As Microsoft knows, there's more than one way to disrupt a market

As Microsoft knows, there's more than one way to disrupt a market

Summary: Financial-analyst-turned-Web-pundit Henry Blodget posted an explainer this weekend on what "disruption" really means and why Google and other Web-based office suites are on ther verge of disrupting Microsoft in a major way. But there's more than one way to disrupt a market, as Microsoft knows quite well ....

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Financial-analyst-turned-Web-pundit Henry Blodget posted an explainer this weekend on what "disruption" really means and why Google and other Web-based office suites are on ther verge of disrupting Microsoft in a major way.

From Blodget's post, entitled "Microsoft in Denial: Google Threat is Classic Disruption":

"Disruptive technologies do not destroy existing market leaders overnight. They do not get adopted by the entire market at the same time. They do not initially seem to be 'better' products (in fact, in the early going, they are often distinctly "worse.") They are not initially a viable option for mainstream users. They do not win head-to-head feature tests. Initially, they do not even seem to be a threat."

Google Apps and other Web-based office suites sure fill that bill.

In spite of all the hype this year, there's still no real momentum among either consumers or businesses for Web-based office suites, according to independent, non-Microsoft-funded researchers.

Market watcher NPD has released results of a new study that found a very small number of its 600-plus-member U.S. customer panel are using Web-based consumer office-productivity suites as desktop office-suite replacements. NPD found:

  • 94% of PC users have never tried a SaaS (Software as a Service) office productivity suite app
  • 3.9% use SaaS apps as desktop compliments
  • Only 0.5% use SaaS apps as desktop replacements

Compete.com's most recent estimate of 1.5 million Google Apps users is on the high side and may be more of a measure of visits to Google's site rather than use, according to NPD analyst Chris Swenson.

"Look at the average time spent using Google spreadsheets - two minutes or so," Swenson said. "A lot of people are being driven to Google Apps from Google advertising campaign. I see their ads all over the Web now, and I think that much of this traffic is being counted, and is weighing down the average time spent on Google Apps."

Burton Group analyst Guy Creese has voiced similar qualms about Google Apps adoption, but from the enterprise point of view.

Creese blogged this weekend that Google CEO Eric Schmidt's much-balleyhooed claim that the cloud will handle 90 percent of today's computing tasks within five years is overly rosy, too. Creese said 30 -- not five -- years is a more realistic target.

Blodget and Creese correctly charge Microsoft with a lot of non-customer-centric behaviors in the desktop-productivity space. Price tags of $500 per copy for the versions of Office available to business users are way out of whack, Creese said. And Blodget repeated the oft-heard charge that Office is too bloated with features that a very small percentage of users want or know how to use.

But here's where I part ways with Blodget, who claims Microsoft is "in denial" about the potential threat from Google and the rest of the Web-based Office gang.

To me, the way that Microsoft is addressing the so-far small number of users who want Web-based productivity software is disruptive. Microsoft isn't listening to the venture capitalists and A-list bloggers who are ridiculing the Redmondians for not discontinuing immediately any more client-based Office development and turning Office into a Web-based product.

Instead, Microsoft is doing what the majority of productivity-suite users currently want, by adding a Web-collaboration element to Office with Office Live Workspace. At the same time, Microsoft also is sowing the seeds for a Web-based consumer office suite with the Notes and Lists components of Office Live Workspace. If and when there's enough customer demand for such a product, Microsoft won't be starting from scratch to build a Web-based suite.

Not rushing headlong into a bubble-licious market doesn't equal denial. Sometimes resisting peer/pundit pressure can be pretty disruptive, too....

Topics: Microsoft, Apps, Browser, Cloud, Collaboration, Emerging Tech, Google, Software

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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  • Finest pieces you've written to date

    "Not rushing headlong into a bubble-licious market doesn?t equal denial. Sometimes resisting peer/pundit pressure can be pretty disruptive, too?."

    Finest pieces you've written to date! This is a great way to close it too. Only criticism is that you didn't manage to get the word pooh-pooh in the story :).
    georgeou
  • Excellent piece Mary Jo.

    Personally, I think most are like me, they looked at Google apps., thought nice but no where near ready for any real use, and then moved on.
    No_Ax_to_Grind
  • Article actually highlights MS dilemma

    The fact that MS can get $500 for Office is based solely on its defacto monopoly. That amount, in turn, dramatically boosts MS profits.

    The "disruptive' technology only has to "disrupt" that profit stream. Whether a web based version of Office could maintain that profit stream is an unknown. It is worth noting however, that most MS efforts, outside of Windows and Office, have not been particularly profitable, at least nowhere near the profitability of Windows and Office.
    j.m.galvin
    • Not really...

      The only dilemma at this point is which bank to store the billions in. ;-)
      No_Ax_to_Grind
      • That was also the problem GM had in the early days competing against Toyota

        They laughed at Toyota, and had billions pouring in. But, GM does not laugh that much these days.
        DonnieBoy
        • GM was never laughing at Toyota

          Read up on the auto industry and find out the truth.
          GuidingLight
          • In the early days, yes, GM laughed. It was rather obvious at the time that

            these little tin box cars from Japan would NEVER be any competition.
            DonnieBoy
          • not just Toyota

            I ordered a 72 Buick Skylark. I got a 3800 pound car with a 350 - 4 barrel engine.
            When it came in the salesman called me to say my "little car" had arrived.
            As far as the average GM dealer was concerned, anything smaller than an Electra or a LeSabre was a toy.
            reedjjjr
      • he has valid points, you can't play that off with a snide remark.

