Tuesday, March 28, 2006

Microsoft Has Become the GM of Software

Much is being made of Microsoft's latest delay in shipping Windows Vista, now scheduled for early 2007. Why is a new operating system such a difficult thing for Microsoft to get out the door?
Some economists see the hegemony of Windows as a natural monopoly; it just makes sense that most computers run the same OS. But maintaining a market share of 90% is anything but natural, particularly given Microsoft's strategy of adding features to justify a market premium. Running an empire requires a bureaucracy, which is what Microsoft has become.
Microsoft is now, in some respects, the General Motors of software, increasingly unwieldy and burdened with the costs of maintaining its market dominance. There's a reason why Windows (or "Windoze" as one Slashdot poster put it) and other Microsoft products have the allure of a late 1980s Oldsmobile. Can you think of any Microsoft or GM product that is the best in its class? (At least GM cars don't feature talking paper clips that pop up to instruct you in the use of the turn signal as you approach an intersection.)
As the
NYT reports, Microsoft, like GM, has a vast array of constituencies to keep in the loop:
The problem, it seems, is largely that Microsoft's past success and its bundling strategy have become a weakness.
Windows runs on 330 million personal computers worldwide. Three hundred PC manufacturers around the world install Windows on their machines; thousands of devices like printers, scanners and music players plug into Windows computers; and tens of thousands of third-party software applications run on Windows. And a crucial reason Microsoft holds more than 90 percent of the PC operating system market is that the company strains to make sure software and hardware that ran on previous versions of Windows will also work on the new one — compatibility, in computing terms.
As a result, each new version of Windows carries the baggage of its past.
Even the most robust monopoly cannot hold 100% of the market. Beyond a point, depending on the industry and market, economies of scale break down and it becomes more expensive to gain and hold customers.
The challenge for Microsoft is even more daunting as it struggles to add features, keep Apple, Linux and Google at bay and still be able to charge a premium for its products. Immensely profitable monopolies like Microsoft do not last forever. They either fall prey to new technologies, lose market share or become regulated utilities (like power companies) and lose the ability to charge a premium. For instance, PC operating systems could come to resemble the infrastructure of the Internet, flexible platforms on which to build instead of the vast complex structures of Windows and Apple's OS X.
Make no mistake, Microsoft is still an immensely powerful force. Think GM in the late 1960s, when Detroit's competition consisted of the VW Beetle, a few inexpensive Japanese models and pricey European luxury cars. It may take Microsoft just as long as GM to falter under the burden of empire, but forces that eventually bring down every economic empire will likely erode its hegemony in the end.


Anonymous Anonymous said...

Microsoft officially blamed the delay on the need to implement "security" features in Vista (which I take to mean DRM).

If Vista DRM is cracked quickly after the release it will be a major PR fiasco ("Vista cracked! Insecure product!!)

Also, they are in no hurry because XP is still selling as well as can be expected, and corporate customers are still running Windows 2000 so they won't be upgrading to Vista soon. Most new Vista sales are likely to come from PC pre-installs, so possibly they are waiting for a next generation of faster processor and cheaper memory to run Vista (to conceal bloat and performance problems). DRM is expensive processor-wise.

11:45 AM, March 29, 2006  

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