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Lessons from Microsoft: Innovation and Competition

Written by Hamid Shojaee

While I was at Microsoft, they had programs like “Sun Down” and “Beat Oracle” that took direct aim at competitors Sun Microsystems and Oracle. They provided the sales teams with talking points and when it came to larger deals, everyone was available from devs to PMs or even Steve Ballmer, if it meant killing the competition — even at a loss.

Microsoft plays to win. Yes, to a fault.

Killing the Competition

I’ve been paying attention to the software business for the last twenty years or so, and in that time I’ve watched Microsoft nearly wipe out WordPerfect, Lotus, Stac, Apple, Novell, Netscape, AOL and Sun just to name a few. They’ve had their market success, not by innovation, but rather with the strongest showing of competitiveness, and a willingness to do whatever it takes to win.

So, if winning meant OEM deals that bound hardware vendors to not install other OSes on any machines they sold, so be it. If winning meant making deals with ISPs that disallowed the distribution of Netscape, while including IE as an “inseparable” component of the OS, so be it. If winning meant copying every innovative aspect of Java (like virtual machine, byte code, garbage collection, etc. almost to the letter) with the introduction of C#, so be it. Who can argue the success Microsoft has realized by placing competitors into the middle of their crosshairs and firing.

They do an incredible job when they focus on beating a competitor. It has been a main driving force of the company since its earliest days.

When your main driving force is beating the competition, what do you do when you’ve actually beat them? That’s what happened to Microsoft by the late 90s. They had beaten virtually all of their competitors. They had beaten Apple so bad that they were willing to give them $150 million cash to help breathe back some life. Netscape was all but destroyed.

By 2000, Microsoft’s market share of Operating Systems and web browsers were both in the high 90% range. In 2001, Microsoft put out Windows XP, it’s best version of Windows to date and Internet Explorer V6, the best browser at the time.

Then, Microsoft seems to have had no idea what to do next. There were no more serious competitors to pummel in these areas, so it shifted its focus on to Java and Oracle (which happened to be during my time at the company). In 2001, everywhere you went (inside of Microsoft), you’d hear Sun, Oracle, AOL and LAMP (the collection of Linux, Apache, MySQL and PHP). By this time Google was well on its way, but no attention was being given to Internet search. Microsoft believed that AOL’s strategy of locking in Internet Users and shoving content down their throat (as AOL had done with its acquisition of Time Warner) was a good strategy that needed to be copied and a competitive threat that needed to be beaten. So the focus was on AOL rather than Google or Yahoo.

Ballmer is famous for looking for billion-dollar market opportunities and in 2001, Google wasn’t a billion-dollar competitor. In order for a market to be worth a billion dollars, it has to already have some major competing players. That’s where Ballmer is short-sighted. If the year was 1979 again, Ballmer wouldn’t bother with the OS business, because it would have been to be worth only a few million.

Vista and IE 7

After the release of Windows XP, it took Microsoft another 5 years in a scrambled effort to put out another version of its Windows operating system. 5 years of work on a world-class OS wouldn’t be so bad if Microsoft had nailed it with Vista, but it was obvious that Vista missed the mark in a big way. First, some major compelling features were dropped in the final year to get Vista out the door. Second, it was plagued with all kinds of bugs from device drivers to missing features. Third, there were definite signs of “borrowing” from Apple’s now resurging OS X.

Internet Explorer had a similar 5-year absence. It wasn’t until Firefox started to make headlines capturing 10% of the browser market that Microsoft started to take note. Again, it was a quick push to fight off the competition. So after 5 years of intensive development on IE 7, Microsoft gave us tabbed browsing. As Microsoft had predicted, the “WOWs” started coming in 2007. Except, it wasn’t what Microsoft had hoped. Instead of “Wow, I can’t believe how awesome Vista [or IE 7] is,” it was “Wow, I can’t believe how lame Microsoft has been all these years and I’m just starting to realize it now!”

Microsoft’s focus on competition has made them one of the most successful and profitable companies in the world. It’s hard to argue with that. There is no other company in our industry that comes even close to adding $16 billion in profits with the passing of each year. In 2008, Microsoft will make another $16 billion or more in profits — more than Apple, Google, Sun and Oracle combined. But 2008 will also mark a turning point for Microsoft. It will feel the heat from the innovation machines at Apple and Google more than ever before.

Years of being competitive-driven, rather than innovation-driven have caught up with Microsoft. A negative, anti-Microsoft sentiment was planted in the tech world about 10 years ago and it’s coming into maturity. The tech elite have a beef with Microsoft and rightfully so. It’s not always about profits.

Focus on Competition and You’ll Kill Innovation

The lesson here is not to ignore your competition. On the contrary. Microsoft has shown us that at the very least, it’s important to know your competition. You can’t ignore competition. But like everything else in life, there needs to be balance. Microsoft has been historically overly focused on competitors and therefore, it has been plagued with an image that lacks innovation. It’s not just an image, it’s true. That’s why no matter how much they spend on PR, it’s a lost cause.

Their lack of innovation has been proven with 5 years of nothingness from the OS and IE teams during a time when there was virtually no competition. When the competition started to innovate, Microsoft’s OS and IE teams woke up, not with innovative new features of their own, but simply playing catch up and copying the innovation that was coming from competitors.

Now Microsoft is paying the price. OS X is making huge gains in market share and Firefox’s momentum continues. 2008 will be the year of Apple. Before the year is over, Apple will have double-digit market share and the sea of switchers from a Windows-only PC to a Macintosh will seem unstoppable.

Microsoft, Apple and Google are clearly the giants of our industry. Most of our projects pale in size comparisons, but there are clear lessons to be learned by watching the giants dance. If you find your project’s requirements read awfully close to the feature set of a competing product, your project is lacking innovation – it’s a Microsoft-like project. If you spend more of your day worrying about what your competitors are doing vs. thinking of new ways to solve your customer’s problems, you’re spending too much time on the wrong stuff.

Companies that release mega-hit products generally share one thing in common: a different approach. Put another way, they share the drive to innovate. They focus little on having another checkbox next to a feature to make their product look as good or better than a competitor. They let the marketing department worry about the checkboxes. Instead, they spend their time building a solution in a way that has never been built before. That, in itself is the best possible way to market the product. Innovation creates dedicated, loyal and sometimes evangelical customers who go out there and sell your product.

Don’t worry about your competitors. Innovate.