Microsoft and the advent of the PC caused the hardware giant IBM to pivot away from their original core business, hardware, to professional services. Now Microsoft itself is forced to pivot because its core business is being disrupted: it used to be consumer oriented software, but that game is now lost to Apple and Google. But what will Microsoft pivot to? the answer is not cloud computing although they seem to think so themselves!
The beginning of the end of the machine pusher
In the 80s people had perms and danced around with coloured leather ties to “Hungry Like the Wolf” by Duran Duran and IBM was an unrivalled giant in tech, famously portrayed in Apples 1984 commercial. Life was good. A near monopoly on computers, high barriers of entry and large margins made IBM a safe bet in any investment textbook. The name stood and still stands for International Business Machines. So, it is not too much to say that hardware was their core business. They famously also made the transit into the consumer world with the PC and all was good. They didn’t think much of this stuff that made the machines functional and sensible to humans: the software. Therefore they logically let a subcontractor supply their machines, with the software. At that time the thinking was that whatever you could put on computers to help sell more computers was a good thing. After all, they were a machine company and they wanted to sell machines.
The subcontractor, of course, was Microsoft. They supplied the operating system and user interface to the machine. Microsoft gradually improved the interface and since this was what humans perceived as their computer it became central in the PC experience. Inevitably other companies started to produce cheaper versions of the desktop computer. Similarly to IBM they also needed something to turn the computer from a big hunk of silicon and plastic into something that made sense to humans.
Since IBM had an early lead, the logical thing was to move consumers from the IBM world to a cheaper world. What better way to do that than to present the potential customers with an interface that was identical to what they already knew? Thus Microsoft became the default platform for the PC or desktop computers for decades to come. Whether cheap or expensive all computers had to have Microsoft operating systems and software. IBM was stuck in the innovators dilemma and couldn’t live from the small margins of the desktop computer, so they had to abandon that division altogether.
As the computing power of the desktop computer grew, the market grew increasingly sour and started to threaten IBMs heartland, the mainframe computer. In the end they had to completely re-orient their business towards professional services and therefore they are not the same company they started out as. What happened was that changes in the underlying circumstances for their primary products were undermining their market feasibility.
Is Microsoft the new IBM?
Now something similar is happening to Microsoft and it will be interesting to see where that leads them.
For years the PC and its familiar interface, Microsoft Windows, has been the primary interface to computing resources for consumers, but a decade ago cell phones started to be able to do some of the same things: you could play games on your Nokia 3210, you could calculate, write electronic messages etc. Very simple things, still far from the desktop computer.
Then came the smart phone. I remember the attraction of the first smartphones was to sync your calendar with your outlook calendar, write notes and to do lists and eventually browse the internet although very slowly. As processing power increases, something similar to the obsolescence of the mainframe happened to the PC. The smartphone could do more and more of the things the desktop computer used to do.
Then came the tablet in full force and with increased processor power and screen size even more things you would normally do on the desktop computer. Now the only problem for Microsoft was that hardware producers had not selected Microsoft’s software for these new devices that the consumers used. The interfaces were called android and iOS. This is now what consumers are used to as portals to their computing power.
Microsoft has struggled to bring their user interface on these new devices, like IBM tried to keep track with new hardware producers, but so far with little success. The user interface between the computer and the consumer, which used to be Microsoft’s heartland business, now seems just as lost as the production of machines seemed to IBM when they made their big switch to professional services.
So, what will Microsoft do? the mirrored fates of IBM and MS
Therefore it is now interesting to follow Microsoft and see if they have the same courage as IBM had. To completely rethink their business and reason for being? Will they be able to shift away from software and operating systems into something else like IBM did?
So far it seems that their professional services could be cloud computing in general. The question is just whether their offering will be strong enough to keep the leadership.
IBM lost their heartland products but kept their customer segment. To this very day the same customers buy from IBM. They just buy something else: development services, software, the occasional strategy report etc.
For Microsoft it will probably be even more up hill. They may not have lost out on the product, since many units are still shifted every second and the percentage of OS on desktop computers is still a majority. But they have lost something even more important their heartland customer segment: the consumer. For decades now they have tried to build a lead in a new costumer segment SME businesses. Here they sell similar products (OS, software etc.) as they did to the consumer.
A tale of two pivots
In short it seems that IBM stuck with the customer segment and changed the products because they were disrupted by Microsoft and Microsoft stuck with their products and found a new customer segment. This move is not complete and it is too early to tell whether they will carry it through, but that could be what will save Microsoft. Not that Microsoft appears to be a company in need of saving, but let’s face it. No matter what they will try, consumers will never flock to Microsoft for an operating system on their mobile devices. That battle is lost. Just like the Machine battle was lost to IBM years or decades before they realised it.
Borrowing a term from the lean start up movement, you could say that IBM made a product pivot and Microsoft is attempting a customer pivot. Only time will tell if they succeed.