Monthly Archives: January 2009

Microsoft: A case study in mismanaging a business ecosystem

mslogoA lot of fuss has been made about Microsoft’s inability to compete in the online space and the web specifically.  Indeed, it is widely acknowledged that Microsoft was slow to understand the web’s implications and adjust its product lines accordingly. How did the largest, most successful software company in the world fail to predict or even, once the future became clear, effectively adapt to the rise of the internet? More importantly, why hasn’t it been able to acquire its way out of trouble?

Numerous articles have been written on this, many focusing on Microsoft’s strategy and the fact that it likely faced a disruptive innovation problem. I’d like to supplement that analysis by focusing on the predatorial way Microsoft managed and engaged its business ecosystem in the 1990s. I’ve not seen this analysis before so I thought I would throw it out there.

The 1990’s were a good time for Microsoft. It experienced tremendous growth and its operating system was by far the dominant choice in the market place. It had tremendous leverage over everyone in its business ecosystem, including its competitors, customers and complementors. While this was seen as a source of strength (and profit) it also laid the foundation for many of its problems. The story of Microsoft’s competitors in its traditional marketplace – especially those that have adopted an open source space model such as Linux, Mozilla and Apache – is well documented and forms the core of the traditional disruptive innovation thesis. But I think Microsoft’s inability to counter these threats, as well as its inability to compete in new spaces – such as against Yahoo! or Google – isn’t just a result of the fact that it crushed its traditional competitors but also due to the mismanagement of its relationship with its complementors and partners. More importantly, the disruptive innovation thesis fails, on its own, to explain why Microsoft hasn’t been able to acquire itself out of its problems.

I’ve been told that one of Microsoft’s great strengths is that it has fantastic tools for developers (I’m not a coder so I can’t comment myself). However, in the 1990s and early 2000s, Microsoft lacked a sophisticated or long-term strategy for engaging the software products and companies those developers created. Given that Microsoft was sitting atop the  computer software ecosystem the company had one goal – staying there. This lead it to view anyone as a potential competitor – or if not a competitor than at least someone eating into profits that it could otherwise capture. Rather than balancing the growth of the value network with trying to capture its fair share, Microsoft prioritized the latter over the former. Consequently, many companies that produced products within the Microsoft ecosystem – particularly for Windows – were often not seen as complementors, but as rivals. Microsoft was aggressive in dealing with them – it was gracious in that it would usually offer to buy them out – on its terms – but always looming in the background was the threat that if you didn’t sell to them they would copy what you did. Consequently, many little companies that designed applications that enhanced Windows were forced to sell – or were put out of business after Microsoft copied their products and integrated them into the operating system.

A business ecosystem is like a natural one. It doesn’t matter how nutrient rich the environment (like say, one with excellent development tools) if emerging lifeforms are consistently snuffed out, pretty soon they will elect to grow and evolve elsewhere – even in places where the nutrients are weaker. This is precisely what I suspect started to happen. Likely, fewer and fewer developers wanted to approach the Microsoft ecosystem with a 10-foot pole because they would either be bought out on unfavorable terms or at an early stage (before they were too valuable) or worse, Mircosoft would simply crush them by using its enormous resources to replicate them and eat into their business.

The repercussion of this is that Microsoft saw fewer and fewer new and innovative products being created for its platforms. Programmers and developers shifted to other platforms, or created whole new platforms where they would be free to grow ideas. This, I believe, prevented Microsoft from understanding how the web would change its business. Not only did its current profits create a disincentive to altering its business strategy but it snuffed out one of the few groups of people that could warn it, educate it and challenge it, about the impending changes – its complementors and partners. Equally important is that it diminished the pool of potential acquisition targets whose culture, technology and processes might have helped Microsoft adapt. There were simply not that many mid-sized mammals in the ecosystem: Microsoft had prevented them from evolving.

