Microsoft CEO Satya Nadella’s recent memo is a statement of where he wants to take the company, which is not as nimble as it once was. Nadella’s vision puts mobility and cloud computing first.
One need only look at the significant moves the Redmond software giant has made since its inception to get an idea of the kinds of games it has played in the past and what games it is capable of playing in the future.
In 1975 IBM was looking for an operating system to power it’s new offering in the personal computer market. Negotiations with Digital Research (the dominant independent vendor of operating systems for personal computers at the time) reached a dead end, so IBM awarded the contract to Microsoft.
The contract with IBM was not as obvious a money maker as people might think: IBM paid Microsoft a one-time fee of $430,000 for disk operating system (DOS), a few interpreters and compilers, and some consulting. This was a large sum for a company run by twenty-year-old’s, but nothing compared to the wealth generated years later as a result of the other part of the same deal.
The other part of the deal was that the young company did not have to transfer the copyright on the OS to IBM. This meant that all other hardware vendors who cloned the IBM PC had to pay royalties to Microsoft.
As the IBM PC monopolised the market for personal computers, the term “PC” became the generic name for all clones. Because they had already received the one-time fee, Microsoft didn’t get any richer off OS sales through IBM. However, once companies like Compaq and Dell came to market with quality clones at lower prices, Microsoft made a killing.
From that point on, the company led by Bill Gates was able to lock users in as successive versions of Intel chips required new versions of the OS, and as users got hooked on applications, most of which ran only on DOS. As long as Microsoft continued to guarantee backward compatibility with each OS release, they could enjoy a big fat revenue stream for several years.
The contract with IBM turned out to be a brilliant chess move. But the person behind that move, Paul Allen, left Microsoft just a few years after the deal was made. There’s no need to feel sorry for him, as he is now among the richest people in the world thanks mostly to the monopoly Microsoft enjoyed for years as a result of the IBM deal.
In the early 1990s a big market shift occurred when engineering workstations came down in price and many people got used to the more graphical user interfaces offered on workstations. Microsoft had been working on Windows already in the 80s, but it wasn’t until Windows 3.1 that the operating system became useable.
Windows 3.1 was a fix for Windows 3.0, which didn’t really work, as those of us who developed software at the time remember. Microsoft got away with putting out a release that didn’t work - and that caused application developers to overrun schedules and budgets - because users and developers had no choice.
Then in the mid 1990s when Internet threatened to diminish the role of the OS through browsers serving as virtual machines for web-based applications, Microsoft bought a browser and rebranded it Internet Explorer. They quickly wiped Netscape off the market by making Internet Explorer an integral part of the Windows OS, so that anybody who bought Windows had Internet Explorer by default. Microsoft was able to immediately dominate the market with an inferior product only because it monopolised the operating system market.
Up until the point where the consumerisation of IT began to make iPhones, MacBooks, and iPads popular tools for use in the enterprise, Microsoft had a virtual monopoly with business customers. With the shift away from desktop PCs and towards laptops and tablets, Microsoft made a desperate attempt to pull out ahead with their touch-based Windows 8.
As we know, Windows 8 didn’t even get off the ground: customers were asked to skip Windows 8 and go directly to Windows 8.1. This move sounds a lot like the Windows 3.1 game of catch-up. The difference is, users and developers now have a choice.
Now Microsoft wants to reinvent itself around mobility and cloud computing. They’ll need to give up trying to play Monopoly and go on to playing a different game, like checkers - a game people who get on in years like to play. They’ll also have to settle for smaller market shares: Microsoft has neither the people, the organisational structure, nor the market position to dominate either mobility or cloud computing.