Posted by Matt Egan 10 April 2014
Microsoft, XP, and the reverse Innovator's Dilemma
Microsoft failed to change its model when the going was good. And now XP users will not be persuaded to change.
You may or may not have heard of the Innovator's Dilemma. You may even pretend to have read the book when trying to impress at dinner parties (I prefer to pretend to have read 'A Brief History of Time', but each to their own). For those of you sadly denied access to popular business books that use US spellings of the word 'dilemna', allow me to give you a brief precis...
The Innovator's Dilemma is a book in which author Clayton Christensen argues that when a company is making a lot of money selling a product or service its customers like, it is difficult for that company to innovate and release radically new products for fear of killing off that revenue stream too early. And that means that established corporates are always at a disadvantage when competing with startups that have only their innovative skills, and nothing to lose.
You don't have to look too far in the world of tech to find examples. BlackBerry customers loved their hardware qwerty keyboards, so RIM (as was) avoided bringing out touchscreen handsets until the iPhone had killed its market. If only it had gone through the process of transitioning its users to touchscreens it may still be a viable concern today. But that would have meant disrupting a market in which it was killing the opposition.
There are plenty of others: Microsoft was reluctant to change the Office model when it made so much money from selling lifelong licences to business users, and then Google Docs stole a march. And Sony tried so hard to hold back digital music downloads when it was raking it in selling CDs that it squandered the unique position of owning both content and tech by foisting on an unwilling world products such as MiniDisc.
But on a bigger canvas still sits Microsoft and its Windows operating system. Trapped in a vicious spiral caused by its own success in squeezing the life out of its rivals.
The Redmond dilemma
Throughout the 90s and the early years of this century Microsoft had a brilliant business model. It created the software on which most of the world's PCs ran. And it made money from selling licences for that software. No hardware manufacturing risk, and a guaranteed returning customer every two years when a PC became unusuable and the customer bought a new one. New Windows releases offered compelling new features so that even when a customer didn't feel compelled to buy a new PC, they may simply purchase the new OS.
In Innovator's Dilemma terms, at some point when Microsoft was riding high it should have recognised that this model wouldn't last forever, and looked for new products with alternative revenue streams. (Actually, Microsoft did - it was pushing tablet PCs and smartphones for a long time before Apple did, it's just that its products were - excuse me - shit. Things are better now: see why you should buy a Windows Phone.)
Instead Windows sales are now declining for a variety of reasons. For one thing PCs and laptops are built to last a lot longer than once they were. The PC that was powerful enough to run Office and surf the web in 2008 is likely to remain powerful enough now. Plus in a time of economic downturn consumers are more wary about shelling out for something new. Smartphones and tablets have replaced some PC and laptop use, and now that connected computers *just work* there really aren't that many compelling new features that would make you want to upgrade.
And, of course, Apple is trying to kill Windows.
And then, there's Windows 8. Windows 8 is many things - fast, stable and secure to name just a few. But it is also an obvious and clumsy attempt to move Windows users to touchscreens, and to tie users in to a Microsoft world that links mobile, desktop and home-entertainment via the Xbox. The trouble is that those are important for Microsoft's future development, but not for consumers.
Moreover, Windows 8 is an expensive upgrade.
Et tu, XP
The big problem for Microsoft is a kind of reverse Innovator's Dilemma. The products it had in 2003 - Windows XP and Office 2003 - are still fit for purpose. And they remain more popular than their immediate replacements. But if people keep using XP and Office 2003 Microsoft doesn't make any money.
This week Microsoft ends active support for XP. It is perfectly entitled to do so. The last new XP systems were sold seven years ago, and you won't find many products that come with a seven-year warranty. Microsoft has also actively trailed this date since it launched Windows Vista, and it's not as though XP will suddenly stop working.
Microsoft has, of course, used this opportunity to try to persuade recalcitrant XP users to upgrade to Windows 8. But it has a job on.
There are, we believe, around 400 million users of XP - around 28 percent of the entire personal computer market. These are people who have been able to 'upgrade' for seven years, and have not done so. It is unlikely that many will be bullied into upgrading now.
They've seen the bloated and unfinished Vista come and go, with no new features that caught their fancy. Windows 7 (a more stable Vista) is now an ex-OS. And still XP users see no reasons to upgrade.
Ironies of the reverse Innovator's Dilemma
Irony number one is that Windows 8 does offer useful new features such as baked-in security, and the lean code will likely offer new life to XP-era hardware. If you can run Windows 8 I would recommend it as an upgrade.
Irony number two is that Microsoft forced through 'innovation' in the form of new products in order to keep making money. And it would have been better making continual, small, incremental upgrades that were free or low cost. Rather like Apple does now.
Unfortunately for Microsoft unlike Apple it doesn't make money from hardware, and it's that business model on which it failed to innovate when it was riding high. Microsoft could care less, it has in Xbox, Windows, Office and Windows Phone a solid portfolio of products from which it will continue to draw huge proficts. But the days of MS domination are gone - possibly for good.
(By the way, here's what to do if you are still using Windows XP.)