Can Microsoft win at everything?
September 27, 2006
Can Microsoft win at everything?. Check it out:(Business Day (South Africa) Via Thomson Dialog NewsEdge) Can Microsoft win at everything? Computer giant aims to become 'glue' that connects disparate applications CONSIDER the latest news from Microsoft: the company is creating a music player and service, Zune, to compete with Apple's iPod, and on August 17 signed up EMI Group as a music video partner. The company's Xbox is a money- losing venture, but remains a hit with gamers. Meanwhile, Microsoft is offering PC makers design kits so they can dress up their computers to match the company's new Vista operating system, due early next year.
The common thread: Microsoft, well known as a software giant, is increasingly dabbling in hardware and playing a bigger role in product design. The big question is, why? While some analysts dismiss Microsoft's efforts as Apple envy, experts at Wharton say there is a bigger picture. Microsoft wants more control over integrating its software with the gadgets that could open new markets. Its real mission: find new vertical markets to dominate so it can continue to grow even if its Windows monopoly erodes. Microsoft understands that software, its core business, is becoming commoditised. It needs new revenue streams to keep growing, says Wharton business ethics' Prof Kevin Werbach. Value is moving from the desktop to network-connected services. Integrating software, hardware, content and services, as Apple has done so effectively with the iPod, can be a wonderful business model if you can do it right. If the vertical market playbook sounds familiar, it is: Microsoft has $34bn in cash and short-term investments as of June 30, largely because it profits by controlling a PC ecosystem that revolves around Windows. In other words, Windows has become a de facto standard. Apple is using the same approach in music, pairing the iPod with the iTunes music portal along with its digital rights management software, which controls how content is used. All three pieces of the iPod eco- system are dominant standards. Wharton operations and information management professor, Eric Clemons, says Microsoft's forays into new markets tell a larger tale of insecurity. The bigger story here is twofold: Microsoft's continued fear that it may lose its power and pricing in operating systems, and its continued need to show rapid growth in a world in which it already owns nearly the entire market in its core product areas, says Clemons.
What remains to be seen is whether Microsoft can make the right moves in its products and strategy to own a new market. In many respects, market domination is the equivalent of a lightning strike. Other companies, such as Google with its search engine and Apple with the iPod, have also developed hits due to fortuitous timing and well-designed products. There's this notion that Microsoft lies in wait and then dominates a new market, says Wharton marketing's Prof Peter Fader. But it's not true. Microsoft fails as much as it succeeds. What Microsoft is attempting has been tried. The history of the computer industry is littered with the remains of companies that tried to integrate hardware, software and services, but lost out to more focused competitors, says Werbach.
But with newer, specialised platforms like mobile devices and home media centres, there may be more benefits to integration. Kendall Whitehouse, senior director of information technology at Wharton, believes Microsoft's persistence often pays off. For instance, a decade ago few would have predicted that devices from Palm would run Microsoft's Windows mobile operating system. Today they do largely because the original Palm operating system failed to evolve quickly enough while Microsoft steadily improved its mobile software. If it tries long enough, eventually Microsoft will succeed. With enough money and enough time, anything is possible. What could emerge is a new Microsoft geared more towards services and integrating various devices littering the digital living room, including PCs, game machines, digital set-top boxes, digital cameras and music players. In this vision, Microsoft's software and internet services become the glue connecting a host of devices. Perhaps one of the larger questions is whether Microsoft can succeed at everything. Can a tech company really have multiple core competencies, as Microsoft says it can? asked Merrill Lynch analyst Kash Rangan in an August 2 research note. Microsoft has a breadth of products and markets. Competing and winning in all of them seems to be a dizzying proposition that could tax even the most competent of management teams. One way to answer Rangan's question will be to look at Microsoft's Zune music player. Little is known about Zune, beyond a few pictures leaked on the web and hints that Zune will include built-in Wi-Fi network access. But Microsoft will have to line up music partners, create an online service to sell songs and design a portable music player in order to launch the product by its planned release this year.
