Wednesday, November 29, 2006

The Tyranny of a Monopoly

Anybody else out there finding it interesting how people—even really smart people—can be cowed into not asking an obvious question for fear of looking stupid?

Generally speaking, the larger the room and the bigger the crowd, the less inclined people are to ask a question, particularly an obvious question that begs to be asked.

(Smaller rooms packed with people tend to avoid this syndrome, probably because by definition there is greater interest in the subject matter, which means there is a controversy that those in attendance want to address; hence, lots of questions on people's minds and no standing on ceremony to ask them.)

As to the reason why the more obvious the question, the less inclined people are to ask it, I suppose it goes back to First Grade: everybody thinks everybody else in the room already knows the answer, and nobody wants to look stupid in a room full of their peers.

This is a shame because the more obvious the question, the more likely it is everybody else is itching to ask it.

I’ve witnessed this syndrome at “back-to-school night” and at church board meetings, and I’ve seen it in a room full of high-testosterone Wall Street types who are not usually cowed by anybody.

And now I’ve witnessed it in the Wall Street Journal—specifically a recent interview with Microsoft CEO Steve Ballmer.

Here’s the first question of the interview:

WSJ: As more storage and other PC functions are offered on the Web, it raises questions over the value full-blown Windows software will continue to have in the future. How do you factor that in with future Windows development?

That’s a pretty good question.

After all, the heart of Microsoft’s dilemma, as I see it, is and always has been that every product Microsoft has ever made, with the single exception of Xbox, has been designed to further the use of the Microsoft operating system.

This is not a criticism, but a statement of fact. Hey, if I had a monopoly like Microsoft has a monopoly, I’d want to push it onto every device possible, too.

Problem is, this kind of product development doesn't work. It is, I think, no coincidence that Xbox has been Microsoft’s only non-desktop-monopoly related success, for reasons the Wall Street Journal reporter was getting at in that question, which is why it's a good one.

And this is Mr. Ballmer’s response, which I include from start to finish:

Mr. Ballmer: The best chapter in "Good to Great" by Jim Collins should be reread, and it will help explain a little bit of what I'm about to say. The chapter called "The Tyranny of Or" talks about how in great organizations, things don't always come down to A or B. People innovate because they see the value in A and B.

The innovations that will continue to come forward are the innovations that bring together [PC] client and [online] service as opposed to the sort of people who want to be provocative with a "Tyranny of Or" kind of discussion about it being A or B.

Basically everybody in the industry agrees that you've got to have rich clients and rich servers. There's nobody who actually, by their actions, disagrees with that.

How can I say that? Let me give you some evidence. Cell phones are going through a very distinct transformation where you're getting more and more intelligence built into phones, despite the fact that the phones are backed up by rich services coming off the Internet. That's an interesting data point because you can deliver a better experience with rich intelligence at the client talking to rich servers and service infrastructure on the backend.

How that answered the question is beyond me.

Ballmer’s long-winded response is, however, quite instructive. For one thing, he quotes a book, “Good to Great,” which upon publication in 2001 highlighted a bunch of so-called “Great” companies based on a complicated analysis of many factors, including such vapid notions as the “Tyranny of Or” quoted by Ballmer.

One of those “Greats” so highlighted was a mortgage buyer named Fannie Mae.

Fannie Mae, as we now know, actually achieved greatness not by avoiding the “Tyranny of Or,” but mainly by avoiding the “Tyranny of Reporting Disappointing Earnings” via the “Wonder of Accounting Fraud.”

Those “great” numbers from Fannie Mae have been restated, as has the management team lauded by Collins.

Secondly, I seriously doubt anybody at Google or any of the thousands of companies working on ways to move desktop functions onto the Web—which was the heart of the Wall Street Journal reporter’s question—is wasting time reading hoary old business casebooks.

They are, rather, working on undermining everything Microsoft holds dear, most especially its monopoly on a desktop computing model fast becoming irrelevant. You might say Microsoft is subject to its own kind of tyranny: the Tyranny of a Monopoly.

So if there is a person in the world—including the reporter conducting that interview—who understands a) what Ballmer was saying in his response, b) how it addressed the question that had been asked, and c) how it helps Microsoft deal with the tyranny of a monopoly that keeps them from making truly great, useful, uncomplicated and popular products, I’d like to hear it.

I suspect, however, at least in this case, everybody already really does know the answer.

Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.


Honorable Justice Jorge P. Smythe said...

