Disremembering Microsoft
NO longer at Harvard, Clay Christensen protégé James Allworth has teamed up with Ben Thompson for a new podcast, Exponent. The first episode looks back at the last ten years of Microsoft — Steve Ballmer’s reign, essentially.
To their credit, Allworth and Thompson spend much of the podcast describing Apple as being a Christensen-style disruptor of Microsoft’s businesses during that period, something I thought members of team-Christensen might be too loathe ever to do. Nevertheless, the podcast includes some definite howlers. Allworth:
You think back to the ’90s; these guys [at Microsoft] had it made. They absolutely had it made. They were riding high: sales of Windows, sales of Office, everything.
In the ’90s, Microsoft Windows and Microsoft Office (not “everything”), became about 80-90% of Microsoft’s profit stream. And they still are, today. Those are their only hits, then and now.
Continuing:
The Department of Justice case happened as a result of them doing so well.
Right; I’m sure the DOJ’s case had nothing to do with the specific tactics Microsoft employed to destroy Netscape and subvert Sun’s Java (none of which even significantly contributed to Microsoft’s bottom line, as far as I know). The DOJ went after them just because they were “doing so well.” Thanks, James, for casually rewriting history to make Microsoft look like an innocent victim, whose only crime was success.
As a set-up to discussing whether Ballmer should have maximized profits or pursued innovative self-disruption, Allworth informs us that:
If you’ve got Steve Ballmer sitting there, saying, look, my job is to maximize profitability over the next ten years. I mean, that’s a pretty long time frame. But on that basis, he actually did a pretty good job.
And Thompson chimes in with:
If you look at just the pure amount of cash generated, Ballmer is one of the most successful executives of all time.
They go on to discuss at great length the question of whether Ballmer’s financial success as CEO will actually prove a longer-term failure due to unchecked disruptions from Apple. But the question of whether Ballmer actually deserves credit for Microsoft’s revenues and profits is not even broached.
Steve Ballmer inherited the stupefying Windows/Office profit stream from Bill Gates. It remained the main source of profits at Microsoft throughout Ballmer’s ten-year tenure, waxing and waning with the ebb and flow of the PC market. Ballmer’s actual legacy is that he blew incredible billions of dollars of those profits on a long list of pointless, copycat products that all failed fantastically. That the company remains financially healthy is a testament to the sheer volume of cash that gushes through the Windows/Office spigot year after year.
Blowing billions on failed copycat products certainly does not fall under the category of “maximizing profits.” Nor does it fall under the category of “innovating for the future” — and not just because market-failure products aren’t the future, but also because copycat products aren’t even a serious attempt at innovation. They’re an attempt to take success away from the real innovators.
Ballmer’s Microsoft wasn’t trying to maximize profits. It wasn’t trying to invent the future. It was trying to use its immense, built-in, Windows/Office profit fountain as a blunt instrument to assimilate (Windows-vs-Mac style) the innovations coming out of other companies.
Allworth and Thompson give Ballmer automatic credit for the one positive thing you can say about Microsoft — it still makes bungloads of cash from Windows and Office — and then spend most of their 45-minute discussion chewing on the red-herring question of whether he should have focused on disruption instead.
Update 2014.05.17 — Second installment of Exponent: Allworth spends the whole episode talking about how Silicon Valley — the home town of every major U.S. computing company besides Microsoft — (a) is too exclusive, and (b) spends its time and money on problems like how to make better computers, instead of problems like how to solve poverty and homelessness.
Update 2014.07.27 — From Exponent #10:
BT: This is what’s crazy; taking [the conversation] back to Microsoft. If they had, from the beginning, built up Windows Phone to be the enterprise phone, how much of a better position would they be in now? They would own this space, absolutely own it. And they could expand from there, possibly, into consumer [markets]. But no, they decided to carry an iPhone [effigy] in a funeral procession around Redmond. ’Cause they were gonna kill it.
JA: Right. Culture’s a hard thing to come over, to get over. It’s just a hard thing to get over. And it worked for so long. It really did.
It did? No. It didn’t. Microsoft had a long-term lock on personal computing by about 1983. Their we-will-take-everything-from-everybody attitude didn’t rev up until ’85. All they needed to extend their dominance another decade was their appeals court luck-out in 1993, which also had nothing to do with their crush-’em-all mentality.
Microsoft dominated computing for a long time despite, not because of, its dysfunctional culture.
Update 2015.09.14 — Allworth and Thompson, explaining what Apple needs to do for the sake of iPad developers (Exponent #51):
BT: That’s kind-of what almost makes this situation more depressing, from my perspective, in that the #1 thing that developers care about — and we got a very crystal-clear understanding of their priorities on making decisions back when I was at Microsoft and trying to recruit developers — first and foremost is you have to have a market of people who are willing to pay. And that means that’s both a quantity issue and a quality issue. And the frustration is that Apple has that. Apple has all the customers, and they are customers who are willing to pay. Like, they’re already paying, you know, twice the price to have an Apple product instead of something else, right?
