The incumbent's conundrum

The incumbent's conundrum

Summary: Microsoft has become the latest example of an established incumbent that left it too late to embrace disruptive technologies that will obsolete its existing products.

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TOPICS: Microsoft
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Clayton Christensen's book The Innovator's Dilemma explains in detail why established market leaders get caught out by disruptive innovations. What you might call the incumbent's conundrum is knowing when to flip from supporting your existing successful products to investing in the technologies that will one day make them obsolete.

Most incumbents get this completely wrong. Microsoft has now become the latest example, as its own CTO Ray Ozzie let slip in an internal memo he recently sent to Microsoft employees:

"We should've been leaders with all our web properties in harnessing the potential of Ajax, following our pioneering work in OWA (Outlook Web Access)."

Should've, but didn't. At the time, Microsoft was intent on making sure that as few as possible users deserted the desktop environment in favor of web-based applications. Following up that "pioneering work" would have directly contradicted company strategy. Microsoft had no incentive to do anything that would hasten a switch to web-based interfaces — which is why it ignored a succession of insiders who tried to argue the case. The trouble is, other companies had no such incentive, and Microsoft has ended up following them rather than leading.

Now that Microsoft has got itself on the back foot, things will go from bad to worse for the software giant, I'm afraid. With no track record of serious investment in web-centric business models, the company has no pool of internal expertise in that area that it can draw on. That means its efforts to regain lost ground will continue to be stymied, while it will continue to waste money and resources attempting to defend its established products in areas where they have already lost the initiative (for example, attempting to supplant PDF as a format for document exchange).

Microsoft's decline will be much like IBM's from 1985-1995, when Microsoft itself was the principal agent of disruption. You'd think, given that experience, Microsoft would know better, but maybe no company is strong enough to battle its own incumbency.

Topic: Microsoft

Phil Wainewright

About Phil Wainewright

Since 1998, Phil Wainewright has been a thought leader in cloud computing as a blogger, analyst and consultant.

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32 comments
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  • You are ASSuming

    that web services WILL be the next big thing. What if you are WRONG? Google and Yahoo go some things in this space - FOR FREE, and everyone thinks there's a ton of money in this. When it comes to the future of computing - I'm from Missouri
    Roger Ramjet
    • You could be right

      about web services. I think we're going to see a stampede in that direction for a while since it's the newest thing, but I wonder how it's going to play over the long term. The idea of underwriting the cost with ads is ludicrous, so there's the continual payment issue to contend with. I wonder how the market will take to the total lack of control over software. For instance, what happens when a bad software upgrade is pushed to a web service model? When your software is local, you might delay moving up a version while you see what the reaction is from other customers. With web services, you won't have a choice, will you? You'll have to go with what's there.
      ebrke
      • Remember when "Push" was the next big thing?

        There have been enough "next big things" that have flopped like a fish on a dock to make me look at new claims with a healthy dose of skepticism.
        archerjoe
        • Push Too Early

          Push had the right idea at the wrong time. Trying to push out whole apps on a 10Mps node was, well, stupid. The problem was bandwidth. Now that virtually everyone has a broadband connection at home, and a switched 100Mps network at work, push is come of age. Actually, we don't call it "push" anymore. We call it downloading. The emergence of Web-based standards has helped considerably. Software-as-a-service is coming. The result will be a loss of control for the consumer.
          clarence45_209
  • Microsoft reinvents itself every 5 years

    I disagree that Microsoft's situation will go from bad to worse. Microsoft has come from behind many times to take leadership positions. The web browser is the obvious example. Internet Explorer took the lead from Netscape. SQL Server is a similar story in the database arena. Windows Server has taken huge marketshare from the UNIX vendors.

    Bill Gates and Ray Ozzie get the web based services movement. I wrote a blog "The Coming Web Services Tsunami" several months ago that captured a lot of attention inside Microsoft.. You can read the whole story here. http://dondodge.typepad.com/the_next_big_thing/2005/09/the_coming_web_.html

    I wrote another about "first movers" versus "fast followers" and how often teh fast follower ultimately wins. The post "Innovate or Imitate...Fame of Fortune" can be found here.
    http://dondodge.typepad.com/the_next_big_thing/2005/10/innovate_or_imi.html

    Microsoft reinvents itself every five years, and is about to do it again. Don't bet against them.
    DonDodge
    • Common tactic?

