Disrupting Microsoft

I've been fortunate to have an on-off email thread with one of my favorite authors, Prof. Clayton Christensen of the Harvard Business School. So first off, I'd like to thank him for doing so. Prof. Christensen's seminal work, "The Innovator's Dilemma", is a business theory that basically says that bringing down an industry leader takes two things: 1) industry leaders ask their customers what they want and do what they ask relatively blindly and 2) an opponent either a) comes from a slightly different direction for those customers who want or accept "good enough" or b) go at the problem from an entirely different angle, creating a different market that attracts the leader's customers and those who cannot or do not want the leader's product or service. The steel industry, the hard drive industry, and many others have followed this pattern. What makes the theory more interesting is that the leader, upon finding that they are being encroached upon, typically tries to respond by modifying their existing product or service to copy the follower but tries to sell it to their existing customer, who has no use for it. In the mean time, they cannot sell it to the follower's customer, either, because the follower sees complexity and a sense of "tacked on-edness". Thus, the leader begins the slow or steady decline into irrelevance. Think NCR and plenty of others.

Most people in technology and other pundits have seen the rise of Linux as a major disruption to Microsoft. The Linux movement is populated by highly technical people who have tried very hard to make Linux a disruptive force. Unfortunately I don't see Linux as the threat. The free software movement has seemingly come apart and splintered. There are companies involved with versions of Linux now and regular people, the folks who run Windows and want computing to be easy, don't see a viable Linux that "just works". For the technogeek out there (and you know who you are and you should be proud of that stereotype) Linux offers a wonderful world of development and opportunity. For the rest of us, as Steve Jobs might say, Linux is a complicated, overwrought world populated by people who want to jigger with the internals of a computer's working code. 98-99% of the public has no, and that's a definitive no, interest in doing this.

So what? Well, I've put together a theory about disrupting Microsoft, using the principles of the Innovator's Dilemma. Here's the question: How would Microsoft's desktop dominance be threatened? Here's the hypothesis: Microsoft's dominance could be toppled by competitors who de-emphasize the OS and its subsequent tools such as Office suites and focus on computing in the home or entertainment realm. Which company could do this? Apple.

Apple is the company most regular people really like because of one thing: the iPod. And what is the iPod? It's simple entertainment. It's the computing device for the rest of us. Anyway, without further ado, I present the email (with additions as I've added them) I just sent to Prof. Christensen for his feedback.

Clayton,

Hope all is well with you. We have not emailed since, I believe, February or so. I've been following Apple Computer very carefully and wanted to run some thoughts by you:

Apple will, in my opinion, disrupt Microsoft's desktop dominance. They are creating the classic Innovator's Dilemma by creating a new market for their products: they are no longer "competing" in the computer hardware and software OS arena, but have attacked and successfully are dominating the entertainment industry. (I believe the recent announcements by CBS and NBC are hackneyed attempts to look forward-thinking and represent weak offerings to the public because they've each taken a different approach to Apple's more elegant solution.) This back door maneuver is evident in the iPod, the Motorola-Apple ROKR phone (selling well or not), and now with the release of the new iMac G5 with Front Row, an eventual direct Media Center Edition competitor.

Microsoft, in response, has basically failed with the introduction of their WMA-based music players. Though Apple is not following the classic model of inexpensive but good enough music players (and now with "good enough" video), they could get away with this because the aesthetics of the devices more than made up for the lack of functionality, which Apple says is overdone anyway (who wants an FM tuner as well as playing music, is Jobs response). Apple excels in the simple. But for an operating system, no matter how simple OSX is, the desktop is dominated by Windows.

Seeing the move to the media center, though, Jobs and Company have decided that simplicity is the best move and gone directly for the throat. As people's homes are routinely filled with attractive Apple non-computer products, they will be constantly reminded of Apple's brand. Eventually, this could result in replacing the buggy, virus-ridden PC with, of course, an Apple machine. And this machine could be the Mac mini, which could become the perfect "component" for recording and managing video, eventually on-demand video as PVR makers such as TiVo are attempting to handle.

Microsoft, as expected, has responded poorly to these attacks. The Media Center Edition of Windows has not been as well received as hoped. Microsoft has attempted to retaliate by doing what you noted every threatened leader does: they've crammed features their users don't want into the same products and essentially made them overcomplicated and uninteresting. This is where Apple is continuing to win. The crude breakdown is Microsoft is still for geeks while Apple is for everybody else. (As an aside, this would also support why Windows is such a target for viruses and worms. Yes, 95% market share helps, but the code is a veritable mish-mash of legacy support and holes that tech geeks salivate over to find problems.) And now Apple has taken that mantra out of computing and put it directly into our entertainment centers. And by doing so, will eventually make it into our computers again.

