Learning of Steve Ballmer’s departure from Microsoft, I wasn't particularly surprised: after several decades of near seven-day weeks and with a nice eleven-figure nest egg, who wouldn't want to spend more time enjoying life?
Looking Behind the Curtain
Reading further, I ran into the probable reason for Ballmer’s departure: the Surface laptop debacle that culminated in a nearly US$ 1 billion dollar (so far) write-down for un-recouped costs and unsold inventory; by some estimates more than six million units still on the shelf.
Now my interest was piqued: how could a firm with Microsoft’s experience and resources find itself in such a corner? The literal and widely reported answer was a collection of mistakes more characteristic of a Three Stooges movie.
The reported gaffes included a lame introduction, long delayed to product availability, highly restricted retail purchase channels and thin app availability due to a failure to placate a developer community still smarting from the rocky road of the Silverlight program. Somehow, it seemed, Microsoft believed that just having a laptop running Windows would attract the marketplace.
But how, I wondered, could this happen if Microsoft had its eyes even partially open in a landscape rich with experience in the introduction of new hardware products for the consumer market? There had to be something at work in Redmond beyond merely failing to do its homework.
Finding the why behind the what … the “Company Store?”
With that assumption in hand, I looked for factors in Microsoft’s experience that might insulate it from the reality of how one successfully offers a new product in today’s personal digital assistant (PDA) market. As I looked at the world Microsoft has come to view as normal, I noticed something interesting. I call it the “Company Store” syndrome — from the 19th century when workers were often paid in scrip usable only at the company store.
Today, the company store is a firm’s position as the provider of the foundation, DOS/Windows in Microsoft’s case, that other vendors must use as their gateway to their markets. Microsoft, in an early flash of brilliance, developed cooperative relationships with IBM and other personal computer manufacturers to deliver their products with its DOS and later Windows O/S pre-installed. Since the latter 1980s, virtually everyone who bought a PC — Apple and Linux zealots notwithstanding — found themselves in a Microsoft world.
Moreover, competing PC application software firms found their products tied to Microsoft’s operating system and, as several have claimed in litigation, even faced subtle roadblocks that put them at a disadvantage against their Microsoft equivalents.
IBM enters the fray
Further sweetening Microsoft’s position, in 1981 IBM, after largely owing the large computer market through the 1960s yet missing the boat on microcomputers in the 1970s, developed the first mass market personal computer, selecting Microsoft’s DOS operating system as its standard offering.
Big Blue then made its plans for both hardware and software available to anyone who wished to build and sell machines compatible with the PC and its Microsoft-developed O/S and while the wisdom of that move is debatable, it resulted in a huge market for PCs, adding a hardware component to Microsoft’s company store no matter who built and sold the PC …
… and Microsoft finds the Catbird Seat
As this situation matured, Microsoft became used to a world in which, for the most part, its customers would wait for whatever was coming from Redmond and, if the product didn’t perform as advertised, would wait for the fix or next release because they had little alternative. New customers, buying their first PCs, were implicitly encouraged to accept and use Microsoft products, from Windows to Word and IE to Excel and Power Point to whatever, regardless of whether they were best in class or most economical. Adobe and other firms made some inroads but the mass market remained solidly tied to the sages of Redmond.
In 1987, IBM, perhaps sensing its gaffe at delivering the OS market to Microsoft, tried to join the party with the joint IBM/Microsoft developed OS/2 operating system, a multibillion dollar effort that went nowhere and was finally tabled after a 2001 release.
For Microsoft, it was a comfortable and seemingly safe perch from which to view its marketplace.
“What goes up …” The market moves on
Then something happened.
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