      Microsoft's strategy, from the earliest days of the PC, has been first to seal off the competition then go after the market. Does it have the device to repeat the pattern this time, or will the reinvention have to be more fundamental this time? If the latter, can it go to the core and reverse a 30 year behavior pattern?
      IT_User
    • don't think so!

      Microsoft does do a lot of reinvention however this web app *hit is all hype smoke and mirrors. web apps are goog for some things but not everything as google and others think see why below

      1. cloud is two unstable example earlier this year a cable was cut a few miles away from my office lost internet connection and no i do not have the option from another carrier for a back up connection.

      2. YOU CAN KEEP YOUR RENTWARE i want to buy mine i can use it as long as i want if i want to upgrade then this is my option no one is going to decide this for me these web clowns are trying to make software like a rent a hooker once you don't pay or run low on cash then product is pulled right from under your face

      3. security i want to protect my information i don't trust a corp to do this

      so no thanks for your *hitty web services
      Power User
    • Specifically,

      now that MS has NOT shown any significant product upgrades for almost FIVE years, HOW are they going to become leaders again?

      You claim that they have taken a significant UNIX server share. Can you point out to the source of this?

      Unless MS is preparing something of true significance away from the public eye, I believe that the only thing MS will experience is decline. If you are at the top you can only go down. To stay at the top you need to do much more than promising for years Longhorns but delivering Vistas which is mostly nadas.

      You can see that people were reluctant to switch to WXP wholesale. MS has not upgraded the features in their s/w and platform enough to make a switch compeling for companies. Worse yet, they have shown that they cannot control the insecurity in their code. Even more worse they are keep pumping out hot air about longhorn which is still 1-2 years MIN away.

      What are the incontrovertial reasons that can change the declining MS future? I do not see any of them. All the while everyone else has offering more and more.


      --m
      michael_t
    • and you missed out xbox

      Sony began as clear and outright market leader in that field.

      but now xbox probably has about 20-30% market share ...

      It is indeed a very agile firm ... time will tell if they are agile enough ...
      f3773t
    • I'll take that bet...

      [b]Microsoft reinvents itself every five years, and is about to do it again. Don't bet against them.[/b]

      ROFL! I'll gladly take that bet. MSFT is an elephant on the battlefield of technology. Getting excited at the wrong time, just as likely to stomp on its own troops as the opposition.

      Several MSFT backers have picked out the internet initative as evidence that MSFT is a fast follower. But the corners they cut to get to the number one spot, not to mention the shady business practices employed, are ultimately additional factors stacking the deck against continued success.

      Execs are bailing, Wall Street is leaning on them to figure out where revenue will come from besides Windows and Office and MSFT is stomping around, swinging its massive Ballmer tusks around hoping something sticks. It's quite possible to set up run an office quite successfully without any MSFT products and the accompanying security and license disasters that frequently trail along.

      So, yeah, stay with the elephant if you like. But the one you're on is wounded and smell of blood is attracting attention. It's not the hole in the side that will ultimately bring it down but all the flies infecting every small wound.
      Chad_z
  • Yes, bad to worse: here's why

    Microsoft certainly isn't going to 'bounce back' so long as it believes the ridiculous notion that its on-demand applications can be ad-funded.
    Richard MacManus <a href="http://blogs.zdnet.com/web2explorer/?p=52">has quoted extracts</a> from Bill Gates' and Ray Ozzie's memos in his blog. Here are some pertinent extracts.
    Bill G: "Advertising has emerged as a powerful new means by which to directly and indirectly fund the creation and delivery of software and services."
    Ray Ozzie: "a new business model has emerged in the form of advertising-supported services and software."
    This is bunkum, as <a href="http://blogs.zdnet.com/SAAS/?p=56">I explained last week</a>: "ads in applications don't work."
    If Microsoft really believes in the ad-funded model, then it is about to take a deeply damaging wrong turn. That's why things will go from bad to worse.
    Afterwards, who knows? Making some more mistakes before it gets its on-demand strategy right isn't going to kill off Microsoft. After things get worse, maybe they'll get better again. But all the signs are, it ain't going to happen for a while yet.
    phil wainewright
  • Yes, bad to worse: here's why (take 2)

    Microsoft certainly isn't going to 'bounce back' so long as it believes the ridiculous notion that its on-demand applications can be ad-funded.
    Richard MacManus has quoted extracts from Bill Gates' and Ray Ozzie's memos in his blog:
    http://blogs.zdnet.com/web2explorer/?p=52

    Here are some pertinent extracts.

