Microsoft: No Chance to Challenge Google

Note: this is a re-written version of the Microsoft vs Apple: Monopolist vs Innovator (part 3).

Around 10 years ago, in order to dominate the Internet browser market, Microsoft fought hard and virtually killed Netscape. This is an old and well-known story. MSFT abused its monopoly power in the Operating System market to achieve its goal, for which, it almost paid the price with its own existence - just narrowly escaped the fate to be broken up. The reasons that MSFT resorted to these 'extreme' measures were because it believed, first, Internet was the future, and second, Netscape browser had the potential to grow into an Operating System. In other words, MSFT viewed Netscape as a real strategic threat to its core business. Now ten years later, when we revisit the history, we see things that nobody could imagine in the old days. Yes, Internet turned out to be the future and presented immense business opportunities across all industries. And as MSFT expected, it maintained the monopoly control over the software used to surf the internet, but almost pitifully, its achievements never went beyond. The sweetest fruit from the Internet tree was reaped by a company called Google, which started from developing the search engine, something that Microsoft never paid attention until it was too late. From this search engine company comes the threat that MSFT fears the most - a competition OS. This time, it is a lot more real than that from Netscape. Google has the capability, the wealth and more troubling, the vision to build something to compete with Windows.

MSFT's distress and pressure are not something hidden behind the scene. Several months ago, MSFT offered to buy Yahoo for around $40 billion, my opinion, a mutual-destructive move, somewhat out of desperation. Yahoo was well on its track to become a mediocre and forgettable company, while MSFT's involvement may only speed up the process. So I was glad that MSFT backed out, notably, with the help of the stupidity of Yahoo's management (here the stupidity is defined by their IQs as a group of businessmen).

Here comes the key question that this post tries to answer. When the Internet was a wide open space, MSFT couldn't establish itself as anything significant, and now with Google looming huge, having the power to match MSFT toe to toe, what chance does MSFT stand in the Internet/search market? My answer is, none.

First, innovation is the only key that MSFT could use to break into Google's territory, unfortunately, its innovation potential has been exhausted by its internal and external pressure.

In my previous post, Microsoft vs Apple: Monopolist vs Innovator, we discussed why Apple is a company more creative than Microsoft. In summary, it is extremely demanding to develop and maintain Windows OS, which may be the most complex software in human history. This creates the internal pressure on MSFT. Externally, the brain power of its 1 billion users bears unlimited possibilities, posing all sorts of challenges to the software company, such as virus, piracy, hacking, etc. Unfortunately, I don't see any reasons MSFT could avoid addressing any one of these. This environment put MSFT under constant pressure, shaped its culture and gradually turned MSFT into a solid implementer, rather than an innovator.

On the other hand, Google, also as a monopolist, faces much less pressure than MSFT. After all, its product, the search engine, is only an applications sitting on its own servers. Even for the most malicious and capable hacker, there is not much to manipulate from Google's almost blank home page. This is a lot more forgiving operating environment, resulting in an innovation-friendly atmosphere. Actually Google's innovation capability matches well with Apple. For example, AdSense is purely a genius idea; and from GMail, you can easily detect the underlying innovation pattern, very similar to the impression you get from playing with an iPod - relentlessly focusing on the user experience.

If I rank the innovation power of Google as 10, Microsoft is 3. While in the Internet market, pretty much it is all about innovation.

Second, even as a business behemoth, Google cautiously maintains its image as a technology company, but Microsoft is perceived to be a lot more business/profit oriented. While Search is always a technical term, never a marketing term.

I don't think it is exaggerating to say that MSFT won the battle against Netscape, but at the same time completely ruined its image as a technology company. Since then, MSFT grew bigger and stronger, widely perceived to be a business juggernaut or an almighty empire. On the other hand, we saw Google spent billions of dollars to develop many normal as well as 'geeky' applications, then offered them to the public for FREE. Pretty much this is what an enthusiastic dude in the open source community would do.

Somewhat Google became a symbol of the spirit of internet technology, being open, equal and winning by technology superiority. It is even more applauded as it continues upholding the spirit after diving deep into the profit driven business world. As a result, Google created a vast fan base - another similarity with Apple - there are people that simply love Google, instead of toward Microsoft - a have-to choice.

I won't say that Google's intention to maintain itself as a technology company is not genuine, while obviously there is business strategy behind it. By offering all sorts of free applications, it is building itself into a platform for 'everything', thus growing the users' dependencies and personal attachments - another similarity with Apple, and not surprisingly, significantly increased the entry threshold for the competitors.

Talking about search, MSFT feels too clumsy, similar as Yahoo feels too shallow, but Google feels just right, simple, straightforward and a technology savvy. From this perspective, MSFT is doomed.

Third, MSFT has some basic issues to fix.

GMail is original, Yahoo Mail is solid, Hotmail is like a piece of junk. I know it maybe too biased to say this, but that is my true experience. For the past 10 years, I maintained my accounts with both Yahoo and Hotmail, but for the latter, there is always something that don't feel right, something that gets me easily annoyed. Microsoft would like to compete in the Internet field, while in this field, nothing is more basic than an email application. If they couldn't even get this one right, where is the hope?

