July 26, 2006

Adding Business Value

There's a very interesting article on Seeking Alpha comparing today's Microsoft with the 1980's version of IBM. It's saying that "Microsoft is about to lose the software business..." It's called: Microsoft's Current Situation: Like IBM in the 80s. I don't agree and here's why:

1. IBM didn't lose the PC business in the 1980's. My career in technology goes back that far and as I recall IBM built its personal computers via the sourcing of components that were readily available from computer product manufacturers.

IBM's PC supply chain was open. This fostered the creation of an entire industry, that ultimately led to cheaper IBM PC Compatibles. Names such as Packard Bell, Toshiba, Samsung, Compaq (now HP), etc.. emerged as vendors as a result.

Was this the right thing for IBM to do? I think so. Every development since the 80's was a direct result of IBM going open with its PC architecture. Up until the sale of its PC Division to Lenovo, they ranked high as a PC manufacturer;

2. That Microsoft's revenue is under attack is not a new thing.

3. IT Departments are not Microsoft centric. Sun, IBM, HP and many others would beg to differ.

4. R&D labs do not actually produce new products. These labs do pure research that may over the period of years (5-10) lead to new products.

5. Finally Seeking Alpha says: "In fact it's hard to find any example of buying into a market yielding a profitable long term business. Subsidies kill innovation." There is an example that is cited -- Hotmail. When Hotmail was acquired by Microsoft in 1997 it had 8.5 million subscribers, just 2 years later in 1999 it had 30 million today it has 230 million. Could Microsoft have attained these results by building its own email service from scratch? Maybe...but not likely, and why bother.

Asking the question: "Is Microsoft about to lose the software business?" misses the true essence of sustaining leadership -- in order for a company to stay in front it needs a pipeline of new differentiated products and platforms. In my opinion the evolution to Vista, Zune and others means that the right action is being taken to add business value.

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