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Microsoft is not and never was a consumer company

My favourite blog is Stratechery by Ben Thompson and my favourite podcast is its sister podcast Exponent that he co-hosts with James Allworth. There is a problem though. Every time I read or listen to it I feel the need to share my thoughts on the topic under discussion. This blog article is an experiment in whether there is any value to anyone (even just to me), of doing this. Let's see what happens. This morning as I was cycling to work I was listening to "There's always bigger fish" on Exponent which was all about Microsoft's strategic journey in the context of the recent organisational changes announced by Satya Nadella. Ben's excellent analysis of this can be read in "The end of Windows".

That said, I would describe what is happening a little differently. I interpret the changes taking place to mean the end of Windows as a competitive ecosystem platform (that's my term for a new technology that creates a new natural monopoly). Like with all complex, dynamic systems, entropy eventually brings it down and the Windows ecosystem is heading towards the next phase in the cycle - creative destruction. This is where the valuable bits are freed from their constraints and jump into new ecosystems and the rest breaks up completely releasing people and resources to find more valuable ways to exist. This may take years but some form of this process is going to happen as sure as the sun rises in the morning.

The Windows platform was and is at the heart of the Microsoft success story. While not truly open source, compared to the alternatives at the time, it was the most open general purpose OS platform on the market at the time and Microsoft did a fantastic job of creating an equilibrium of incentives for all of the ecosystem stakeholders which resulted in a 30 year virtuous cycle between customers, users, software partners (developers) and hardware partners (OEMs).

Here's the deal though - the fact that Windows started out on a "personal computer" doesn't mean that it was a consumer product. I think that simple label has caused some fundamental errors in the way that Microsoft has tried to operate in the last 10 years. It's tried to make an enterprise company become a consumer company. And obviously it hasn't worked. The whole consumer company confusion is nicely described in a lot more detail than I could ever do in a related article on the Beyond Devices blog.

So where does that leave Microsoft today? Ben and James had a really interesting conversation on how you would create a strategy for Microsoft that takes into account the organisations deep DNA - Ben described this using a 3-level model -

  • The organisation's nature - for me this goes to the root of the original "function" an organisation found in a market - it's core product market fit you could say

  • The organisations's culture - in successful systems form must follow function and I think culture encapsulates everything that makes up the structure, the form, of an organisation in the broadest sense possible

  • The organisation's tactics - any organisation, even one as big as Microsoft, is just one part of wider ecosystem. Tactics are how it responds to inputs from the wider ecosystem.

While form should follow function the inverse is true - function is constrained by form after a certain point in time. Microsoft has 30 years of building the structure it needed to serve its core function. The problem for them is that size makes things complex and sometimes the tactical inputs grow organisational components are are not aligned to the core function - unwanted body fat might be one analogy. That's fine when you're not under pressure but when the squeeze comes on you need to get fit if you are going to compete. And that means getting rid of structure that is not aligned to your culture and most importantly your "nature" as Ben calls it. What is the deepest code in the organisational DNA?

Microsoft needs to get fit and I think they have started this process under their new CEO by focusing on their core function which, in my analysis, is to serve the enterprise. They were never a consumer company. That was just something that happened as a side effect of the Windows ecosystem. So things are heading in the right direction I think - they are returning to their core function.

There is a catch however. If I were developing strategy for Microsoft I would worry that the type of enterprise they are designed to serve, as coded deeply in their DNA, is the archetypal 20th century corporate entity characterised by hierarchical org structures, divisional models and slow, waterfall process driven change.

I think the successful organisations of the 21st century are going to be structured in a radically different way and they will need to be part of a new ecosystem. These changes will take years yet to come about (though my bet is that it will happen more quickly than people think), and I'm not sure Microsoft (and a whole bunch of 20th household names), will be able to make the transition to the new world. Some changes are just not possible.

Time will tell.

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