What Ails Microsoft

By Mark Roberti

A much-discussed reorganization is necessary—but not as much as a focus on the next big thing, instead of the last big one.

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The business media was awash last week with articles covering Microsoft‘s plan to reorganize itself and do away with its product divisions. Most of the articles I read suggested that CEO Steve Ballmer’s goal was to make Microsoft more like Apple, which is organized around functions, rather than products. I’m not in the business of telling other CEOs how to run their companies, but I think Microsoft’s problem is one of vision—and that’s one problem most technology companies share. Let me explain.

Every big company (except perhaps Apple) has divisions that sell different products. They compete with each other for talent within their business, marketing funds and CEO mindshare. The various divisions dislike selling each other’s products, as they are rewarded based on how their own divisions do. This is not uncommon, and for many companies, it also isn’t crippling. Just look at General Electric. Its divisions operate as virtually separate companies, and it has been highly successful.

In my view, what ails Microsoft is a singular focus on going after the last big thing. When MP3 players became hot, thanks to Apple’s iPod, Microsoft had to create the Zune. When search advertising was delivering billions of dollars to Google, Microsoft had to create Bing. When the iPhone became popular, the lords of Seattle had to get into the phone software market. When the iPad took off, Microsoft created its Surface tablet. And yet, in each case, Microsoft has failed to make much headway into these markets. According to IDC, a provider of market intelligence, advisory services and events for the IT, telecommunications and consumer technology markets, Microsoft’s market share in tablets is only 1.8 percent, compared with Apple’s 40 percent.

If Steve Ballmer read Geoffrey Moore’s books, he’d know that displacing a gorilla (a dominant technology provider) is very difficult. Perhaps Microsoft learned the wrong lesson from its first battle with a gorilla. Netscape dominated the early market for browsers, but Microsoft leveraged all of its resources and eventually crushed the startup. As a result, Microsoft seems to have learned that it can beat gorillas. Instead, the firm should have learned that it took massive resources to beat a small firm like Netscape, so it’s doubtful that it could dislodge a wealthy company like Apple or Google.

What does this have to do with RFID? Two things.

First, RFID is a big opportunity—for Microsoft and for many other technology players. Microsoft has a good RFID product called BizTalk RFID. But amid all the focus on the last big thing, the company has not done much with its one product in a market that it could dominate.

If Microsoft wants to be more like Apple, it needs to have vision, and it needs to take risks. That means betting it can turn a market where little is happening into one that is exploding, the way Apple has done with MP3 players, smartphones and tablets. Apple didn’t wait for the tablet market to take off (and for someone else to dominate it) before creating the iPad. It created a product for a market that was practically moribund, but made such a compelling tablet that the market inevitably took off.

Could Microsoft do that with RFID? Absolutely. The RFID market is waiting for someone to deliver a compelling product that will drive adoption. All other pieces of the puzzle—standards, reliable tags and readers, business problems that other technologies can’t solve—are already in place. But it takes vision and guts to bet money where no one else is betting it. That’s what made Apple so different.

Second, the company that dominates the RFID software market—whether Microsoft or another player—will be difficult to dislodge. I understand why Microsoft keeps going after established markets, as it can see the revenue others are making, and it wants a piece of the action. But if it can become the gorilla in a new market, it will be as difficult for others to grab that away as it has been for Microsoft to muscle in on search advertising or smartphone software.

If Microsoft became the dominant provider of RFID middleware and applications, it could earn hundreds of millions of dollars annually, for many years to come. And the lesson taught to us by Moore—and by Microsoft’s tepid forays into MP3 players, search engines, tablets and so forth—is that the dominant player will be very hard to displace. (The same is true for tag and reader manufacturers.)

How can Microsoft be sure that the RFID industry will become a big software market? It can’t. It doesn’t know for sure that RFID will be worth hundreds of millions of dollars, any more than Apple knew with certainty that the MP3 market would be worth that much, or that tablets would take off the way they did. The difference between Apple and Microsoft (and most other companies) is that Apple was willing to bet that it could design, build and market products so compelling that it could create new markets. A reorganization alone cannot give you that kind of confidence and vision.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark’s opinions, visit the RFID Journal Blog, the Editor’s Note archive or RFID Connect.