Another one, we all understand what Google is, what Amazon is, and what eBay is, but does anybody really understand what the heck Windows Live is?

For Google, or Amazon, or eBay, it developed its understanding of the Internet, held onto it and finally found the key and opened the door to the wealth. But MSFT, after struggling for more than 10 years, still an outsider. It simply hasn't figured out the Internet. Maybe the best explanation is that they never had the right people in the right position.

In summary, maybe MSFT doesn't stand much chance against Google in the Internet/search market, but even before considering challenging Google, they have some basic and internal issues to address.

I see a re-organization a must.

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Microsoft vs Apple: Monopolist vs Innovator (part 3)

4) Microsoft's chance against Google in the search market

This is a piece about MSFT and AAPL, but I think I have valid reasons to bring Google into the picture. In my opinion, Google is one of the very rare companies that enjoys an MSFT type monopolist position, and at the same time, maintains the AAPL type of innovation. In addition, innovation is the only key that Microsoft could use to break into GOOG's territory.

This is a big topic, here I'd like to share some general thoughts which I will explore further in my future posts.

First, the external pressure from being a search engine monopolist is much less than being Microsoft. GOOG has better control over the usage of its product, after all, it is an application sitting on Google's servers.

Second, Google matches Apple in the innovation power. Apple's innovation is in users' experience, which is the combination of original ideas and brilliant designs. And Google simply manufactures genius ideas, for example, AdSense.

Third, Combining the first and the second point, Google matches Apple in the capability to continue their path towards more innovations - the corresponding mechanism, culture, atmosphere all have been well established.

Fourth, Google spent billions of dollars, developing a lot of normal as well as 'geeky' applications, then offered them to the public for free. There are many reasons behind this, and I believe one of them is that they just have too much money (hehe). Another one, they are building Google into a platform for 'everything', thus growing the users' dependencies, resulting in the increased threshold for the competitors.

Fifth, even after Google turns into a business behemoth, it maintains the image as a technology company (another reason why it developed and distributed those 'geeky' applications), but Microsoft, since the days it fought and killed Netscape, has turned its public image into something like 'it is all about business' . This is another barrier that MSFT has to break. Talking about search, MSFT feels too clumsy, similar as Yahoo feels too shallow, but Google feels just right, simple, capable and a technology savvy.

Sixth, MSFT needs a big break-through in innovation ideas to challenge GOOG. But as mentioned above, its culture is about being a solid implementer, instead of an innovator. As a result, I don't see MSFT making even a dent in Google's market share in the near future.

Seventh, GMail is original, Yahoo Mail is solid, Hotmail is like a piece of junk. Nothing can explain this type of failure and it is a sign how badly Microsoft manages its internet project. Another one, does anybody really understand what the heck Windows Live is? Micorosft's issue in the search market is not something so complicated that can only be explained at a deeper level by factors such as the culture, atmosphere, etc, they have some very basic and obvious problems to address. I see a re-organization a must before there is any hope to turn things around.
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Microsoft vs Apple: Monopolist vs Innovator (part 2)

3) Competition pattern between MSFT and AAPL

In the famous PC vs Mac Apple commercial, we laugh at the PC guy that makes a fool out of himself every time. While don't forget the fact, which is not even hidden, that these two dudes are friends. It would be too bold to claim that Microsoft and Apple are friends in the real world, but the relationship between these two is never like that between Intel and AMD.

One simple fact is that it is impossible for MSFT to control 100% of the OS market, and another one, there are always people looking for alternatives when something becomes too popular. These actually guaranteed Apple a niche but very stable market. As it is somewhat out of the reach of MSFT and is relatively small, there is no sign indicating that the OS monopolist is worried or taking serious measures to fight for it. The series of 'I am a PC' commercials from Microsoft, led by Bill Gates himself, reads to me more like taking a high road, focusing on cleaning its own name without initiating attacks to Apple. From the Apple side, it keeps its low-end laptop around $1000, a price tag of a medium/high end PC system, while it could have easily got into a much wider market by releasing laptops between the $600 and $900 price range. My opinion, Apple has three concerns here. The first is to maintain the good margin it has been enjoying all along. The second is to maintain Apple as a somewhat luxury image. And the third, maybe the most important one, Apple would like to increase its market share in a controlled manner, rather than an explosive manner. I believe Apple has the weapon to boost its market share significantly overnight (for example, licensing Mac OS), but I doubt even Apple itself thinks it is ready to handle the consequential issues.

It seems that there is some type of implicit agreements between these two. As long as AAPL doesn't openly license its OS, it will never seriously threaten MSFT. In acknowledgment of this, MSFT has no issues seeing Apple take away some customers who would like to pay a premium to be cool and happy. As a result, we see MSFT in firm control of the overall market, while Apple enjoys a 'care-free' operation environment, as well as good profit and growth opportunities even though it only has a smaller piece of the pie.

With all these said, I have a big NO for the question 'shall Apple license the Mac OS?' It is like Apple is to bet with EVERYTHING it has for something that is doubtful it can handle, and doubtful it wants. Think about the immediately intensified pressure from MSFT and the long-term internal/external pressures similar to that of MSFT (discussed in the previous post), I think Apple is far from being ready. (read the speculated scenario if Apple starts licensing its OS here).

