Directions

Microsoft: From Complacence to Competition

When Microsoft does indeed rally around a competitive opportunity, the results can be startling.

• By Paul DeGroot
• October 01, 2009

Two of the inevitable characteristics of the monopolist are complacence and lackluster innovation. Microsoft has proven to be no exception to this rule.

Once it achieved better than 90 percent market share, its Internet Explorer browser languished for about four years. Company executives made noises about products, such as the never-to-be-seen Net Docs, that would go "beyond the browser." However, their interest was more about business than technology. Microsoft had committed that the browser would always be free, to "shut off Netscape's air supply." Additionally, the company was spending a lot of resources maintaining one of the odder beasts in the business zoo -- a monopoly that generated no revenue.

Consequently, IE got little attention from company executives until it was threatened by competition. At that point Microsoft got serious about the browser, and, while it hasn't blown the competition out of the water, it has achieved reasonable parity and some feature leadership.

The same thing happened with the operating system -- another monopoly -- when the appeal of sub-$300 portable computers gave Linux an apparent advantage. Suddenly, Microsoft found a way to sell a full version of its OS to OEMs for as little as $15, about one-third the usual price.

The most striking moment at the Microsoft Worldwide Partner Conference in July came when Chief Operating Officer Kevin Turner insisted that market share "is our battle cry, our rally cry" that will determine the "winners and losers in this environment."

Few companies understand the importance of market share better than Microsoft. Market share translates not only into pricing power, channel power and revenue, but into technical leadership. Competitors must imitate the leader by either licensing the leader's technology or working around their intellectual property -- a costly and time-consuming process that gives the leader a cost advantage and further delays the entry of competitors into the market.

When Microsoft does indeed rally around a competitive opportunity, the results can be startling. Old-timers may recall the early 1990s around the launch of Windows 3.0, the first really useful version of Windows. At that time WordPerfect dominated the word-processing market; Lotus the spreadsheet market; Harvard Graphics and Aldus the presentation-software market; dBase and Paradox the desktop-database market; and Novell the LAN market -- in every case with 70 percent or greater market share.

Microsoft decided to compete aggressively. It launched Office -- despite the fact that some insiders considered it suicidal to give away desktop applications at such discounts -- and within five years, WordPerfect, Lotus, Harvard Graphics and Aldus were in receivership or being passed around among acquisitors like chips in a poker game. When Microsoft launched Access, dBase virtually disappeared and Paradox became a niche product. Windows NT came out in 1993, and within five years Novell, too, became a fringe player.

Were the Microsoft products technically superior? Not always. In some cases, like the now-ubiquitous PowerPoint, they were second- or third-rate products compared with the competition. But Office gave Microsoft market share: Why buy Harvard Graphics, if PowerPoint is already on your computer and proves to be good enough?

Microsoft believes that when it gets serious about market share and its executives and product groups line up behind a goal, it can do anything.

Do we need another Microsoft monopoly? No. We need a competitive Microsoft. In other words, we need Microsoft at its best, when it can deliver enormous value and savings to customers and move technology adoption forward. With its financial resources -- and a kick in the pants from the economy that has lent new urgency to the competition -- it has the incentive and the means.

The question is whether it still has the ability. Today it's far harder than it was in the early 1990s to get the company behind a common goal. But if Turner can achieve that, history may repeat itself.