BUSINESS AT THE SPEED OF LIGHT: MICROSOFT

Intel’s position has also been supported by a software operating system from
Microsoft. Microsoft can be viewed from the predictable obsolescence vantage point
also. With each new release of the Microsoft operating system, an entirely new
demand for additional software applications results due to compatibility considerations.
Microsoft, by creating ever-more-capable and complex operating systems,
places an increasing demand on the hardware platform’s calculation and memory
capacity for proper operation. Purchase of a new PC requires purchase of a new
operating system — and often core applications. The predictable obsolescence cycle
becomes self-fulfilling between the larger software systems requiring larger hardware
that requires an operating system and new applications in a continuing spiral.
The advantage to Microsoft’s predictable obsolescence business model relative
to Intel’s is that Microsoft’s does not require large startup capital for manufacturing.
The key to Microsoft’s long-term success is the maintenance of barriers to entry for
the PC operating system. Microsoft’s approach to maintaining these barriers has
been a masterful combination of embracing new technologies (extending the operating
system capabilities with each release), bundling their software with numerous
hardware partners, and acquiring competitors before they become threats.
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Microsoft has met the “open source” challenge by creating freeware versions
that are not universally compatible, creating a modern-day Tower of Babble. “Open
source” refers free or inexpensive software that provides an open, user-modifiable
platform like Java for the Internet or Linux for computers.
Without a corporate
economic beneficiary to serve as “keeper of the jewels,” all free and openly
extensible software is very corruptible.
Microsoft has to continually put tremendous
resources into Windows to protect this system from hackers and software viruses.
Ease of use, reliability, and compatibility are valuable, and Microsoft knows the
customer is willing to pay for these product qualities. When browsers became a key
to PC communication, Microsoft moved powerfully to create Explorer and then
bundle it with the operating system, again defeating a significant competitive threat.
Strong market position, with the ability to control the next system’s features and
release schedules, continues to propel Microsoft.
Whereas Intel has had major competitive challenges from Advanced Micro
Devices, which builds close copies of Intel microprocessors, Microsoft has not been
anywhere near as sensitive to competitive pressures from direct emulation of its
software. Although almost any piece of technology can be copied with time and
resources, it is much more difficult to copy economic market dominance that is
strengthened by bundled partnerships and thousands of supporting applications.
The principal danger to Microsoft’s strong business position lies in the “climate”
of the cultures and economies where it seeks to grow. Since its product, software, can
be illegally copied and distributed (“pirated”), Microsoft can thrive only where copyright
laws are honored or enforced. As we discussed in Chapter 1, the laws of
techonomics function fully only in environments that allow and respect their operation.