So the frustration is, Windows has always bent over backwards to accommodate developers. They would do anything they could to give developers the best monetization options, like trials, demos, all that sort of stuff. Which Windows 8 had from the beginning. The problem is, they didn’t have customers. So, you have to have the customers to start, and so why it’s almost depressing, from my perspective, is, yeah, it’d be great if there were [an] iPad alternative that had the sort of structure where you could build complicated apps and you could go and use them.
But the problem is kinda the prerequisite. Today, to be a platform you first do have to be a great product, because you have to have, like— consumers and developers, people think oh, it’s a chicken/egg problem ... No, it’s not. #1 is consumers. Like, you win consumers with a great product, and then the developers will come in and expand it. So what’s depressing is the alternative to there being a thriving ecosystem on the iPad is there not being anything. And this, kind-of like opportunity to create amazing, innovative apps for a touchscreen is just gonna kind-of never be exploited.
JA: That’s kind-of depressing. I’m trying to think of some kind of devil’s-advocate argument I can play back against you, and I’m struggling, I’m grasping at Xiaomi, right? But that’s an environment where people are buying lower-cost devices and they’re probably going to be less willing to pay for expensive apps, just by virtue of the nature of that market. Like, it’s well-known that iOS customers spend more on apps, and so on and so forth, than Android users. And I think if you cut that down into a less-developed market, it’s probably going to be more extreme again.
So I guess the argument we’re hearing is that if Apple doesn’t get this right, there’s, like, in economic terms there’s what’s called a dead weight loss. Like, this is the disadvantage of having a monopoly. Like, if they don’t figure out how to create a thriving environment for developers to develop stuff on the iPad, then that’s it; we’re just not going to get the really cool, really interesting, reimagined interfaces that could be possible on a tablet computer.
...
JA: What’s gonna cause the light bulb to go off on the iPad side, because I’m like you: It’s like, it would seem a great waste for the incredible paradigm to not have its capabilities explored just because they weren’t willing to try a few different experiments with the business model for developers.
BT: Well, one thing that is interesting to think about is, when I talk about Apple’s incentives, and culture, and all that stuff being focused around the product, and by extension that makes them not as good, perhaps, at being a platform steward. Because a platform— being a platform is like it’s there in the word, it’s allowing others to kind-of stand on top of you, right? And letting them shine, letting them be the star. Which is very different than Apple. And like, it’s almost like, wouldn’t it almost be nice if Apple could build the iPad and, kind-of, hand it off to Microsoft?
Because Microsoft is actually a great platform company; that’s what they are. They take care of their developers— they almost do too much, right? The backwards compatibility, and all the things that they let you do— they’re a platform company. ... To be a platform company, I think you need a certain degree of flexibility. You need a certain degree of kind-of letting go. It’s gonna be a little messy. You know what I mean? That just comes with the territory. And the problem is, you can’t be messy, and flexible, and blah-blah-blah when you’re making a product.
As near as I can tell, Allworth and Thompson here are making a mountain of a mole hill. They take maybe the only two, sort-of bad things you can find about Apple —
- iPad sales are declining significantly (since the large-screen iPhones were announced), and
- some developers are disgruntled about not getting to jack with the OS in ways that Apple doesn’t want them to —
and turn that into an argument that Apple needs to let go of its platform control!
These guys simply have their minds in the ’90s. It could scarcely be clearer. In the ’90s, Microsoft ran the platform. OEMs made the hardware that the platform ran on. The platform was messy; saddled with malware, anti-malware solutions, and casual piracy en masse. (No mention of piracy in this entire podcast, that I noticed!) Allworth and Thompson remember those times with fondness, and think it should still be that way today. No matter how successful Apple becomes, no matter what records Apple breaks (then re-breaks) with revenue, profits, user accounts, customer satisfaction, developer earnings, etc. — some tech observers are going to keep thinking that Apple should voluntarily surrender its stupefyingly vibrant platform, to purposely recreate the ’90s wild-west all over again.
Update 2016.06.17 — Consider the following events in Apple’s return-of-Jobs history:
- A. Jobs immediately kills all money-losing projects, and refocuses the company on selling what can turn a profit, with a special focus (iMac) on the internet-interested consumer.
- B. Apple catches Microsoft red-handed stealing QuickTime code, then cuts an out-of-court settlement in which Microsoft must buy $150 million of non-voting Apple stock, and maintain Office on the Mac for several years. (Later, under Ballmer, Microsoft dumps all that stock — if they had held it, today it would be worth around $20 billion, and would be earning over $200 million/year in dividends.)