Robbie Bach, president of Microsoft's entertainment and services division, has said Zune will be a three-to-five year investment. As for dollars invested, Microsoft will spend hundreds of millions on Zune, less than the billions spent on Xbox. Why is Microsoft doing this? Perhaps to make money selling portable music players as Apple has done, but I suspect it's really more about controlling the distribution chain for digital music, says Whitehouse. With the success of its iPod and digital rights management that only works with the iPod, Apple has control of the entire channel. Microsoft's move is an acknowledgement of Apple's leverage. And with a new project such as Zune, it is unclear whether the goal is to sell the player, distribute songs, give Microsoft's software (such as its Windows Media Player) and digital rights management tools better footing, or just keep Apple in check, say Wharton experts. To analysts such as Piper Jaffray's Gene Munster, Microsoft's Zune is a critical part of the effort to thwart Apple's dominance and prevent it from usurping Windows as consumers buy iPods and Macintosh computers. We believe Microsoft needs to start chipping away at Apple in the near term or risk losing more ground as Apple expands its massive footprint, says Munster. According to Fader, however, it will be difficult for Microsoft to curtail Apple's momentum in digital music. The idea behind Zune is to give the consumer a better experience, but it's not clear it will do that well. The Apple iPod is a rock-solid reference and anything Zune does will be compared with the iPod. The iPod is the standard. Nevertheless, he argues that there is an opening for Microsoft. Apple's digital rights management can be restrictive and its player does not have a built-in FM radio receiver or the ability to use some of the major subscription music services. Part of the reason Apple has been so successful is that CEO Steve Jobs successfully lined up all the major record labels behind the iPod and iTunes. In addition, Apple is viewed as more hip, and any product it develops comes with that aura. Apple has a glow and Microsoft has a burden that it's not friendly to customers, says Fader.
Given Microsoft's recent activities, it seems clear that the company is anticipating a time when Windows yields to something Whitehouse calls the webtop. Microsoft is preparing for the day when it does not have control of the dominant software platform, says Whitehouse, who argues that many software applications will one day become subscriber-based services delivered over the web.
Rangan highlights a host of new markets for Microsoft, including enterprise servers, databases, games, online advertising and television. Microsoft is attacking vastly different markets, seeding a variety of potentially large opportunities, he suggests. In these new markets, integration becomes more important since software that cannot connect with other devices can become irrelevant. That means Microsoft has to become more of a glue company, focusing on middleware, or software that is used to connect disparate applications. According to Whitehouse, this is a new focus for Microsoft. Instead of trying to put the PC operating system everywhere, the new challenge becomes synchronising everything. The problem, says Fader, is that it's hard to be seen as a glue company when you're seen as a Windows company. Microsoft can't just jam Windows into everything as the glue. It has to be nimble and have a different approach. Werbach, however, says that the ability to connect various platforms may be within Microsoft's reach. Microsoft knows a thing or two about integrating platforms. Even though it only controlled the operating system, it was able to dictate the structure of the PC ecosystem for years. Making devices and services work together is an immense challenge, which no one, not even Apple, has fully solved. Microsoft at least has the benefit of many years of working to make an astounding array of hardware and software co-exist with Windows. In general, Microsoft's focus on connecting various devices makes sense, Werbach argues. After all, it cannot compete with the likes of Apple on product design. What Microsoft hopes to do is make software 'middleware' the differentiator in an integrated environment, because that plays to its strengths. Republished with permission from Knowledge@Wharton (http:/knowledge.wharton.upenn.edu), the online research and business analysis journal of the Wharton School of the University of Pennsylvania.
Copyright 2006 Times Media Ltd.. Source: Financial Times Information Limited - Europe Intelligence Wire.
Related Tags: operating system, digital rights, rights management, music player, Microsoft, microsoft
Cosmos
Del.icio.us
Slashdot
Digg
BoingBoing
Furl
Spurl
Listed below are links to sites that reference Can Microsoft win at everything?:
Trackback Pings
TrackBack URL for Can Microsoft win at everything?:
http://blog.tmcnet.com/cgi-bin/mt3/mt-tb.fcgi/28203Previous blog: Ensure that entire company is marching to the same tune
VoIP for Enterprise Home PageComments to Can Microsoft win at everything?