Today – based on conversations I’ve had with some people in Microsoft – I get the sense that they are trying to become a better partner (or at at least, they may be aware of the problem). Perhaps Microsoft will succeed in becoming a better partner. It won’t however, be easy. Changes to how one treats complementors and partners often require rethinking the very culture of an organization. This is never an easy or quick process. In addition, it takes time to rebuild trust and attract new blood into the ecosystem… and any misstep will count dearly against you.

There are also almost certainly some interesting lessons in this for other dominant players – such as Google. Will Google behave differently? I don’t know. In many regards Microsoft behaviour was rational. It was seeking to preserve its position and maximize its share of the pie. This was made all the tougher because its market was evolving and the future was unclear. No one knew which pieces of the value network would be critical (and therefor most profitable)  and so Microsoft was simply trying to stake out as many of them as possible. It is easy to imagine Google behaving in a similar manner. But I suspect that if it does, it may also find it hard to escape Microsoft’s fate.

Big thank you to David H. for pointing out some typos and errors.

The murky future of BC-STV

I confess to reading, with great disappointment, Gordon Gibson’s comments about the upcoming referendum on STV:

“I have watched and taken part in our politics for more than 50 years,” former Liberal leader Gordon Gibson said.

“I have never seen such an opportunity,” he added.

I have. It was about 4 years ago. Something, Gibson briefly began to acknowledge before drifting back into platitudes:

“the last chance in the lifetimes of anyone in this room … a once-in-a-lifetime opportunity that we must not miss.”

Actually, this would be a twice in a lifetime opportunity, which is the problem.

Unlike in America, where ballot propositions are immediately binding, in Canada referendum’s have no legal relevance. That said, they remain an important source of legitimacy. Which is why the upcoming referendum on BC-STV is troubling. How legitimate is a referendum whose question was asked – and answered – a mere 4 years ago? Why is this referendum more valid than the last one? Why not – for example – take an average of the two?

Collectively, Canadians have endured this dilemma for decades. I remember being at a formal dinner, sitting beside a friendly Quebec sovereigntist who joked about how he would play squash with his good friend who happened to be a federalist politician. Sadly, he said, he lost every time. However, he quipped, he liked to remind his friend that he only had to win once…

Issues like the sovereignty of a province, or the structure of our electoral systems are not squash games, they are core questions about our identity and how we govern ourselves. Any proposal to alter or change them must be made through a process that bestows as much legitimacy as possible unto the new system. Pursuing a process in which you give yourself multiple kicks at the can, and deem valid the one time you reach the threshold does not accomplish this.

At least in Quebec the referendum question was separated by 15 years. This period of time meant it was possible to argue that there had been a generational change (true), that conditions had changed (also true), and that a similar, but new question could be asked once again (again, true).

The same cannot be said for BC-STV. It has only been four years, little has changed in terms of context and the exact same question will be asked.

While it supporters will claim that BC-STV is a better system (a topic for another post) derived from a legitimate process (something I believe to be contestable), the simple fact is voters rejected it a mere 4 years ago.

And herein lies the problem for BC-STV. It’s not clear there can be a positive result for its supporters. If they lose, they will be unhappy. However, if they win, what does it mean? Will the result carry sufficient credibility and legitimacy? What if it barely passes? Say 60.1%? My sense is that, barring an overwhelming or near unanimous vote – say 80% the result will be, at the very minimum, tainted. An ominous beginning for a process which all citizens should feel was enacted in a fair and legitmate manner.

eaves.ca… the 5th most popular political blog in Canada?

According to a list compiled by A Dime a Dozen I’ve been ranked as one of Canada’s top political blogs. Last month I think I was something like 17th, but this month I’ve rocketed to 5th place.

The accuracy of any blog list can be contested (and with so many political bloggers not making the cut, this one certain is being contested). So readers should make up their own mind on whether a list is good, helpful or important. That said, it is in nice to make anyone’s list, be it one built around strict criteria, or just a list of someone’s favourite blogs.