        If it were not for the Windows and Office cash cows MS would be struggling and the real push that MS had for Windows and office happened years ago.

        The Microsoft of today could not do that now, the market has changed and they are too big and bloated to pay attention to the things that they used to pay attention to; the corporate culture has changed and they can't go back unless they cut some serious heads at the top. In my dealings with MS as a MS developer I have found that they tend to surround themselves with people that tell them what they want to hear, they isolate themselves from objective criticism so they go on believing that all is right with the world and that the world wants what they want. I still do some MS development on the side and prefer it over Linux development when it comes to application development because the tools are better, but MS was a lot better back when they were small enough to need to worry about competition from Borland and Lotus.
        balsover
    • The fact that MS can get $500 for Office....

      will not change until the Internet becomes at least as reliable as the plain old
      telephone. Right now, the PC, with all its possible failure modes AND the Internet
      connection have to work in order for Office type work can be done. If a PC breaks,
      only that user is affected, but when something happens to the link between a
      business and some distant servers, the whole business is affected. Neither the Internet
      connections nor the cell phone networks are even close in reliability to that of the
      POTS. I guess that 100+ years of experience is worth something.
      arminw
  • Office vs. Works

    "Blodget and Creese correctly charge Microsoft with a lot of non-customer-centric behaviors in the desktop-productivity space. Price tags of $500 per copy for the versions of Office available to business users are way out of whack, Creese said. And Blodget repeated the oft-heard charge that Office is too bloated with features that a very small percentage of users want or know how to use."

    Y'know, Creese and Blodget, Microsoft makes a product you may have heard of that 1) is much less than $500 and 2) has less bloated features than Office. It's called Microsoft Works. (Office is called Office for a reason...)

    Home consumers choose Office less for its features or for "full compatibility" with Office file formats, but more because of a "feeling" that it's a must-have product. Hence Microsoft even creating a home/student edition.

    As for putting Office in the cloud... if consumers are being targeted it makes more sense that Works be put up there, because Google's (and others') offerings are much closer to Works' feature sets and target market than Office.
    PB_z
    • Right on the mark

      But know what? MS will not market Works that much because it will cut down the sales of Office.
      If a home user has to pay money, Works is usually a better choice as it gives a much bigger bang for the buck. Though with Open Office being available, why anyone needs to pay for even Works is beyond me. Perhaps for the comfort.
      nilotpal_c
      • Some of Works best features...

        like Streets and Trips and Encarta are online now. I still use S&T offline, for looking up locations when I'm on the road. The Word application seems every bit as functional as the full blown version; for me anyway..

        My bank requires Microsoft Money to interact with their in house online software, so that program is essential also.
        JCitizen
  • One point, no one pays $500 for office.

    And most certainly not any corporate customer.
    No_Ax_to_Grind
    • Home and Student version is $150

      which seems to be a reasonable price for the three core programs.
      crgray
      • $120 at Amazon

        and it can be installed on three PCs. But it can't be used for business and doesn't include Outlook.

        The Basic version of Office 2007 includes Word, Excel, and Outlook and costs about $150 in single copies via OEM.

        For corporations, a single VL copy of Office 2007 Pro is around $300. You can get it for much less if you buy hundreds of licenses. So the $500 price tag is just not realistic.
        Ed Bott
  • Right on target

    The analysts only have it 1/2 right. They are correct that disruptive technologies often underdeliver relative to the established technology.

    What happens is that disruptive solutions either catch on with those 'Over-served' by the established technology (like those who pay $500 for Office to write some memos they could create in vi!). Or they create a new application and market altogether.

    In the first case the disruptor skims off the *bottom* of the over-served market, while they improve their product and economics of delivery. The other disruption is to create a new market altogether, something people are not doing today, even in some 'over-served' manner. Rather they just don't do it at all.

    Either way, a whole new market or a skimming of the overserved, gives the disruptor time (and money) to improve and *eventually* overtake the established. They keep moving up-market and changing the economics along the way, expanding who is 'over-served' by the established technology and able to use the new stuff.

    (this is all in The Innovators Dilema and The Innovators Solution, two really good books for Blodgett et al to read!)

    Where the analysts are wrong is that, unlike some apps like SFDC, these online 'desktop office suite replacement' apps are largely a gimic at this point. They neither provide something usable for the 'over-served by Office' crowd nor do they create a whole new application space.

    Against this, Microsoft's Software and Service combination seems like the correct approach to creating useful improvements to working with the type of documents, data and productivty that office suites have provided for decades. Both Google and Microsoft are likely headed to the same place, they are just starting from a different point of view.
    kmr214@...
  • Still, the problem for MS is that eventually, Office Suites will be free,

    or essentially free, and enable automatic sharing. Printing, will become very rare, taking a whole lot of complexity out of an office suite as well.

    The problem for MS is WHEN to cut to the chase and give up the traditional Office revenue stream, and also to SIMPLIFY Office.

    You have to remember that offline features are coming to online office suites, and that Google can build out data centers faster and cheaper than MS. Google can also better monetize online applications.

    I say there is a train wreck coming for Microsoft here.
    DonnieBoy
    • I think your prediction of Microsoft and Office's ....

      ... demise is greatly exagerated! furthermore Google cannot build datacenters any cheaper then Microsoft. The winner is far from determined!
      ShadeTree
      • The consesus is that YES, Google can build data centers faster, cheaper AND

        better than anybody else. The winner may not be determined, but, in any regard, it is a train wreck for MS, and revenues will disappear. Also, Google is much better than the others at MONETIZING revenue from web applications.
        DonnieBoy