The Tao of Beating Microsoft:Don't Compete -- Instead,
let the software giant's own momentum trip itself up
By Tim Haight
For the last 10 years at least, it's been Microsoft vs. somebody:Microsoft
vs. Borland, Apple, IBM, Netscape, or even the network computer.
Nobody seems able to beat Microsoft, yet I believe it can be done. And
the Internet may be the proving ground.
Competitors haven't been able to beat Microsoft for long-so far-because
they've gone at it head-on. The trick is not to try to beat it. This may
sound a lot like Eastern philosophy, but I can explain it in terms of
old-fashioned Western economics.
Microsoft has a proven business model:Establish yourself in an essential
area of a gigantic market where you can experience high sales volume and
low unit costs, and where other companies end up contributing to your
continued necessity.
Microsoft makes software. All other things being equal, making software
is cheaper than making hardware. Once you've written the software, you
experience vast economies of scale as you sell more copies. When your
unit volume is counted in the tens of millions, as it is with Windows, those
economies of scale are tremendous. That's how to get low unit costs.
But how do you get high sales volume? Simple. Focus on products most
people have to have. What is more fundamental software than a
computer's operating system? So Microsoft's "Rule No. 1" is to aim at
markets that will yield high volumes and low unit costs.
This may sound like 20/20 hindsight, but stick with me. The point is that
Microsoft will continue to do the same thing. In 1991, for example, when
Microsoft first started to talk up Windows NT, it was clear that Bill Gates
considered Novell a competitor, but not Unix. Unix didn't have the sales
volume. The Unix market wasn't big enough to go after.
Of course, you can think of arguments to refute that, such as the fact that
Unix dominated particular applications, such as relational database
management systems and Internet servers. I'm sure Gates considered
those before making his decision, but the Internet, back then, was still
noncommercial. Not a major market. And that's the key. Years later,
Microsoft was "surprised" by the Internet.
What makes it possible for Microsoft to enter markets where it can
produce the essential high-volume software or service? The history of
Microsoft vs. Apple shows you need not have the best product. Few
would deny that the Macintosh operating system was better than
MS-DOS. And that's why the second part of Microsoft's business model
is so important. "Rule No. 2":Make others in the market contribute to
your continued necessity.
People's reasons for going with a Windows PC instead of a Mac may
differ. My own is that all the new Internet apps come out on Windows 95
first. But for you, maybe it's because Windows has become a corporate
standard or because the hardware is cheaper, or because so few Mac
apps are available, relatively speaking. Regardless, the principle is still the
same-something else in the computer industry often makes Microsoft the
right choice:Intel. The hardware companies. The software developers.
Once you've achieved this power in one market, you leverage it to other
essential mass markets.
Now, how to beat Microsoft? The key is to let Microsoft pursue its
strategic direction, then trip it up, just as you use an opponent's own
momentum in Tai Chi. Consider:Why did the Microsoft Network fail the
first time out of the chute, particularly in comparison with America Online?
And why is MSN likely to fail again?
MSN was supposed to sweep the online services world because you'd be
able to access it from every copy of Windows 95. Same basic
strategy:Become the dominant player (the online network) that others (the
content providers, etc.) will support. Use dominance with Windows to get
there.
The problem, of course, was that the people who clicked on the MSN
desktop icon didn't get very much, so few signed up. The people who
booted up the ubiquitous AOL disks got quite a bit, and millions joined.
AOL had been in the online business years before MSN. It's a very
different business from writing and selling software. It involves
infrastructure, nurturing particular content providers, creating communities.
A lot of online industry progress occurred beneath Microsoft's notice,
when it was too penny-ante for the software giant to care about. When
Microsoft rushed into the online business, it underestimated radically in
terms of infrastructure, software, services, almost everything. And it got
tripped up.
Of course, Microsoft is remarkably agile for its size and recovers its
balance quickly, as the quality and competitive potential of Internet
Explorer 3.0 and 4.0 illustrate. And now there's the new MSN. As a
multimedia experience, it looks absolutely great. Will it rise from the mat
and ultimately win the match? I think not, in spite of how cool the product
is. But it's a close call.
Microsoft believes the way to predict the future is to invent it. MSN is
positioning itself as the, ahem, Window to the Internet, which is about as
close as you can come to an essential mass application for the Internet
environment. MSN wants to be the essential online service so it can work
its same economic plan-sell lots of copies of an essential product.
But I don't think MSN will prevail because it's too much like TV. MSN's
emphasis is on providing a small, easily understood set of services
organized into "channels," which have intensely good multimedia
programming, plus full Internet access. This may work. There is the fact
that users, as they mature, stop surfing and access fewer sites. The
question is whether the sites MSN offers will become those few, or
whether different users will pick different groups of favorites. I think
Internet users, once they get their feet wet, won't care about MSN's
pre-selection. They'll want to make their own choices, and they won't
want to pay extra for MSN's bunch.
Microsoft has yet to learn that the Internet is not TV, because selling tens
of millions of copies of Windows, which it's used to doing, is more like
running a TV network than building an Internet service. Microsoft is
trapped by its own Rule No. 1.
Microsoft is also ignoring Rule No. 2. Most of the zillion Internet sites out
there owe nothing to MSN. MSN, in fact, gets in the way of accessing
most sites by giving its own features so much prominence. And of course,
MSN is available only for the Windows 95 environment, at least so far.
On the other hand, a new user, not ready to simply wander around the
net, may pick MSN as a simpler, more navigable environment. Last year,
many users apparently picked AOL for this reason. And there's no
denying that MSN's new interface is both easier and emotionally more
appealing than what AOL offers now.
AOL, in particular, may face stiff competition from MSN. But let's hope
AOL doesn't get hung up in competing with Microsoft. Novell, like AOL,
won the first round against Microsoft. Then Ray Noorda got obsessed
with beating Bill Gates, and Novell lost ground. If AOL concentrates on
making a service to beat Microsoft, it will lose. It has to focus on its key
strengths and go forward with them for the benefit of its users, not fight
Microsoft. The trick to competing is not to compete head-on. That's the
Tao.
Tim Haight is editor of NetGuide Magazine.
Copyright r 1997 CMP Media
.END
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