I see Apple's newest forays into video as another toe in the water. They will release a smart phone eventually, when they've reduced OSX to something very, very simple for a phone that incorporates iTunes the right way, not the Motorola way. As well, they will continue to expand the Mac mini's role as an entertainment component and less as a computer for general use. It will "just have" the right circuitry/components to eventually wirelessly tie into a home's computer network and make it accessible from anywhere. It already does. It's just missing the Front Row software of the new iMac G5. The new iMac G5 will, as Dell and HP are doing, morph into a full-fledged HDTV-based entertainment hub/computer/television.

And let's not forget Apple's decision to move to Intel processors. This is an obvious "stake in the heart" approach to proving that computing can be simplified. The ads virtually write themselves extolling the virtues of 1) better, simpler, easier-to-use OS 2) fewer, if any, viruses 3) better incorporated system into the home entertainment products Apple's been selling for years already. If Apple can prove that the same products written for Windows, such as the stalwart Photoshop, run as fast or hopefully faster on the Intel OSX machine with fewer resources (Windows is a resource hog, resulting in a need to deck out a PC with as much RAM as possible) Apple will begin to work the mindset of both the geeks and the home users. On the geek side, expect Apple to release a developer toolset that easily bests Microsoft's Visual Studio package in terms of simplicity, speed, and power. I expect it to embrace development tools such as the current AJAX model that Google and others are using to such success. Which is why I see Apple/Google pairings in the near future. Apple is entertainment and entertainment is data/information; Google is information and searching/leveraging that information. I expect Google's influence to spread to built-in OSX tools such as Spotlight, Apple's excellent OS-based search tool, either through direct partnership or links that will allow Spotlight to leverage online search capabilities. On the personal side, I expect Apple to continue to have high profit margins but lower cost computers due to the more standard components of an Intel-based PC. Apple should approach the "too expensive" argument with fervor once the Intel-based Mac machines hit the market.

Microsoft's current Windows plans include what seem to be 20 versions of "Vista", due out in 2006 (originally due in 2003? 2004? 2005?). This plan has had plenty of ridicule heaped upon it. This plan also supports the Innovator's Dilemma leader theory of developing as many versions as possible to satisfy the current customer base while attempting to satisfy those who need "good enough". This approach will result in confused and frustrated existing as well as possible clients on all sides, including the businesses that Microsoft so desperately wants to appeal to in the small business arena. The release of the Windows and Office Live online products has been resoundingly dull. They look to be repackaging of existing MSN products with which no one was highly interested in the first place. The focus on services, and the recent release of the Gates and Ozzie emails outlining the major issues facing Microsoft, support the opinion that the company believes, at present, that the competition is beating them online again, just as they were beaten in 1995 with the Internet revolution. Microsoft curtailed that problem by hammering the competition with a free browser. In the world we're currently living in, this option will not be available to them unless they're willing to give away much more expensive assets, including the hardware on which their software will run. And this means that if Windows WMA digital rights management music players are to sell, MS will have to subsidize them to the tune of almost or fully free. And that would be very expensive. Today these WMA-based players are bit parts in an industry dominated by Apple. Microsoft does have the money to do this, but without the subsequent revenue uptick to offset these costs, their stock price will take a hit. And, there is still no promise that they can make the system hardware and software as simple as Apple, or remove the perception. It would take a massive failure of Apple for regular people to take the leap to Microsoft, and again, only if the entertainment package was almost or fully subsidized.

Gates has just issued his every 10 year missive regarding the biggest issues they face. Gates is only partially right this time because the major issue is now more complex than it was in 1995. The software as a service world is coming. But Jobs and Company may know that there is no point in focusing on that currently. What people want is entertainment where and how they want it. They don't want to write Word docs on their sofa while watching Oprah. They want TV on their phone, the laptop, or on the sofa. They want their music in the same places. Computing for computing's sake is too difficult right now. Expect Apple to move to services software near the end of their strategy. (If you want an example of where they might go, just take a look at Apple's widgets in the OSX Dashboard.) Microsoft is still focused on protecting the desktop. They believe the PC is the home entertainment hub. But their efforts to move into this realm have seen lukewarm reception, at best. Microsoft sees a PC. Apple sees an appliance, something that just works. This is not the Internet appliance of the late 90s, either. These are more like your toaster with a brain that removes the regular person from having to jerk around with an operating system. Now, no one has yet seemed to want a toaster with a brain. Bad example. Look for Apple and Google to combine efforts (or even combine) when Apple has even more power in the entertainment industry in both audio and video.

It strikes me as very ironic that Microsoft is right with this innovative idea. But Apple is going to beat them to it by coming through the back door.