    Bill G: "Advertising has emerged as a powerful new means by which to directly and indirectly fund the creation and delivery of software and services."

    Ray Ozzie: "a new business model has emerged in the form of advertising-supported services and software."

    This is bunkum, as I explained last week: "ads in applications don't work."
    http://blogs.zdnet.com/SAAS/?p=56

    If Microsoft really believes in the ad-funded model, then it is about to take a deeply damaging wrong turn. That's why things will go from bad to worse.

    Afterwards, who knows? Making some more mistakes before it gets its on-demand strategy right isn't going to kill off Microsoft. After things get worse, maybe they'll get better again. But all the signs are, it ain't going to happen for a while yet.

    [Reposted to reformat links]
    phil wainewright
    • Continuous innovation is what counts

      The key aspect of Live Services is the ability to continuously innovate and provide new functionality. The product delivery cycles for packaged software are several years, versus several weeks or months for web based services.

      The client based applications will always be important. Live Services provides a vehicle to enhance the client experience and add functionality continously.

      Don't get too hung up on the revenue model. Customer feedback will dictate the best way to monetize the service. Quite frankly, I don't think Live Services is dependent on an immediate revenue model. It is all about the service and customer experience.
      DonDodge
      • I need applications that work, not innovation

        Subject says it all, but to elaborate...

        * What makes Google Maps good, isn't the technology whether or not they "innovate" by using AJAX or not. Their directions are good. Other mapping services provide less than good directions on many occassions. Thus, Google Maps is now my choice.

        * Outlook Express is an aging, stodgy piece of software. It's extremely boring and contains little innovation. However, it combines the best of both worlds: it has 80% of the features I want, and it's free. The moment someone comes out with an email client that has a regex search ability (some pre-defined regex's, like phone numbers, URLs, and email addresses would be nice as well, thank you very much), integrates with the file system so that email "folders" and emails themselves appear to be actual directories and files, combined with iTunes-esque search strengths, mxed with being able to act as an IMAP & LDAP server so that I'm able to access my email archives, address book, etc. from anywhere on the road, I'll be willing to switch.

        * Word Perfect 5.1 did 95% of the things that Word 2003 does today that I actually use. And in some cases, such as academic writings where formatting was key, I preferred its interface.

        * NOTEPAD.EXE has about 1/10,000th of the features of Emacs. Yet all of the features I use in Emacs are also found in Notepad.

        * *Nix slowly but surely builds upon a well-engineered, but hardly creative foundation. With the exception of .Net (I prefer writing .Net code to writing PHP or Java, personal preference, sorry), and the lack of a GUI management system where I can just click around until I find what I need, I'd rather run my enterprise on *Nix.

        * Linux gets all of the attention, thanks to a rock-star leading it (Mr. Torvalds), great press, etc. As a result, most innovative *Nix apps get written for Linux first now, then later ported to the BSDs, Solaris, AIX, etc. I'd rather run my applications on any of those OS's than Linux. Something about 385+ distros all with their own "innovative" or "unique" way of doing things just scares the pants off of me. Give me a well engineered OS any day or the week over new features.

        * "Innovative" applications that use HTTP as a messaging system where CORBA or SOAP or RPC should be used. HTTP is easy to work with, and there are tons of easy, plug-in modules for programmers to worth with in that protocol. Thus the proliferation of applications using HTTP for messaging. Too bad HTTP is a horrible application for that, lacking built-in encryption, serialization, authentication, persistence, and so forth. HTTP also is downright inefficient, and many HTTP handlers are designed to deal with long responses and short requests, as opposed to the often short responses or long requests that a messaging system has. HTTP is hardly optimal, but "innovative" programmers (particularly the AJAX/Web 2.0 crowd) love it to death.

        * Ditto that (two or three times) for XML. XML is by far the most CPU intensive, bandwidth hogging, and storage space wasteful format that I have ever encountered. Simultaneously. That's quite an accomplishment. A delimited flat file may use up to three whole characters (a text delimiter plus the field delimiter) to separate records and a whopping two characters (CR+LF for Windows folks, just LF for Unix/Mac people) for a record delimiter. XML is already behind because you get to mark not just the end of one field, but the beginning of another. Is anyone actually using UDDI or other systems where the two systems automagically learn how to talk to each other? No. Everyone writes the two pieces as separated pieces of the same code. XML's only advantage is immediately lost. Look at ODF. From what I've seen, they could have just as easily written a 706 page specification for a binary format as they did a 706 page specification for their XML format.

