Microsoft’s Overlooked Innovation

It’s fun to bash Microsoft. It’s easy, too, with Apple solidly conquering the high end of the PC and mobile markets and Google’s command of the Internet. But how fair are these articles skewering Microsoft, such as “Microsoft’s chronic lack of innovation” published today at Techworld? I suggest that Microsoft innovates as well as, if not better than, any other massive company. But no one innovates like an outsider.

Note: I am a Microsoft MVP in the area of File System Storage and will be on the Redmond campus all week as part of their Global Summit for MVPs. I am not a Microsoft apologist or sycophant and have been both harshly critical when the company deserved it and full of praise at other times. Mostly I just focus on the value of enterprise information technology and try to give all companies and products equal skepticism.

Run Versus Change

Large businesses tend to group projects into two categories:

  1. Run the Business projects focus on maintaining the status quo, keeping the money flowing in, and satisfying the demands of existing customers.
  2. Change the Business projects are far trickier, attempting to innovate and add new products or services to keep up with the competition.

This methodology has come about through years of experience balancing efforts that either upset the apple cart or let the apples rot. Look at the history of business and you will find that most successful businesses strike a balance between run and change. Those businesses that have failed have done so because they did not strike this balance, either ignoring their current needs in an attempt at reinvention or stifling change in the name of risk management.

One of the criticisms leveled against the American automakers is that they focused too heavily on serving core markets and too little on innovating into new ones. Thus, the average age of Cadillac, Buick, and Lincoln drivers shot upward and no young person would be seen in one of their cars; Dodge, Ford, and Chevrolet derived nearly all of their profit from massive pickup trucks and stopped developing more economical cars; all of the Big Three relied too long on still-profitable older designs while their competitors developed newer, better-performing ones. In short, the American auto industry nearly collapsed because they put all their energies into running the business and very little into changing it.

High tech businesses often have the opposite focus. Companies like Yahoo and AOL allowed successful existing businesses to wither while they tried unsuccessfully to expand into new markets and take on new competitors. Yahoo Mail accounted for more than one third of that company’s traffic last year and remained the dominant webmail platform even after half a decade of challenge from Gmail and more from Microsoft Hotmail. But Yahoo spent that time thrusting this way and that into every conceivable business with little success. One can see the same pattern at eBay, Motorola, 3COM and many others.

Microsoft’s Balance

It would have been very easy for Microsoft to fall into this trap over the last decade, and indeed they have often made this sort of change-over-run move. Consider the massive money Microsoft invested or wasted (depending on your perspective) on unprofitable and perhaps even quixotic mobile, online, and gaming properties: If a constant stream of revenue from Windows, Server and Tools, and Office was not available to balance this, Microsoft would have had a shareholder revolt on their hands. As I mentioned last week, Google is in a similar position, deriving nearly all of their revenue from advertising even as they try and fail to innovate in other areas.

Silicon Alley Insider's Dan Frommer and Kamelia Angelova presented this chart of Microsoft's profits on Feb 10, 2010

One school of thought is that Microsoft has simply milked the Windows and Office cash cows rather than innovating, but others might criticize the company for trying to establish a presence in too many areas instead of focusing on their core products. The fact that these two opposite viewpoints are widespread indicates a third option: Microsoft is trying to balance innovation and consistency both inside and outside their core areas of competence.

Consider Office, Server, and Windows: The combined effect of Microsoft’s monopoly power and sheer inertia would not keep the company dominant in these two areas forever if they did not keep innovating. There have been many points over the last 20 years where Microsoft has been vulnerable on the desktop. The 32-bit transition from Windows 95 to Windows XP was long and painful, and Microsoft is repeating this with Windows 7. The company must innovate to the very core of the operating system to make these transitions, though most of these improvements go unnoticed. Monopoly or not, I cannot comprehend a successful Microsoft desktop strategy if “Windows 2010” was a simple evolution of Windows 95.

But Windows Server’s storage components are the core of my expertise, and Microsoft deserves much credit for innovation here. The creativity and originality of Windows Server storage features is lost on most, but that doesn’t mean they are any less innovative. I’ve written about the iSCSI initiator, MPIO, and VSS before, but there is much more than that. The peer-to-peer system used in BranchCache is startlingly creative, for example, but the pundits probably never heard of it. Under-the-covers innovation to support and continue a company’s success deserves credit, too.

Even Microsoft’s “branching out” activities are starting to see some success. Bing is much more impressive than many (including me) would have guessed, and users are beginning to notice. And the Xbox gaming platform, which has finally begun turning a profit, is a dominant player in that market. Indeed, many young people know Microsoft more as a gaming company than anything else.

Applauding Innovation

This kind of success in a new area is not unprecedented, but many companies have failed the test. In 1960, General Motors introduced one of the most innovative automobile platforms in history to take the small-car market head on. Every one of the so-called “Y-body” cars featured innovative features and industry firsts, from the Corvair’s rear-mounted aluminum flat-6 engine to Oldsmobile’s first production use of a turbocharger. Amazingly, most of these innovations flopped, and GM’s replacements were much more conventional. Innovation does not always succeed, especially when applied to a new market, so one should especially applaud when it does.

So is Microsoft innovative? Although the company has a reputation for bullying, monopolizing, and destroying competitors with “me too” offerings, a deeper look reveals true creativity both in core and speculative products. A massive company like Microsoft must be of two minds: Focused on continuing their core business while branching out into new areas. Success in either of these endeavors demands innovation, and Microsoft has undoubtedly succeeded.