Salesforce Deal: Is Microsoft Turning the Tide on the 'Tactical Tax'?

Earlier in Microsoft's history, a well-known internal issue was the "strategy tax." The idea, as I understand it as an outside observer, was that if a product or idea didn't advance the Windows-first, Windows-everywhere agenda, forces inside Microsoft would kill it.

The phenomenon is sometimes credited with Microsoft's failure to innovate in the 2000s as it missed first the smartphone boom and then the tablet boom.

Recently, I think Microsoft has also hobbled itself with what I'll call a "tactical tax." What I mean is that Microsoft would fail to acknowledge or adequately support competitors' products, not because they directly competed with Windows-everywhere. Instead, the opposition came because Microsoft had a minor product or was even thinking of possibly launching a product in the competitor's space someday.

Examples include the iPhone, which Microsoft pooh-poohed and then mostly ignored as it prepared the release of Windows Phone. Another example is the iPad, whose customers would have benefited years ago from a version of Office (see the monstrous recent sales of Office on iPad within days of its release). Microsoft presumably dithered in order to see if it could launch its own tablet ecosystem, and its own device, that could challenge the iPad for tablet platform dominance. So far, the "pretend it doesn't exist then launch your own" strategy hasn't worked for either tablets or phones.

Both of those cases, though, have elements of "strategy tax" involved. Putting Office on iPad and iPhone and developing other software for the devices presumably could have solidified Apple's lead and ended the game before Microsoft had a Windows-based product on the field.

The clearest example of a "tactical tax" is Dynamics CRM Online. Despite improvement after improvement with each version, and a loyal partner base, the product failed to make notable progress against Salesforce.com's cloud CRM platform. Meanwhile, it's always been an open question as to how the Dynamics business of ERP and CRM products fit into Microsoft's overall strategy. Trying to protect Dynamics CRM Online by failing to acknowledge other opportunities to make revenues from a Salesforce.com partnership involving Office and Windows was a clear case of protecting a tactical product at the expense of strategic ones.

Now, Microsoft CEO Satya Nadella and Salesforce.com CEO Marc Benioff have put the years of their companies trading insults behind them and declared a deep technical partnership.

Nadella and other Microsoft executives in no way closed the door on Microsoft's continued efforts in the CRM cloud space. But the tactical product will have to earn its way in the future against a market leader that also will benefit from partnership-enhanced integration with Microsoft's strategic productivity tools.

Posted by Scott Bekker on May 30, 2014