        * Cell phones. The vast majority of cell phone users use the phone only to make calls. I recently read somewhere that 40% of cell phone users don't even use the address book feature. Cell phones are a great example of what happens when technical innovation gets ahead of UI development. Even when I *do* understand how to use a feature on my cell phone, I rarely want to go through the pains of doing it. At the end of the day, why would I send an email on my cell phone, when I could just call that person on their phone? If I'm in a situation where I can take my attention away enough to carry out a conversation via SMS, I could also simply excuse myself and have the same conversation over voice, quicker and cheaper.

        * Cars that have new "features" that no one uses, or are so difficult to use that they make operation of the vehicle dangerous. I don't need a CD player in my car that has 1,001 EQ settings or can tell me where the nearest quickie mart is, I need a CD player in my car with power, next/previous track, stop, play, and volume buttons. That's it.

        I could go on and on about this. Think about every piece of software you use on a regular basis. Ask yourself if it is truly lacking. I bet the answer is "no" most of the time.

        J.Ja
        Justin James
        • Old Skool thoughts

          Hmmm, been thinking about the software when reading your piece, here are some of my responses:

          * I'm living in Europe, so google maps directions are actually not really of use, but what i do like about maps is the possibility to build extra software on top of it, without any real restrictions.

          * Never used outlook express as i'm using either thunderbird or evolution, but i remember from using outlook (and i assume it is the same for outlook express) is the slow speed of search. Search is actualy the only thing i really need and that's fast in evolution and thunderbird. So I'm perfectly happy here.

          *Regarding WordPerfect, yes it had some nice features and some quirks as well. I hardly use office at this moment in time as OO en Latex will do for me.

          *You gotta be kidding about notepad vs emacs. That 's comparing a Smart with a Ferrari, both are meant for something different, though emacs can at least do the stuff notepad does.

          *Server software doesn't need to be innovative. The software that runs on top of the OS should make the difference. I prefer my OS as stable as possible, so Indeed use *nix.

          *Underneath all distro's are alike, enjoy the multitude of distro's instead of being put of by it, choice is a good thing!!

          *I won't even talk about CORBA as this has never been a feasible solution, but i prefer simplicity over over engineered interfaces. As long as there are indeed no security requirements why not use a transport layer which is simple and generally available. As most software now a days needs to be able to be quickly changed, please keep it simple.

          *Yes XML may be memory hogging CPU intensive (but who cares against current hardware prices). I still prefer it over delimited flat files when doing integration because of it's descriptive nature. It's a lot easier to find error's in data when sending them between two systems.
          Why this obsession with binary formats. I love the fact that i will be able to retrieve data from ODF without actually using an office suite.

          *Well I actually love SMS because it is less intrusive over a phone call. I can decide myself when responding to it.
          As far as modern phone's go, i'm perfectly happy with my do it all phone with agenda, mail, photo, video and radio capabilities. It safes me from taking a lot of extra stuff with me when i'm on the road.

          *As far as cars go, they can't be technical enough for me. I used to be a lot on the road and was very happy with my integrated system as it at least could tell me where i should be without having a map on my lap. Stored six CD's so i needn't to change CD's and had a build in phone. If you prefer simplicity i can recommend LADA to you, it's Russian, it's basic and got the best heater available.

          Progress is inevitable, get used to it and stop complaining, count your blessings.
          tombalablomba
          • "Innovation" != "Progress"

            "Progress is inevitable, get used to it and stop complaining, count your blessings."

            Don't get me wrong, I love progress as well. It's just that much of what I see that is described as "innovative" is certainly not "progress". In other words, while having neat bells and whistles, it does not make my life simpler or better in the slightest.

            The end user does not care one bit about whether the underlying layers are XML or binary formats, if it's using SOAP or HTTP, etc. All they see is if the programs works or not, and if so, how well it works. The vast majority of users are not able to appreciate that you can open and edit an XML document in nearly anything, or that it's fairly easy to write a system using HTTP as a transport mechanism. What they do see is the results of a poorly engineered piece of software. It is slow and resource intensive.

