‘Devices and Services’?

by Mark Wilson

So, Steve Ballmer is retiring so Microsoft can focus on “devices and services“?

That’s a huge change. Microsoft has never been a “device” company; it’s been a “software” company. That’s how Windows became ubiquitous: “you make the hardware, we’ll make the software.” Of course, the reason for this change is simple: everyone else is becoming a device company. Apple has long been a device company—they’ve always made both the software and the hardware—but the success of the iPod and the iPhone prompted Apple to go so far as to change their name from “Apple Computer, Inc.” to “Apple, Inc.” to emphasize that they also made consumer electronics. Google now makes its own Android phones.

But Microsoft? The only success Microsoft had with “devices” was the Xbox. The Zune was a colossal failure. So, too, appears to be the Microsoft Surface RT, which has sold about two million units in eight months, compared to three million iPad Minis in three days last November. (Of course, this hasn’t stopped Microsoft from spending more money on jabs at Apple, but if they want to soak up their $900 million bath, they’re going to need to do better than making fun of Siri. Though note that in that ad, Windows 8—not the Surface specifically—is the focus. Hmm.)

I guess there are two business mantras in conflict here. One mantra is: do what you do better than anyone else. This requires sticking to one thing, or a few things. A company can’t do everything better than everyone else. Microsoft made boatloads of cash during the ’90s by doing one thing well: Windows. During the ’90s, computers became a standard component of the home and the office (though it’s hard to believe when computers were more than a novelty!). The question was, “What will these computers look like?” Microsoft’s business model made Windows-based computers cheaper than Macs, and so the answer was, “These computers will run Windows.” Microsoft succeeded by introducing Windows to the home user via their business influence; you use Windows at work, so why not use Windows at home? And Windows became ubiquitous at work because Microsoft’s business offerings (Office, Windows Server, Exchange, Active Directory) all played nicely together, so it made sense for companies to do full-on Microsoft everything. (This was especially beneficial for multinational companies, as Active Directory can scale to gargantuan proportions.)

But the blessing was also a curse. Everything Microsoft did was Windows-based. Everything revolved around Windows. With the iPod, Apple changed from being Mac-centric to being consumer-centric. iPod. Apple TV. iPhone. iPad. And so on. These devices can all exist separately, but they can also exist together in a harmonious, Apple-centered household where Mac OS is but one component of many.

Which brings me to the other mantra: change up the business model when it’s not working. Microsoft appears to want to try this one, even though they have yet to make a consumer electronic that people want (again, the Xbox is the outlier). It could be, though, that they just don’t know what people want. Windows 8 on the tablet is about the same as Windows 8 on the computer. I hate Windows 8 on the computer. It’s designed for a tablet, but a computer isn’t a tablet. I hate Windows 8 on the tablet. It’s designed for a computer, but a tablet isn’t a computer. By trying to create one operating system that does both things, Microsoft succeeded in creating an operating system that does neither very well. With iOS, Apple has acknowledged that different devices have different requirements; I’m going to interface with Mac OS differently from the way I interface with the iPad.

On the “services” front, Microsoft is actually doing pretty well. SkyDrive is very easy to use, and its integration with Office makes life easy. While I haven’t used the new Outlook webmail system, all the reviewers really like it. This, however, is software, and Microsoft knows how to do software. Unlike Windows 8, it’s device-independent software; email is email, and cloud storage is cloud storage, no matter what you’re using to access it.

Microsoft knows how to do software. Believe it or not, Windows XP has been around for twelve years, and it’s still around. It’s still a perfectly serviceable operating system. You’d be hard-pressed to say that about any twelve-year-old operating system. Windows XP still commands 39% of the the desktop operating system market. And Office? Well, “Word” is as synonymous with word processing as “Kleenex” is with facial tissue. Microsoft is good at software, and yet it continues to want to play with the other kids at hardware, which is something it’s generally failed at.

I suppose that’s the point of Ballmer leaving: Ballmer is part of the old guard, and on top of that, he’s not really an innovator. He’s a manager. Microsoft’s thinking must be that their failure so far in the hardware world has been because they don’t know how to make hardware that people want, and that’s because the people at the top don’t know how to make hardware that people want.

Getting rid of Ballmer might solve the ossification problem, but here’s another problem: does Microsoft want to play along with the other kids, or does it want to destroy them? If Microsoft wants to create an “iPad killer” or an “iPhone killer,” it needs some truly creative people. Apple’s hegemony in mobile devices is largely because it got there first. With the iPhone and the iPad, Apple framed the debate in terms of what such a device is expected to look like and how it’s expected to work, because, really, there was no all-touchscreen phone before. There’s a reason why most of the smart phones out there look like iPhones: Apple got there first and set the expectations. Once someone else has defined what a product category looks like and does, a new thing in that category can’t go too far toward upending people’s expectations; otherwise, it will be too strange and weird to buy. This means that hardware competitors (like Microsoft) either need to stick with the established design or not only revolutionize the design, but also convince consumers that this revolutionary design is something they want. That’s a pretty tall order. Steve Ballmer couldn’t do it; they’re hoping there’s someone else out there who can.