Microsoft Sees That Apple Has Been Right All Along – Re/code
A version of this essay was originally published at Tech.pinions, a website dedicated to informed opinions, insight and perspective on the tech industry.
For the majority of Microsoft’s existence, it has been an OS company that provides key software that ran on PCs. Then, in the mid-1980s, it became a software applications company and dabbled in things like mice and keyboards, as well. While the company got into hardware with the Xbox, this product was a vertical play for gamers, and had no impact on its core businesses and PC partners.
During that period, I was very close to Microsoft. In fact, often Steve Ballmer and I would meet or have lunch when he came down to Silicon Valley to discuss Microsoft’s visions and strategies, and he would try and convince me that Microsoft was on track to dominate the PC world well into the future.
But on at least two occasions, I suggested to Ballmer that Apple ultimately had the better business model, in that it controlled the hardware and software, and also oversaw its user interface so the hardware could be tweaked to the UI. I suggested that this type of oversight would help Apple in the long run and give it greater control of their destiny.
At the time, Ballmer could not see this as a plus for Apple, and banished the idea that Microsoft would ever want to own or control the entire ecosystem in order to guarantee its future. Microsoft relied too heavily on its PC partners to help get Windows to a broad market. And to be fair, during that time period, he was right.
If you look at Microsoft’s new strategy, you can’t help but see that this is an acknowledgment that Apple’s business model of owning the hardware, software and services is ultimately the best one to assure Microsoft’s control of its own destiny.
However, what concerned me even then was that, as early as 1988, we started to see consolidation in the PC market. Because an IBM PC clone could be made with basic parts taken off the shelf, companies around the world were coming out of the woodwork to create PCs and sell them in local markets. Most of these became what we call “white box” vendors, but NCR, DEC, Panasonic, Toshiba, Acer, Samsung, Great Wall in China, and about two dozen other branded vendors jumped in to what was a lucrative market, but one that became highly competitive. By the early 1990s, we started to see the first wave of consolidation, and well over a dozen companies dropped out of the PC market altogether. That consolidation continues today, and with each wave of mergers, Microsoft’s partner and distributor pool of Windows decreases.
Microsoft is a smart company, and I think it saw the consolidation writing on the wall pick up steam at least four or five years ago. Secretly, in their labs, they began to create prototypes of various kinds of hardware, for two key reasons. One was to try and influence designs the company wanted its partners to bring to market, such as the 2-in-1 Surface.
But the second reason was even more strategic: Market consolidation is a huge threat to Microsoft and, by creating its own PC hardware, it was building an insurance policy for the future that guarantees that, even if more consolidation takes place, it could become a serious vendor in its own right. This would guarantee there would always be a solid hardware vendor carrying the Windows OS forward, should consolidation impact Microsoft’s current partners and reduce the number of vendors who would sell Windows PCs.
With Microsoft’s new Surface Pro 3 and 4 and their new Surface Book, the company is now a direct competitor to its partners, something Ballmer told me back then Microsoft would never do. Of course, Ballmer is gone, and any strategy he had in the past has been trumped by Microsoft’s new leadership, which is much more realistic than Ballmer ever was about Windows’ future.
But if you look at Microsoft’s new strategy, one can’t help but see that this is an acknowledgment that Apple’s business model of owning the hardware, software and services is ultimately the best one to assure Microsoft’s control of its own destiny. At the moment, it looks like Microsoft will only have three serious PC partners doing any volume — HP, Dell and Lenovo. Some are asking how long even these vendors will continue to support PCs, given shrinking margins.
It is no secret that this move into hardware has angered their current PC partners. While not necessarily seen as a betrayal, they would have preferred for Microsoft not to get into hardware, and put more of its design and software UI resources into its partnerships instead of creating its own hardware and tailoring it for its own devices. However, Microsoft ultimately has no control on how successful Dell, HP or Lenovo will be, even if they will continue to support Windows in PCs, given the volatile state of the market and the level of consolidation that continues today.
What Microsoft has had to conclude is that, in the end, the idea of owning the hardware, software and services is the only way to control its destiny. At this time in its history, it had to make this difficult decision, even if it brought them into conflict with its PC partner relationships. It looks like “the Apple Way” is now the Microsoft Way, too.
Tim Bajarin is the president of Creative Strategies Inc. He is recognized as one of the leading industry consultants, analysts and futurists covering the field of personal computers and consumer technology. Bajarin has been with Creative Strategies since 1981, and has served as a consultant to most of the leading hardware and software vendors in the industry including IBM, Apple, Xerox, Compaq, Dell, AT&T, Microsoft, Polaroid, Lotus, Epson, Toshiba and numerous others. Reach him @Bajarin.