I believe Ballmer's point is that they want to extend the monopoly to mobile phones and PDAs, the rich client being Windows Mobile or whatever they call it now. The tool to do this is Exchange and Office. If they can sufficiently limit other's abilities to synch with Exchange and view Office docs, ppts, xlss, they think they can extend the monopoly to any business device. Wait until they start making a printer OS.

dkman said...

I am no fan of Microsoft (I switched to Macs years ago and love them).

I do have to admit, however, that there is some logic in Ballmer's response.

I think what he is saying is that even though the Web is starting to offer more and more services that only PCs could handle not too long ago, the new generation of portable devices (cell phones, iPods, Zunes, Treos, "rich clients" as Ballmer calls them) is becoming as powerful in terms of memory/storage/processing power as PCs used to be not too long ago.

Ballmer's response indicates he thinks this type of environment will make it easier for Microsoft to extend their monopoly, as all of these devices should be theoretically capable of running Windows OS and the associated applications.

Needless to say, time will tell.

That's my take - I could be totally off base.

Logicalthought said...

Further agreeing with the first two comments and simplyfying (overly so?) things even furthter, it seems pretty obvious that Ballmer is saying that even applications you can access over the web will work much better and with more versatility if the device on which you're accessing them has a sophisticated operating system and, perhaps, some sophisticated software to go with it. Is this true? I have no friggin' idea-- I just USE the things. But it sounds at least plausible.

Gone to the blogs said...

logicalthought, you're on the right track. What Ballmer was really hinting at was the Windows Live / Office Live strategy. Web applications (including those supported by ads) are great and all, but no serious person who understands client-side computing should even entertain the thought that it's all going to go away because some high-GPA wunderkinder at Google say so.

And don't even get me started on the laughable notion that the corporate PC and server world is going to migrate to the web in our lifetime.

bgthej said...

Ballmer may be saying that (above), but his comment that "there's nobody who actually, by their actions, disagrees with that" is telling as well. Basically he is saying that to date Microsoft has been successful in extending its OS monopoly and thus despite the hype of software as a service, Linux, and Google, no one has challenged them in a meaningful way. Now if people disagree with that by their thoughts rather than their actions to date is another issue. It is certainly not clear that Microsoft will be able to extend its monopoly onto cell phones and actually it seems unlikely they will be able to do so, as the network operators (wireless carriers) and the cell phone manufacturers (NOK, MOT) seem to have more leverage in this case. While interoperability with software run on PCs is an advantage, Ballmer certainly has a struggle in front of him in using that advantage to become the defacto standard on PDAs, consumer electronics, etc. despite "people's actions" to date.

tahoe kid said...

My experience using a smartphone with a MS OS is, it may be a smartphone but it was a dumb purchase on my part. Just a horrible user interface experience. I am a very happy BlackBerry customer.

karl_keller said...

Virtually every question from a reporter has a premise underlying it. Basically the reporter asked, "Stevie, aren't you afraid the stand alone PC, along with your operating system, is going to go the way of the dinosaur once web-based applications get robust enough?"

Stevie's answer: "It not either or. Both can exist. Look at X-box." And Stevie would be right. X-box is the ideal for Microsoft: specific OS on a particular box to get access to a rich Internet experience. KInda like that company...gee...what's it's name? It's on the tip of my tongue...

Oh yeah, Apple.

Frankly, this notion of Web based apps making a stand alone OS obsolete is WAY premature. I've played with some of these things...they are not very robust. Is Google really going to write an app that can do the complex modeling that Excel can do? I doubt it. Plus, most user's are security conscious pack rats: they LIKE to control and own their own files and folders.

This debate reminds me of the "coming of the paperless office." Last time I looked, filing cabinets (the metal ones, not the virtual ones) are still being sold.

I think Microsoft's main worry continues to be open-source stand along apps. Like Firefox. Like Thunderbird. Like Linux.

css said...

I think Ballmer's answer is quite good - for all the reasons outlined by other comments here.

I recently tried to use Google Spreadsheets to write up evaluations for the girls' soccer team I coached last fall. It fell short on features (I'm not making that up) and it's unlikely I'll be using it for any type of serious business application anytime soon.

Shared services are good for some things, and not so good for others. Do you drive to work or take the bus?

I've followed Microsoft for a long time (I was a tech industry analyst most of the '90's) and seen their obituary written many times. They've made a lot of mistakes, particularly the last few years - and Gates stepping out/down still scares me. But I wouldn't write them off just yet.