One more topic to cover: MSFT's chance against Google in the search market.

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Microsoft Vs Apple: Monopolist vs Innovator (part 1)

Both Microsoft and Apple belong to the Most Innovative Companies category, however, we rarely see anything original from MSFT, instead, they are widely accused of copying ideas from Apple. I guess the reason MSFT is in this category is because the Windows OS has an innovative meaning to the entire human being. And this type of innovation doesn't necessarily indicates creativity, which, on the other hand, is the exact characteristics that differentiates Apple from the rest.

On the other hand, Microsoft is the indisputable monopolist in the Operating System world, owning around 88% of the market, and Mac OS, around 10%. However, according to many users that had experience in Mac, the OS from Apple is so much cooler than Vista, and for years, there have been voices arguing that Apple should license the OS to the OEMs, the same way that Microsoft sells its flagship product.

Here are some thoughts on the rivalry.

1) Why is Microsoft less creative?

With such a dominating market share, you may think that the business operation environment for MSFT won't be that tough. But it is the opposite - MSFT is constantly under immense internal/external pressure, which exhausts its power to stay innovative.

First, internally, the Windows OS, if not the most complex software system in human history, is well qualified to be one of the most complex ones. Virtually it is like a platform of your daily life, somewhat matching the unlimited possibilities in real life. To develop and support such a system is a daunting task for any single company. Think about it, billions of dollars in budget, thousands of developers, hundreds of modules, dozens of versions, iterations, releases, integrations, testings, code bases, documents ... there is an endless task list. If you have the experience managing a one million dollar project, you know it only takes a few mistakes to see your process spin out of control. Then try to imagine this monster at MSFT's hand. I have no clue how MSFT manages the life-cycle of Windows, but for sure it is a process demanding rigor, consistency, cautious planning and solid implementation. I won't say these values prohibit creativity, but for sure, they won't encourage creativity.

Second, Windows is an OS independent of the hardware, and MSFT only specifies the minimum hardware requirements. We understand that this is required for MSFT to maximize its market share. And the result is, MSFT has to deal with the compatibility issue with hundreds of hardware variations. On the other hand, the OS is a platform, i.e., it opens its interface for thousands of other software companies to build upon, which creates another compatibility issue. Then adding the challenges created by rapid evolving technologies and backward compatibility, these could easily turn into a disaster that devours the company. Again this is the daily task of MSFT.

Third, Windows is estimated to have more than 1 billion users worldwide, which means it is open to unlimited possibilities/challenges/risks created by the immense brain power of a vast crowd, where exist countless usage patterns/habits, unbelievable stupidity and unimaginable brilliance, geeks, hackers, pirates, virus writers, Windows lovers, Microsoft haters..... As an indicator, MSFT never escaped from the criticism about the security flaws of Windows, even after spending billions of dollars year after year attempting to fix it. Here, code quality actually is only one side of the story, the other side, the enormous user base.

In summary, all these demanding tasks that fill the daily life of MSFT ultimately defined the overall operation atmosphere and corporate culture. Here, the top priority is about being solid, thorough, proactive and making less mistakes. Then how about creativity - stay original and novel? Sure it is nice to have, but it is fine to live without it. It is a shame to copy ideas invented by others. But business-wise, what is the big deal? As long as it is legal, it simply means less cost.


2) Why is Apple more innovative?

At first glance, it looks in the CPU market we have a similar competition pattern with Intel controlling the market and AMD as a challenger. Here, the dominating market share gives Intel extra power over AMD, because it may directly squeeze the margin of AMD by reducing the price of its own chips. You may think that in the OS world, MSFT would have the same leverage over Apple, but not really.

The secret lies in Apple's bundling strategy, i.e., it doesn't allow the Mas OS to be installed on any non-Apple branded hardware. In other words, Apple refuses to open its software to the open public. What does Apple gain from this? It avoids the full-blown competition, as well as the big headaches that MSFT has to deal with (listed above). Furthermore, from the space that the monopolist's power can't reach, Apple created itself a very stable niche market with a group of very loyal users.

First, through bundling, Apple has full control over the hardware platform its software runs on, virtually eliminating all hardware compatibility issues that MSFT has, and rendering the backward compatibility into a minor problem. This translates directly into a lean product management process and less cost. Second, Apple has full control over the look and feel of its product, thus retaining the leverage to consistently maintain the luxury and sleek style of its product, which caters well to its target customer. Third, fat margin. A Mac normally cost twice as a PC with similar processing power. And fourth, a small but friendly user base, characterized by higher income and education, which frees Apple from dealing with all sorts of malicious behaviors that are very common in the Windows world. As an example, the user doesn't even need an anti-virus software on their Mac. In summary, with MSFT taking on all the hatred and accusation, Apple operates under an environment with much less internal and external pressure, thus gaining the luxury to be internally focused, thus more innovative.

Two Topics I plan to cover, first, the competition pattern between MSFT and AAPL and second, Microsoft's chance against Google in the search market. Please visit my blog for the latest updates.

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