This post is adapted from a paper that appears in the Journal of Business Strategy entitled Cultural Innovation in Software Design: The New Impact of Innovation Planning Methods
Microsoft is a company that historically was guided by a simple premise, “A PC on every desk and in every home.” Microsoft’s role in that premise was simple, to be the creator of the software that would run on those computing platforms, creating every piece of software a consumer would need. As the Economist noted in a July 26th, 2008 Microsoft’s success in this endeavor hinged on two important insights.
The first was that computing could be a high-volume, low-margin business. Until Microsoft came along, the big money was in maintaining a select family of very grand mainframes. Mr. Gates realised that falling hardware costs, combined with the negligible expense of making extra copies of standard software, would turn the computer business on its head…Profit would come from selling a lot of them cheaply, not servicing a few at a great price.”
“Mr. Gates also realised that making hardware and writing software could be stronger as separate businesses. Even as firms like Apple clung on to both the computer operating system and the hardware—just as mainframe companies had—Microsoft and Intel, which designed the PC’s microprocessors, blew computing’s business model apart.
Although it’s difficult to recognize how inspired and innovative this thinking was over 33 years ago it was augmented by another important and unique characteristic of Microsoft in its early days as the Economist continues to elaborate.
The technology industry likes to sneer at Microsoft as a follower. And it is true that the company has time and again bought in or imitated the technology of others…His (Bill Gate’s) genius was to understand what he needed and work out how to obtain it, however long it took. In an industry in which visionaries are often sniffy about anyone else’s ideas, the readiness to go elsewhere proved a devastating advantage.
In effect, Microsoft in its early days was a company that was focused on incremental technology innovation and product optimization. The combination of this one-two punch of innovation in business model and technology enhancement has enabled Microsoft to become one of the most successful and profitable companies in the world.
But as Microsoft prepares to enter the twilight of its fourth decade in existence it faces new challenges that require a fundamental reshaping of its core value offerings and how it will develop and innovate in the realms of software in the future. These challenges include emerging business models focused on advertising supported software, search, open source software, and services. The emergence of new computing form factors in the mobile space and among consumer devices focused on media and entertainment space also are having a dramatic impact on how businesses and consumers perceive and embrace computing in both established and emerging markets.
So…how does Microsoft consider to grow and thrive in this new market where open source and new business models are the disruptive innovation? My next post will look at some of the changes in Microsoft over the past few years that serve as ‘ingredients’ for innovation, and set the table in Microsoft for how to address these challenges.
Quotes from The Economist. (2008, June 26). The Meaning of Bill Gates. Retrieved July 17, 2008, from Economist.
I guess this would be the the first was that computing could be a high-volume, low-margin business.
Posted by: cheap computers | July 21, 2009 at 06:38 AM