February 26, 2007
How should Microsoft capitalize on its place in the food chain?
I read Don Dodge’s post on Microsoft not suffering the innovator’s dilemma and had a similar reaction to Robert Scoble’s. I am a big fan of Microsoft and use their software every day on my Mac. It is great software from a great company full of great people.
That said, the issue is not whether they are suffering the innovators dilemma (all large companies suffer), the issue is what they should optimize their innovation given the limitations that large companies have (the innovators solution can help, but does not nail the solution in my opinion). Well run small companies will beat large companies if their angle of attack is right (see my “How David Can Beat Goliath” series on the topic), but well run large companies can stay relevant (and important) if their angle of defending attack is right. My sense is that Microsoft is trying to win all of the games all of the time rather than focusing on playing the games that it will win!
Microsoft needs to optimize its place in the “food chain” by considering what its natural advantage is, where it is disadvantaged, and how they should capitalize on this advantage. Microsoft has several natural advantages from its location at the extreme end of the food chain (see list here) and also has natural disadvantages (some listed here but written more from the reverse perspective). The net of it is that it is extremely difficult (impossible?) for the large companies (even the great ones) to create, develop, and test out the hundreds (thousands?) of innovative ideas that it takes to get one or two “hit” products/companies because most of the best ideas grow from the other end of the food chain!
Net, net, if I were the decision maker at a large technology company like Microsoft, I would put aside 2-3% of my market cap each year to purchase the innovative companies that have grown (and evolved) to the point that Microsoft can either
- Put them through its current technology, sales and marketing, and customer service engines to supercharge their performance, or
- Develop them (in whole or in part) independently to create new technology engines, new sales and marketing engines, and/or new customer service engines (depending on the uniqueness of these engines).
if they did this with the proper focus and magnitude, then we all would look at them as more innovative, even though a lot of the innovation would have been incubated by external parties (at the other end of the food chain).
(Yes, Microsoft will say that they are doing something like this, but they are not doing it with either the focus or the magnitude that is necessary to win the innovation game, at least right now.)