditional computers toward mobile devices, cellphones and internet applications. This was in complete contrast to Microsoft's existing strategy. They relied on desktop and laptop computers sold by their partners to generate revenue. Their partners were limited by the software that Microsoft produced and Microsoft was limited by the hardware that their partners produced. Their partners produced iterative products that build on what had come before. This worked well for creating a product that is easily sellable to the same customer that purchased 3 years ago, but did not work when an innovative new technology entered the market. Microsoft completely missed the shift to internet applications and mobile devices. 

The smartphone is ubiquitous today. Nearly everyone has one in their pocket and they drive a huge amount of revenue into the technology sector. Entire companies exist to sell products that are accessories to smartphones. This of course, wasn’t always the case. Smartphones were a fledgling industry in the beginning of the twenty-first century. They were not so much innovations as much as they were iterations of existing computers. 

Existing computers used a keyboard and mouse to interact with the OS and make the computer do the work. This had been the case since the early 1980s and continued as the computer industry moved forward. Smartphones continued this strategy. The Blackberry, Palm Pilot and Microsoft Windows Mobile phones all had plastic keyboards on the front and arrow/navigation keys. If they had touch input it was a version of what had come before. You either used a trackball to navigate or a physical input device, the stylus. It was an iteration on the mouse and keyboard and it was clunky and hard to use.

Apple introduced the iPhone in 2007. The industry and consumers were stunned. The consumers saw the new phone as magical and a revelation. They had to have it. Apple had ditched the plastic keyboards and stylus. They instead had an onscreen keyboard and instead of a stylus used your fingers for touch input. It was completely natural and easy to use in direct contrast to how using a stylus was. Their competitors in the mobile phone industry either didn’t believe the product was real or thought that the way it was built was destined for failure. It didn’t iterate on what had come before but completely changed the way we used computers. 

The day that the iPhone was introduced, Steve Balmer was interviewed by the BBC news. During the interview they asked Steve what he thought of the iPhone and he laughed at it and made fun of it. He said that because it didn’t have a physical keyboard it was not “a very good email machine.”.  He laughed at the price tag and said that he was very happy with Microsoft’s strategy. 

He was obviously completely wrong. The iPhone was a huge success. Initial inventory sold out. When Apple brought out an updated 3G iphone only a year later, there were lines around the blocks at Apple stores of customers desperate to buy them. Scalpers would attempt to buy up as many as they could and resell them for huge markups. Competitors scrambled to create a competing product. Google changed their android devices from a blackberry device with a keyboard to one that resembled Apple’s touch interface. Microsoft tried to develop a new version of Windows Mobile that never took off. 

Missteps and decline

Microsoft’s reaction to the iPhone was to iterate on its success. They didn’t innovate with a completely new way to use computers. They instead copied what Apple had done with the iPhone and sold it to third parties to install on their devices. It never caught on. Windows mobile simply didn’t have the same polish and capability that existed on the iPhone. Consumers didn’t want it and hardware partners were afraid to take the risk. Microsoft was eventually forced to discontinue their Mobile OS.

In 2014 Steve Balmer stepped down from the role of CEO of Microsoft. He had done an amazing job of continuing to sell Microsoft Windows, but had completely missed several key shifts in the computing industry. He was replaced by Satya Nadella as CEO, who as an engineer, refocused the team on building great innovative products.  Today Microsoft still produces Microsoft windows, but sells it as a service. Microsoftw works closely with both Google and Apple to ensure their products and services are available on their platforms as well as the web on any internet capable devices. This shift in strategy has worked wonders and has brought Microsoft back to the forefront of innovation. 

Microsoft survived their misses in the technology innovation space because of their huge size and resources. Most companies cannot survive missing huge shifts in an industry or market like that. They struggle to catch up and eventually fade away, either being purchased by a competitor or liquidated in bankruptcy. Those companies that constantly challenge the status quo, that are willing to cannibalize their own product lines for the sake of innovation will continue to live long after their initial success. 

In your own life and work, you should never stop innovating. Never stop questioning how things can be better. Don’t be satisfied with the status quo. Keep pushing forward. Focus on what's next, not holding on to what’s working today. 

When have you had to play catchup in life and work? When have you innovated and beat everyone else to the punch? Tell us below.