- C. Apple revolutionizes the mobile-products market, starting with iPod, then followed by iPhone and iPad.
Question: Which of these events is primarily responsible for saving Apple from bankruptcy and dissolution? Obvious answer: A.
Question: Which of these events is primarily responsible for Apple’s phenomenal rise to most successful company in the history of companies? Obvious answer: C.
Question: To which of these events do Thompson and Allworth, in their latest installment (#83), primarily attribute the saving of Apple as a company? Obvious (sigh) answer: B.
Any mention of QuickTime code theft? Out-of-court settlement? Ballmer blowing about twenty billion by spitefully selling the stock? Of course not. The whole event is portrayed simply as Microsoft investing in Apple and saving the company. And those Apple fans booing Gates when his live, videoconference image appeared on a gargantuan screen at MacWorld (something Jobs later said he regretted doing)? Those people were “outraged that they were going to be saved.”
Thanks, Ben; thanks, James. Thanks for making it crystal-clear to everyone where you stand. Right up there with Enderle, Lyons, and Thurrott.
Update 2018.01.17 — In “Steve Ballmer deserves his due as a great CEO” (CNBC), Eric Jackson does a pretty decent job of mentioning Ballmer’s worst failings, but still somehow manages to conclude that he was one of the greats. The article’s twisted logic is best summarized by this paragraph:
The day Ballmer said he’d leave Microsoft in 2013, the company’s market cap was $245 billion. It’s now $700 billion. That doesn’t happen simply because a new CEO is more charismatic. A lot of these gains in market cap are because of Ballmer’s stewardship.
It’s hard for me to believe that any tech commentators could really like Ballmer this much. Maybe it’s just an attempt to rewrite Microsoft’s 2000s history as something other than a big, repellent disaster.
Update 2018.04.06 — Exponent #147:
JA: [Microsoft] had Windows. And that’s all they— that’s all they have. And like, the basis on which their— I mean it becomes a basis of, like, you need to do the best you can given that.
BT: But that’s hard. It’s hard to compete without being the best. Like, it’s hard to compete without leverage.
JA: Yeah, and I mean, this is, I mean, this is interesting, ’cause we’ve drawn a parallel between Windows and, um, well, Microsoft and Apple, and I think there’s another one here, which is like, the end of Windows: There’s going to be a point in the future where iOS faces a similar fate, and it’s going to be really interesting to think about what Apple then uses as its point of leverage going forward. Because this thing keeps replaying as companies move up the stack, and growth happens in different places. It’s a cycle that will continue, on end, and just keep going, and keep going, and keep going.
Hey, here’s an idea. Let’s fantasize about Apple declining in the future, but make it sound like intelligent, Ivy League analysis. That could be really fun.
Update 2018.11.30 — Exponent #156: Ben & James discuss the is-Apple-an-abusive-monopoly Supreme Court case. They actually manage to say some fairly positive things about Apple (especially Allworth) — but about halfway through, Thompson throws us this:
BT: Think about a game, for example. If you’re in the middle of a game, you wanna add some virtual money or you wanna buy a dance, or whatever it might be, you don’t wanna be kicked out to a web page, and buy something, and have to create a new account, and go through all that sort-of rigamarole. There’s tremendous benefit that come from those in-app purchase APIs. And Google and Apple have earned the right to have that superior user experience because of all the innovation they’ve put into the platform as a whole. And so I’ve no problem with them offering that, and I think they will continue to make a whole bunch o’ money doing that. However, I think they should win on the merits! They should win, and developers should use them, and should pay the 30% tax, because they’re better, not because they made a rule.
Wow, let’s get that straight: Apple should be allowed to keep 30% (vs. 0%) of an app’s revenue only if/when the author decides that it’s worth giving up 30% of revenue just to avoid sending the user to a separately maintained web-view to pay for the app? Riggghhht. That makes sense.
Apple’s 30% is the price of the whole damn App Store, the development system, vetting of all apps, app hosting/serving, the OS itself including constant maintenance, bug fixes and enhancements, securing the whole system (effectively) against piracy and malware, securely handling all payments via credit, debit, or Apple Pay — everything to do with constructing a hyper-positive environment for third-party app authors to focus on their apps, and flourish — not just the convenience of avoiding an external payment page!
Is it really possible that Thompson didn’t know that?
Later:
BT: Apple taking huge profits on the iPhone is totally fine. They earned it. They created iOS; iOS is exclusive to iPhones. I’ve talked in the past: it’s kind-of like a monopoly in that they have a monopoly on iOS; the only way to get it is by Apple hardware. But that’s totally legitimate; that’s good business. But to leverage that into saying, we get 30% of e-books, is so egregious that it puts what Microsoft did to absolute shame!
