Microsoft's 'lost decade' of relying on conventional wisdom


INNOVATION TALK:CONVENTIONAL WISDOM in the technology industry, as with many fields, builds up over years of experience, until it becomes so ingrained that it’s almost impossible to question without looking kind of foolish. Following the conventional wisdom starts off being lucrative and, after a while, it becomes a truth that is held to be self-evident and apparently incontrovertible.

But this is a turbulent time in the tech game as we move into the post-PC era, and those self-evident truths are beginning to look foolish. The edifice of conventional wisdom is crumbling fast, and it’s taking not just reputations but entire businesses down with it.

One of the oldest and most sacred of those pillars was the belief that Microsoft’s business model was essentially unbeatable. Bill Gates pioneered the horizontally-integrated computer business, which saw the production of computers by various original equipment manufacturers, or OEMs, with licence fees going to Microsoft for its Windows operating system. The margins in this sort of software distribution model were enormous, of course, and Microsoft ended up accruing the lion’s share of profits from the PC industry, while the manufacturers were struggling over ever-decreasing revenues as the whole business became commoditised.

The lesson that everybody took from this, of course, was that horizontal integration was the only viable approach. Going any other route, as Apple did under Steve Jobs, was a form of corporate madness that would forever condemn your product to measly market share. The prevailing wisdom seemed unshakeable, and plenty of companies thrived by following it; plenty of analysts, meanwhile, made lucrative careers by ridiculing Jobs’s ideological zeal in retaining full control of the Mac experience.

But that pillar was left in a dusty heap with the news last month that Microsoft was going into the hardware business to produce its Surface tablet computer running Windows 8 – this was a seismic change from the Redmond giants, and was an admission the rules they practically invented have changed dramatically in the past few years. In the post-PC era, the old tactics are no longer winning.

At the launch, Microsoft chief executive Steve Ballmer went out of his way to say how confident he was in his hardware partners, despite the fact that they were now competing with those very same hardware partners – the cognitive dissonance involved in this doublespeak was astonishing. After all, these were the partners who were making dud tablet computers running Microsoft software for a decade, and now that Apple was running away with the category with the iPad, Ballmer was forced to take matters into his own hands.

The ironies were many and unavoidable – Ballmer was the man who bombastically laughed at the iPhone before it launched five years ago, saying of Microsoft’s horizontal smartphone approach: “I like our strategy, I like it a lot.” And where once pundits used to pour scorn on Steve Jobs for adhering to a vertically integrated approach with the Mac, now they wasted no time in pointing out that Microsoft was not only copying Apple products, but they were copying Apple’s entire business model while they were at it.

The criticism of Ballmer’s leadership has been growing for years now, with Microsoft squandering their lead and failing to keep pace with mobile innovation. The most damning judgment of all came in a feature by Kurt Eichenwald in this month’s Vanity Fair magazine that described Ballmer’s “astonishingly foolish management decisions” that lead to a “lost decade”, a chief executive capable only of imposing excessive bureaucracy and managerialism rather than fostering meaningful innovation at Redmond.

After so many years playing catch-up, Ballmer has had to throw out the traditional Microsoft playbook and make drastic changes. But it’s not just Microsoft that is eyeing up a vertical approach – when Google made a mad dash for Motorola last year, everyone assumed Android was going to be benefiting from a more integrated design process from now on, no matter how “open” it stays.

Which brings us to another, related pillar of conventional wisdom that is beginning to look less than secure – the notion that “open” inevitably beats “closed”. Admittedly, these terms were always sort of nebulous in practice and notoriously difficult to pin down, but it’s becoming obvious that there are inherent benefits and weaknesses in both approaches – Google’s difficulties in retaining control over, and deriving profits from, its Android platform is evidence enough of that.

But there is no hard-and-fast rule here – both RIM and Nokia tried to stay vertical and closed, and have keeled over in dramatic fashion, while Samsung is achieving amazing growth while relying on open Android. So is the future vertical and closed, horizontal and open, or kind of diagonal and permeable?

Ultimately, I suspect the only lesson to be taken from all this is that relying on the conventional wisdom, in any field or business, is a lazy and ultimately risky approach. Instead, it should be clear that challenging the prevailing wisdoms and ignoring the status quo is what real innovation relies on.

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