Krugman & Cringley on Ballmer & Microsoft’s ‘Failure’

By | September 4, 2013 5:20 am PST
Stephen Elop and Steve Ballmer

Nokia CEO Stephen Elop (left) with Microsoft CEO Steve Ballmer

There is an apocryphal tale of Bill Gates giving a speech to assembled Hollywood executives when he was still head of Microsoft, which ends with him telling them “and I guess you guys also have a problem with piracy.” While software piracy may have trumped film-related piracy in the early noughties in terms of lost revenue, Bill should have known that nobody puts baby in the corner when it comes to whose piracy is more important. It is a mistake Steve Jobs would not have made, but it highlights Microsoft’s stumblings in trying to become a media company. The public and the industry still see Microsoft as a software company trying to break into hardware (tablets, smartphones, etc.), whereas Microsoft has for the past decade tried as much to position itself in the media space just as much as Apple or Google. It is illuminating to keep this in mind, when talking about Microsoft’s “failure”, as we will get onto.

While it is easy to crow over Microsoft’s media failures (Exhibit #1: the Zune), it should not be forgotten that it launched the world’s most successful media centre for the living room, i.e. the Xbox. Sold as a video game machine, it today serves to stream Hulu, iPlayer, Netflix, Mubi, YouTube and countless other non-game entertainment services more than any smart-TV or AppleTV, with Xbox Live a contender to take on the iTunes store. Having achieved this in the face of intense competition from Sony’s PS3 is no less remarkable, and the Kinect is as much of a revolutionary interface as Google’s Glass or the Leap Motion. Had Microsoft decided to spend the $8.5bn it paid for Skype on a media company (Netflix? Hulu? Lionsgate?) it would have been recognised as a media player (pun intended) today. There is no guarantee though that these companies would have flourished under MS, just as it effectively killed of its first mobile phone company Danger that it bought for $500m in 2008 (not much mention of that in all the analysis of the Nokia purchase). So while Microsoft has failed to become a significant media company, it is not for lack of trying, but also something that it does not get beat up about.

With news of Microsoft’s intended take-over of Nokia’s handset business, the dissection of Steve Ballmer’s failure has taken a temporary back-seat. As industry analyst Benedict Evans observed on Twitter (@BenedictEvans), “Buying Nokia is tactics, not strategy. It prevents the collapse of MSFT’s current strategy but won’t help it succeed.” So with that in mind, what was Ballmer’s strategy and why was it considered a failure? The two best pieces of analysis have come from vastly different ends of the commentary spectrum.

New York Time’s Nobel Prize winning economist Paul Krugman reaches back into history to find an appropriate analogy for where Steve Ballmer and Microsoft went wrong in The Decline of E-Empires:

How could Microsoft have been so blind? Here’s where Ibn Khaldun comes in. He was a 14th-century Islamic philosopher who basically invented what we would now call the social sciences. And one insight he had, based on the history of his native North Africa, was that there was a rhythm to the rise and fall of dynasties.

Desert tribesmen, he argued, always have more courage and social cohesion than settled, civilized folk, so every once in a while they will sweep in and conquer lands whose rulers have become corrupt and complacent. They create a new dynasty — and, over time, become corrupt and complacent themselves, ready to be overrun by a new set of barbarians.

I don’t think it’s much of a stretch to apply this story to Microsoft, a company that did so well with its operating-system monopoly that it lost focus, while Apple — still wandering in the wilderness after all those years — was alert to new opportunities. And so the barbarians swept in from the desert.

So the barbarians at the gate took over and in time they too face the same inevitable forces, which is why Apple should not get too comfortable.

The second opinion comes from a man who knew Apple when it was two guys (Steve Jobs and Steve Wozniak) soldering circuit boards together in a garage. In a post called Microsoft, Ballmer and the end of the PC era Robert X. Cringely observes that:

You’ll read a lot of stories today and tomorrow about how Ballmer as CEO missed big product trends like smart phones and tablets — the very trends that Steve Jobs and Apple did so well. But that’s not so. Windows CE phones existed long before the iPhone. Windows tablets predated the iPad by more than a decade and date from the pen-based computing fiasco of the early 1990s. So it’s not that Microsoft missed these opportunities — they just blew them. Windows CE sucked and Windows for Pen Computing was close to useless.

Apple was successful in these niches mainly because they did a more thoughtful job of them at a time when hardware was finally coming available with enough power at the right price to get the job done. Earlier simply wasn’t an option.

There’s much else to the story of the post-Gates era of Microsoft, but amidst all the repetition in the press and on-line discussions, these two voices make the strongest macro case for where Microsoft went wrong. And with Netflix now valued at USD $17 billion, don’t expect it to distract Microsoft from figuring out how to combine Nokia with Windows and Skype, while praying that Xbox One doesn’t shrink its presence in the living room.

Patrick von Sychowski
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Patrick von Sychowski

Patrick was a Senior Analyst at Screen Digest, went on to launch the digital cinema operations of Unique and Deluxe Europe, then digitised Bollywood at Adlabs/RMW, and now writes, consults and appears on panels about cinema all over the world.
Patrick von Sychowski
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