            George Ou recently had a series of articles comparing the load times of ODF in Open Office to Excel's binary formats. This is exactly what I'm talking about. Either ODF or OpenOffice (or both) is poorly engineered, leading to software that is miserably slow. I was going to give OpenOffice 2.0 a try until I read those numbers. No way am I going to subject myself to a piece of software that slow, regardless of what it can or cannot do for me. I use a computer to be more efficient, not less.

            J.Ja
            Justin James
          • If george jumps of a bridge, do you?

            [i]This is exactly what I'm talking about. Either ODF or OpenOffice (or both) is poorly engineered, leading to software that is miserably slow. [/i]

            Well all i can say is that I use oo2.0 and used oo1.4 . And the strange thing is that i don't notice these big differences in the actual files I use. I use OO for mailings (through a link to mysql where data is stored), to write reports and proposals (including graphics etc.) and guess what, it just performs fine. The added seconds of startup time is actually overcome by the fact that i can work on my documents regardless of the OS i'm using, I actually appreciate the fact that the data are stored in an XML format as it enables me to easily create HTML document out of documents or do other stuff with it as i please (but of course that's of no concern to the average consumer).

            So if where talking about value, let's add it up:

            * I use Linux, Windows XP and Mac's, MS office can work on both of them, on the third it can run in emulation, but i need three licenses!! (added this up using NL prices this would mean 3 times euro 499 so almost 1500 Euro). If I use OO on these three systems, i don't need to pay a license fee. (while checking i even noticed that office 2003 can only run on windows 2000 or wxp, now that's some good engineering forcing customer to upgrade if they want to use the latest office version, and make you wonder what additional software is used within the OS!!)

            * OO opens most of the documents i've seen, and conversion out of MS Office is sufficient for my needs.

            * Most documents I send out are not meant for editing, so i can print them out as a PDF.

            As above already provides enough value for me i stick with OO, even if someone says it's a resource hog!!!

            And to be honest, I actually use spreadsheets only if they are not very data intensitive, because my feeling is that they are not databases and if I need to do a lot of calculations on data I prefer to use something that is more suitable for this.

            [i]The end user does not care one bit about whether the underlying layers are XML or binary formats, if it's using SOAP or HTTP, etc. All they see is if the programs works or not, and if so, how well it works.[/i]

            Though in most cases you are right, it keeps me wondering why so many people are starting to use these tools. (but maybe here in North Europe bandwith isn't so much of an issue as most people nowadays have either ADSL of cable internet)


            And i know some end user that where very happy with XML when it was implemented for interfacing as it enabled them more easily to find errors in interfaces due to the nature of XML, that it actually describes what is in a field. Enabling them to find errors (now that's some real value for the business as they are able to find errors themselves and then ask the IT guy to do something about it).
            tombalablomba
      • Requirements are already met

        You're missing one important fact: people don't need any more new features. There's no real reason to upgrade MS' products anymore. So they web-ify them? Do I care? I'd still rather have OOo running locally, saving to ODF, a published standard format. And I've seen the value in that long before the Massachusetts kafuffle. The real issue MS faces is that there is really only so much that people want to do with software - their main markets are pretty horizontal, and those needs are already filled. This is witnessed by the number of vertical market acquisitions MS has done in the past few years. There's still growth room left in those for a good while yet. But they require specialized knowledge of fields that MS doesn't have much of. And I don't think you can just send all your people to a variety of scientific and business programs and reeducate them in any short time to get there. Its gonna be trim the existing staff and hire those who are scientists & businesspeople first and happen to do software to achieve those ends, or do acquisitions of many, many vertical players and try to make some sense of it all. I think in the end, there will be many layoffs at MS, which will become a huge holding company for vertical software companies.
        Techboy_z
        • One more on the list...

          ... of fields that are dead because everything important has been discovered.

          You wrote:
          You're missing one important fact: people don't need any more new features.

          That's an opinion based on what people can do and what software can do for them. May have been refuted in the past, but sooner or later that may become true.

          Just don't convert that into: people will not get any more new features because I'll make sure they don't.

          That does as much to kill a marketplace as any anti-trust actions.
          Anton Philidor
    • That's interesting

      Who has been trumpeting so loudly in recent months that Microsoft's up-and-coming competitor was none other that Google? Why, the tech media, of course. And how is Google supported? Why, by ads, of course. If the tech media belives that ad-supported Google can give Microsoft a run for its money, why should Microsoft argue?

      So is Microsoft supposed to pay attention to tech pundits, or isn't it? Does the tech media know what it's talking about, or doesn't it?

      Carl Rapson
      rapson