Microsoft's Days are Numbered – Naturally

Today’s New York Times had a good article about the natural decline of Microsoft entitled The Computer Industry Comes With Built-In Term Limits (Randall Stross). Defining a phenomenon called the Single-Era Conjecture, Stross talks about the “invisible law that makes it impossible for a company in the computer business to enjoy pre-eminence that spans two technological eras.” Coming near the time that Bill Gates will retire from the company he created (check out the Bill Gates timeline in the new Wired, not yet available online), it seems appropriate to talk about Microsoft’s future.  Stross identifies that regardless of how prepared a company is for the arrival of new technologies, they will still lose market leadership.

What Stross fails to discuss, however, is why this happens.  He makes it sound like it is a natural law.  But, the elements of a mature company that in many ways has acted like a monopoly are the true culprits.  Once one invests heavily in a business model, and thus a way of life, it is difficult to steer the behemoth in new directions.  In Microsoft’s case, it was an operating system tied to a platform that became a commodity and shrink-wrapped, proprietary software that was delivered inefficiently to the end user.  It wasn’t hard for smaller, more nimble companies to come along and exploit those weaknesses.

Traditional media, particularly newspapers, are experiencing the same challenge, although they have enjoyed a stronghold for much longer than Microsoft.  The Internet just made old ways seem inefficient.  Why ship products when they can just be downloaded, why print on paper and distribute via trucks when we can just read online?  And, ultimately, why should we be bound to an inferior hardware and OS platform, when there are open source options?

Once a company is of a certain size, they must take a “head-in-the-sand” approach to these new things that threaten their livelihood.  If we ignore it, maybe it will go away.  If we insult it and make people fear it, the more likely it is to go away.  But, the Internet was a no-brainer.  It was pure potential, and had Bill Gates dropped out of Harvard in the 90s instead of the 70s, Microsoft’s roots would have been firmly ingrained in an online world.

So, does that make a computer company’s demise naturally inevitable? Sure, the origin of a company is married to the environment in which it comes up, but is its path pre-determined?  Companies like IBM (founded in 1888 as Tabulating Machine Company, became International Business Machines in 1924)and NCR Corporation (founded 1884) are still around.  And after many ups and downs, they are even considered somewhat successful. But, neither has the market dominance that they once enjoyed.  Companies like Compaq have been swallowed up by larger bloated behemoths (HP). They were once lauded for their ingenious business model of managing reseller partners, that was quickly unseated by Dell with their direct-to-customer model.  Was it impossible to see the ultimate weaknesses in that strategy?  Now, Dell suffers due to lack of innovation, not to mention being tied to the Microsoft Vista debacle.  We’ve seen Yahoo slip as our search engine of choice, while Google figured out a way to create a business model around it.  And, forget about tracking the diffusion of social networks, Friendster, MySpace, Facebook, Twitter, FriendFeed, Ning…

Money is part of the problem.  Companies rush to go public or sell to a larger company, then lose control of their destiny.  It all becomes about short-term profit.  Maybe it’s the market that we refer to when we blame “Mother Nature.”