Scenario 1:
GATEWAY:
We want to sell our PCs with the Netscape and IE browsers both pre-loaded.
MICROSOFT:
No, you will sell them with only IE. Or we’ll terminate your Windows license, and your whole company will be destroyed overnight. But don’t worry — we’re making all the PC makers do the same, so you needn’t worry about competing with them on this point.
GATEWAY:
Um.. OK. We’ll remove Netscape.
Scenario 2:
AMAZON:
We want our Kindle e-reader users to be able to also read their Kindle e-books on their iPhone and iPad, if they happen to have one of those products. And although we could probably do it just fine in a web app, we’d prefer to do it in a native iOS app. Any way we can dodge your 30% share?
APPLE:
Yes, if your iOS app is strictly a reader, for Kindle users to read their e-book collection, and it doesn’t include — or in any way lead the user to — an e-book store, then you keep 100% of the money, and we get 0%.
AMAZON:
Great, that’s what we’ll do!
One of these scenarios is indeed egregious. The other one, not so much. Can you tell which is which? (Hint: Don’t ask Thompson.)
Update 2019.01.11 — Ep. #158:
JA: How many of these new things can they sell? Yeah, they have some services, revenue as we have talked about, but primarily it’s driven around sales, year over year, quarter over quarter. And when you start to hit periods like this, the growth starts to stall, narratives like this start to emerge; it becomes harder to attract employees. Like, it’s one thing if you’re going to work on the iPhone back in 2010/2011 when this is the thing that looks like it can conquer the world; it’s another thing when you’re going to work on the iPhone, and it’s 2019, and it’s, OK, you’ve hit 100% market share, and it’s not immediately clear what the new innovation is that you’re gonna bring into the phone that people actually, really, really get excited and care about. There are other issues from hitting that saturation point, hitting that point of over-serving customers. You’re right [Ben], it doesn’t mean the sky is falling, but it is a cause for concern.
Another cause for concern: having been publicly down on Apple’s future for many years running, accumulating a desperate hunger to one day get to cry out, “See? See? I was right all along!”
JA: The phone was definitely on the horizon, and Microsoft saw it, and they couldn’t bring themselves to do anything about it. ... The thing that will replace [iPhone] — who knows what it is — that’s the step before the point at which Apple’s so successful in the phone that it can’t bring itself to compete in that new device category or whatever that is.
Microsoft was too in love with desktop Windows to bring itself to try to do something about iPhone? Um, no, actually, Microsoft spent astonishing billions — first on Windows Mobile, then on Windows Phone — trying very hard to do something about iPhone. They failed because they couldn’t do it, not because they couldn’t bring themselves to try.
Update 2019.03.15 — When, oh when, will we ever know why Microsoft “invested” in Apple by purchasing $150 million of Apple stock in ’97? Allworth & Thompson didn’t have a clue 83 episodes ago (2016.06.17 update above), and Allworth’s still scratching his head over it today (ep. #166):
JA: Back in 1997, Microsoft invested $150 million in Apple, and, very importantly, made available the Microsoft suite of applications to Apple. ... And I think back to why Microsoft might invest in Apple? And at least to some extent it feels like protection from an accusation of being a monopoly in operating systems ends up being at least some factor in their decision to put that money in, and to make Office available for Mac.
Hmmm. If Microsoft wanted to theoretically compensate for its extremely blatant Netscape- and Sun-related anticompetitive activities, by investing $150 million in Apple — why would the stock be non-voting? And where would they get that, anyway? Just call up their broker and say, “Buy $150 million of AAPL, but make it non-voting, please. You do have a whole bunch of that lying around, waiting to be sold — right?” To which the broker would say, “Uh, what?”
But unlike Allworth, and to his significant credit, Thompson seems to have learned a little bit about this episode in the last three years:
You have to remember, this deal also included the settlement of the lawsuit of basically a small company, I think Microsoft acquired, straight-up lifting code from Apple? So there was other factors going into this? But I do think there is something to the fact that Microsoft saw having Apple around ... they could point to Apple and say, look, we’re not a monopoly. There’s sorta competition out there.
So he still finds a way to agree with Allworth. But at least he pays some very brief lip service to the elephant in the room.
See also:
The Old-Fashioned Way
&
Apple Paves the Way For Apple
&
iPhone 2013 Score Card
&
Disremembering Microsoft
&
What Was Christensen Thinking?
&
Four Analysts
&
Remember the iPod Killers?
&
The Innovator’s Victory
&
Answering the Toughest Question About Disruption Theory
&
Predictive Value
&
It’s Not A Criticism, It’s A Fact
&
Vivek Wadhwa, Scamster Bitcoin Doomsayer
&
Judos vs. Pin Place
&
To the Bitter End
© 2024 Darel Rex Finley 
design by 