As an aside, I am surprised to find my blog ahead of Warren Kinsella and Michael Geist and pleased to see it ahead of Ezra Levant and The Western Standard and SteynOnline (whose critique of the American legal system after Conrad Black’s guilty conviction still stands as one of the worst pieces of blog commentary ever written by a professional). To see them ranking lower than my site says more about their limited appeal than it does about my readership levels.

Of course, not everyone is happy with the list and so other, alternative lists have been proposed – and I appear on some (13th), but not on another.

In the end though, it is great that others enjoy stopping by to visit and linking to me from time to time. I owe readers a big thank you. Two years in I’m still trying to stay true to some sage advice from a good friend who told me to write for myself – as though no one is going to read what I post. In part that was because in the blogosphere there is a good chance few will read what you write, but it is wiser still because blogging should be about letting your audience find you, not about finding an audience (I could get larger audiences by writing outrageous things – that temptation is often there for bloggers). So in that spirit I continue to try to be guided by my tag line: this place is my gym, somewhere to exercise my writing muscle and my mind. If it spurs others to exercise their brain muscles – or even their own writing muscles – all the better!

Why Policy Matters in Politics

There are a shocking number of people involved in the political process who firmly believe that policy doesn’t matter. That, at best, it distracts from, and at worst it impedes, successful political campaigns. Obviously, readers of my blog (not to mention those who know me) know that I am a big believer in the power and importance of public policy specifically and ideas in general. So I’ve been feeling nicely bombarded with confirming evidence that substantive policy – as opposed to simply style or spin – really is at the heart of political success.

The first is short and simply: Frank Rich’s excellent, and brutally entitled, column “A President Forgotten but Not Gone” in the Saturday New Times, where he uses Bush as example of the limits both of propaganda, and of power without purpose.

The second is much more in depth. It comes from reading of Tom Kent’s “A Public Purpose.” In it, while talking about the remaking of the Liberal Party after the defeat of the St. Laurent Government in 1957, he notes:

The main lines of policy of the rebuilt Liberal party – conspicuously, the emphasis on employment, medicare, a national pension plan, but many others too – were adopted at the party convention of January 1958, and by as democratic a procedure within the convention as the processes of political parties ever produce…

The policies did not, in other words, originate from the remaking of the party. In essence, they were already written when the organizational rebuilding took place. To a large extent, indeed, the new people who did the organizing came forward because they were coming to a body of ideas, for the better government of Canada, that they felt to be at once progressive and practical.

This is the central fact about the remaking of the Liberal party from 1957-1963. The process was not to regroup, reorganize, and, some time later, determine policies. The main lines of policy came first. They were the presence behind all the detailed work of opposing, reorganizing, finding candidates, building support. all that came second, not first. (Emphasis mine)

Kent’s comments reaffirmed for me three reasons why policy matters in politics:

a) First, while we can debate the degree to which the public reacts to a policy platform, a sound policy platform is an important step to gaining the public confidence. Thus, I can agree with Kinsella that governments are generally turfed out, not elected, while maintaining that an electorates willingness to turn to an alternative is dramatically improved if said alternative has a coherent set of (well thought out) policies.

b) Second, a sound policy platform is necessary to making a party electable because it has always been ideas, not the remote promise of power, that has attracted the new blood and energy to the party. As Kent points out, in 1957 the new policy platform of the Liberal party preceded its reorganizations and rejuvenation because new innovative and progressive policies attracted a new generation of leaders, activists and organizers into the party. Without this new energy a party will wither and die, no matter how inept or incompetent is competitors.

c) Finally, and possibly most importantly, policy is critical to governing successfully. Kissinger, for all his faults, articulated this challenge succinctly:

High office teaches decision making, not substance. It consumes intellectual capital; it does not create it. Most high officials leave office with the perceptions and insights with which they entered; they learn how to make decisions but not what decisions to make.

In short, once elected you are too busy to build your intellectual capital and to formulate a plan. You must have a vision and platform in place beforehand, otherwise you’ll end up looking like Diefenbaker or Martin, operating without an obvious direction or purpose. Policy matters because without it, time in government will be unproductive, painful and short.