An Industry Takes ShapeI
n 1980 Microsoft entered into a partnership with IBM, supplying the operating system for IBM computers. It was a classic hardware/software bundling arrangement that set Microsoft on the path to operating system dominance. By 2008, Microsoft was earning over sixty billion dollars a year and had ninety thousand workers spread across a hundred and five countries. But that success wasn’t based on an obvious arrangement between software and hardware, at least it wasn’t obvious at the beginning.
When Bill Gates and Paul Allen founded Microsoft in 1975, most software was open source and most programers felt all software should remain free and should be easily available to everyone in the programing community. It was early in the software industry, many computers were still operated by punch cards. The idea of paying for software was not cool, not community oriented and not what the early programer community was about. Bill Gates was an early outlier, headed in a commercial direction.
Things Begin To Change
After decades of market share dominance for operating systems, Microsoft is now facing new circumstances that are changing the niche they commanded for all these many years. Steve Jobs navigated away from Microsoft by offering his own Apple computers with his own operating system preloaded. He became the model that Microsoft’s windows products followed. In a way, by sacrificing the high end market segment to Apple, Microsoft got free product design and market testing by just watching what worked best for Apple. Microsoft was always about the big numbers and personal computers far far outnumbered Apple computers.
Over the last few years Google has also navigated away from Microsoft by not being compatible with Windows platforms on certain types of products that are newly entering the marketplace… products like tablets and new cell phones. The end result is Microsoft’s dominance is now bound by that place where the PC and laptop end and new computing formats begin. Five years ago that wouldn’t have seemed daunting to most people. Today cell phones and tablets are so much more common than desktop and laptop computers that the limitations on Microsoft are easily visible. And, what’s worse for Microsoft is this trend is going to continue to pick up speed.
In response, Microsoft bought Nokia cell phones and has an application that adapts Windows to Nokia phones. But the real issue isn’t just one brand of cell phones – the Nokia brand; the real issue is what’s going on with all cell phones. Iphones are, of course, not open to Windows software, which leaves the Android class of cell phones. Androids are open to Windows Embedded Systems software and could prove a place for Microsoft expansion, except most consumers steer away from Windows Embedded Systems. It frequently floats around online and in printed media that the reason people avoid Microsoft apps is because Microsoft locks people in once they become involved by interacting deeply with their phone’s source code. It works kind of like this, give Microsoft an inch and they take it as far as they can go.
The point of all of this is that Microsoft, who is a dominant digital control player is now coming to the end of their dominance in the area that got them started. Operating systems on cell phones are not windows based and that cuts Microsoft out. Can this happen to other dominant players in other niches? I believe it can, and in fact, I believe it is likely, although how it happens will be different in each niche. But Microsoft’s response is what is important. Microsoft became so fabulously wealthy and powerful with their original technologies: Windows and Word, that maybe they will just shift gears and move on to new technologies. If they succeed at that then they will have responded admirably.
The cycle Shifts
Thus far, however, this shift hasn’t been easy or graceful. As I just pointed out, in moving to another software like Windows Embedded Systems there is now consumer loyalty to competitor products and the competition does everything possible to hinder any shift towards Microsoft. In their move to hardware, by purchasing Nokia, which is the most significant effort Microsoft has made to adjust to their new situation, Microsoft became a late comer to the hardware marketplace.
Since February of 2011 Nokia has been busy integrating a Microsoft Windows operating platform into their phones. In early September of this year, 2013, Microsoft bought Nokia outright for over 7 billion dollars. The strategy looks awfully similar to Apple’s iphone strategy of vertical integration, which is to say control both software and hardware. The downside of this strategy is that it tends to make the phone a walled garden. In other words, it doesn’t coexist well with software coming from other sources, like apps. That means Nokia is likely to control the apps on their phones as does Apple on their phones.
The problem is, Apple has a little over a seven percent market share of cellphone sales. Samsung controls the largest market share with just over twenty-six percent of market. Nokia is second in market share with just over fourteen percent, but being a self-contained software system (as are Apple’s iphones) means Nokia’s continued market share growth is in jeopardy. Smartphones like Android, which frequently use Samsung platforms are open to outside app developers and probably will continue to grow market share aggressively. That means Apple and Nokia are not so likely to expand and could actually lose market share.
Is Microsoft going to go away? Not anytime soon, but their niche dominance is declining and that’s makes them quite a different company. As a hardware company marketing cell phones they look completely different from the Microsoft of just a few years ago who dominated operating systems on PCs with Windows and Word software. The digital cycle has begun to turn in Microsoft’s operating systems niche. The long upward swing of fantastic growth and dominance is no longer occurring, decline in both sales numbers and niche dominance have set in.