Monday, May 5, 2008

Vendors Survival: Will Microsoft Survive until 2018?

Probably many of the readers of this post will read it because of the title. Provocative titles such as:" IT does not Matter" (Nicholas G. Carr, MIT), "The End of Corporate Computing"(Nicholas G Carr, MIT), "The End of the IT Department" (Neil MacDonald, Gartner Group) attract readers attention and sometimes trigger emotional reactions. By using provocative title you can make sure that your opinion and your arguments are read, noticed and commented at.

Many readers are probably sure that Microsoft will be a dominant market player on 2018; however my opinion is that the probability for scenario of that kind is less than 100%.

Let's go back in time to 1989. If someone would have written an article (no Blogs and Posts on that time) titled: Will DEC survive until 1999? And explain why DEC will not survive, he would have been mocked. Dec was the second or third largest IT vendor in the market. In the 90ths IT business model was changed from Hardware Centric Model to Software Centric Model. IBM, HP and DEC had to adapt to the new model. Adaptation required profound changes in business, organizational and technological aspects. 

For example, IBM and DEC had to fire employees, which they never did before (DEC's CEO Ken Olsen resigned resisting the imperative firing). IBM and HP survived. DEC did not. It was acquired by Compaq which was acquired later by HP.

In analogy of the DEC case, one of the threats to Microsoft's survival is a Business Model change.
This threat and other threats were discussed by me in a presentation on 1995. Unsurprisingly its title was: Will Microsoft Survive until 2005?

My thesis was similar to the ideas presented in this post:

1. There is a probability higher than zero that the company will not survive (probably a very small probability).

2. A crisis will happen (e.g. Business Model change)

3. The company's ability to adapt to the crisis will decide its fate: survival like IBM or HP in the nineties or end of life same as DEC.

Following this thesis I tried to forecast future threats.
It is unrealistic to expect high correlation between IT predictions for 10 years and reality after that time.

Identified Threats in 1995
Let us look at the threats and reality:

Threat: Breakthrough in Desktop systems and/or Web interfaces which will question Microsoft's Desktop dominance.

Threat description and current status:
A new Desktop Operating System ("Doors") competing with Microsoft's Windows – Linux Desktop is only about 5% of Desktop market
Network Computer (NC) – NC failed but Server Based Computing and Thin and Ultra Thin Client architectures emerged.
Voice or other new Human Machine Interfaces as an enabler of a dominance of another Desktop Operating System – No significant change

A new Web interface as a threat to Desktop dominance – Microsoft survived the Browsers war. Netscape did not survive. FireFox is an alternative to Internet Explorer.


Web Services standards emerged and Microsoft (together with IBM) is a leader. Microsoft abandoned the unrealistic concept of Windows only World and opened interfaces to other platforms via Web Services and other methods.

Multitude of End User devices (e.g. Cellular, PDA etc.) are emerging, Mobile is replacing some of the PCs and it is no more a World of Servers and Desktops.
No conclusion yet about Mobile and Multi Devices effect on Consumer or End User devices market dominance.

Threat: Bill Gates. Microsoft's strategy was totally dependent upon Bill Gates. 

An Analyst described Microsoft's leaders at 1995 as chorus of monks humming Bill Gates words. Dependence of Strategy Architecture and Roadmap on a single man is a threat because, everyone finally quit his job and even the most skilled can make strategic mistakes. Can the company remain a leading vendor when other people replace him?

Bill Gates is no longer Microsoft's CEO and his responsibilities are gradually transferred to other people. The results of Bill Gates departure from Microsoft should be evaluated few years after he will not be involved in the company's strategy and business. It seems like the gradual departure process reduce the threat.

Threat: Legal issues (Anti-Trust)
Other companies and governments could apply to court due to Microsoft's monopoly and binding strategy of products. This could lead to court decisions to divide the company or to restrict its activities.

The company had to address legal demands referring to it as an abusive monopoly. According to a judgment in the case of United States vs. Microsoft on 2000 the company should be divided into two companies Microsoft A (Applications) and Microsoft S (Operating Systems and Infrastructure). The company succeeded in settling it with no division to two companies.

It looks like after that traumatic verdict the company learned to better address other cases and build an image of less abusing monopoly.

Threat: Failures in new markets.
Microsoft's strategy is a growth strategy: entering to new markets and gradually becoming the 80 pounds gorilla of these markets. Multitude of failures may stop the company's growth and cause a crisis. In case of improper addressing of such a crisis the company's growth will be stopped and it could finally loose its leadership.
Remain to be seen.

Threat: Stock value going down significantly
The company employed young people retiring in their thirties. The employees worked hard and received high payments. Options were a significant part of the payments. As long as Microsoft's stock rate increased the options were attractive. If stocks rate will go down for a significant time then the model could be ineffective and the company could collapse.

The number of employees is significantly higher. No longer retirement in thirties.
Microsoft's stock rate did not decreased consistently.

Threat; Company Image changed to less attractive image
Less attractive company will not be able to attract the most talented young people. This threat could be correlated with Failures in new markets and Stock value going down significantly.

Younger and more innovative companies (e.g. Google) are more attractive but Microsoft is still attractive.

New threats and threats not identified in 1995
The current two significant threats, which were not identified by me on 1995, are Internet as a Platform (see my posts on Web 2.0 for dummies) and the Open Source communities. These two threats are a Business Model change and are related to each other.

Ideally, Open Source change the model of software licenses fees to a model of software services incomes. If this model will become the dominant model it could harm Microsoft's core revenues.

Web 2.0 and future Web 3.0, Web 3D, Web 4.0 is platform independent and community model. Revenues model is usually not based upon software licenses.

Will Microsoft survive till 2018?
The probability that at least three of the four leading SOA Ecosystems vendor will survive is very high. Microsoft is one of these vendors. Looking at the future threats of 1995 it looks like the company coped well with many of the threats realized.

Microsoft as well as other two SOA ecosystem leaders (IBM and Oracle) has a variety of product lines and is a leader in some of these markets (e.g. Operating Systems, Development Environments, Office Systems, Databases ). 

IBM is a leader in Integration, Development Environments, Mainframe, Databases, UNIX, Servers, Storage and Outsourcing. Open Source is not a significant threat to IBM due to its participation in Open Source projects and its ability to provide professional services in addition to products. 

Oracle is the database market leader, CRM, ERP, Development Environment and Integration leader (BEA acquisition strengthened its position in the integration market see my post Oracle BEA acquisition: SOA perspective). Oracle is also an advocate of Open Source and participates in some of the Open Source initiatives. 

The forth SOA Eco Systems vendor SAP is the ERP market leader and a CRM leader. SAP will probably also survive unless it will be acquired by IBM.

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