Consumer device trends, Apple’s brilliance and why Microsoft is all set for the future!

I’ve been pretty interested to learn about Microsoft’s consumer strategy since joining the Xbox business in 2001, and although I have been confused by our choices more than once I have never been more convinced than I am now that our macro level strategy is spot on!

Microsoft has an enormous long term competitive advantage through the slow but steady convergence of the Windows franchise (PC and Phone), our Enterprise business and Windows Live ID that will result in us providing a suite of products and services in the next 3 to 5 years our key competitors will struggle to get close to. Along the way we will defocus some fairly high profile products, something we will find pretty frustrating I guess, however those short term sacrifices will support getting us to that grand longer term vision of Three Screens and the Cloud. Crazy talk? Coolaid fuelled flight of fancy? Here’s my thinking:

I hear all that time that our strategy is wrong, the we are moving in the wrong direction in Mobile, that we are getting our arse kicked by the iPhone and Android is waiting to give us a hard slap on the way down, that Google is hammering us in Search, and is about to kick Hotmail into touch too, Windows (the air we breathe) is under massive pressure from multiple fronts including OS X, Ubuntu Linux, Debian Linux and most recently Android Linux, that Internet Explorer has already lost the hearts and minds of joe public and is in a death spiral in FY10, and lastly that Google will leverage its enormous Search revenues to smash Office and our broad enterprise business. (Glad I have all that off my chest!)…

It’s true that we have defocused long championed products in favour of rising stars like Search resulting in some lost share and relevance, it is also true that we will likely surrender #1 spot to competitors in a handful areas in the next few years, however at the core of our business we will still occupy the #1 position in our critical product pillars of Windows, Office and Server for AT LEAST the next 5 – 10 years, and in that timeframe we will occupy the #2 or #3 slot in most of the rest. That is an incredible long term position to be in.

Think of the businesses that we occupy first, second or third position in globally today, I’ve tried to reflect them here (#1 position is shown red, #2 is Blue):

I think there are three really good reasons to be optimistic about our strategy and our future:

1. Firstly, think about the largest companies in the world (Microsoft is ranked #6, from #7 in 2008) which are typically one of two things, either massively focused on a single business, like the #1 company Exxon or #2 PetroChina, or massively diluted across a number of businesses, like #8 Johnson & Johnson or #23 General Electric. Those massively diluted business are largely isolated from the impact of losing #1 position to a competitor in a single category, like shampoo or jet engines or even a number of categories for that matter, unlike the massively focussed companies like Exxon or PetroChina which might make irrational choices to retain their #1 position in their market. So the reason I take comfort from looking at these parallel businesses is that we are a somewhat diluted business, a blend of the massively focused and massively diluted meaning that we can afford to lose or never hold the #1 position in a few categories as long as we remain #1 in the categories we are massively focused on, like Operating Systems, or Office Productivity, or Server, or better still all three! If we maintain that bedrock, and only ever achieve #3 in several other categories we will still be an enormously successful company.

2. Something else these companies have in common is scale effects, either because they have enormous scale in a single business resulting in a natural monopoly, or because they have sufficient commonality across their entire business to realise benefits from scale. In our business we have scale effects in four ways:

a. we have cash, lots of cash, meaning that we can afford to out-invest every one of our competitors when it is rational to do so, this also means that we can pursue expensive to enter businesses like Search, again, assuming that it is rational to do so,

b. we have common themes across the majority of our businesses, such as Cloud, Identity, Coding, UI, Security & Distribution that we gain significant efficiencies from, and

c. we have ubiquity! This last area is the most powerful in this next connected age. We have over 1bn users across the world; over 600m have a Windows Live ID, 18% of ALL internet minutes are spent on our properties, we have the strongest partner ecosystem of any technology company and every one of the 1bn or so PC’s behaves like a socket for distribution! That is a level of ubiquity that our competitors don’t even get close to. But here’s why I think that ubiquity will become increasingly valuable: Through the 80’s technologies were launched and features grew, in the 90’s consumer devices became smaller and smarter, that was the consumers’ overriding desire and technology was evolving that made it possible, in the 00’s connectedness became most important, everything had to be always on, but now in the 10’s I believe the demand cycle will switch to seamlessness. Think about it, who else can do seamless as well as we can? Apple can for sure across PC, MP3 & Phone, and they do a fantastic job of it, and Google from web application to web application, which they are not doing such a great job of, but who else, Samsung, Sony, Yahoo!? Microsoft can, and we will. We are leveraging our ubiquity to converge experiences across devices and through the firewall, from Phone to PC to Web to Cloud, to TV to workplace to Bank to Bar, console to car to elevator to aeroplane and back again. Windows Live ID and our approach to interoperability are driving seamlessness that is so smooth we don’t even notice! Three Screens and the Cloud as a strategy is bang on the money, regardless of whether or not we win in Windows Phone or Browser right away!

3. Lastly, and a wee bit frustratingly, we don’t have to rush in to win, meaning that we are unlikely to aggressively pursue leadership in any one category as we execute our Three Screens and the Cloud vision. The generally held view is that the DOJ knocked the fight out of Microsoft, my view is that we were just getting older. In April 2010 we turn 35, when we do we will still be up there as one of the top ten largest companies in the world, and by the time we turn 40 it is highly likely that we will have retained our #1 spot in the key product pillars of Windows and Office, even if we lose some share points to competitors in that time.

So Coolaid or not, I am blown away by the top level vision of our company. Sure our execution could be better, and it would be nice to see a little more fight, but you can still win the war, even if you lose a battle or two along the way.