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February 23, 2007


kid mercury

excellent post.

IMO though i still think an innovator's dilemma scenario is possible for two reasons:

1) innovator's dilemma/solution works best when the innovator (in this case, the alleged innovator is google) is targets a market that the incumbent (msft) cannot. i think there are markets where google will be able to profitably target that msft will have difficulty doing so. is msft efficient enough to underprice google in this market?

2) companies have seen the innovator's dilemma before and have been unable to react because they lack the resources and business processes needed to execute what they know they need to execute. so msft may understand the vision, but do they have the resources to execute it? and if they do, can they execute it more efficiently than google can?

msft clearly knows the strategy, but ultimately i think msft needs to prove it has the management structure in place to compete.

Steve Kaplan

Don -

You've got some good points here on Google Apps. I've been using it here and there for group projects this semester an I've had mixed results.

Word-processing/spreadsheets via an AJAX application? Talk about trying to fit a square peg into a round hole. That's not what a web-browser is designed for.

Google Apps seriously chokes when it comes to formatting issues. Similar to OpenOffice, they're trying to reverse-engineer MSFT's proprietary file formats which ends up being pretty rough around the edges.

What Google is doing right, however, is figuring out how collaboration features should work. Their version control is great as well as the ability to see who is simultaneously working on the document and what their changes are. Publishing to the web/blog is nicely done as well.

MSFT's strategy should be to make these collaboration features tightly-integrated into the next Service Pack for Office and host a collaboration server that their customers can use for free. Think of it like a free Sharepoint account.

This would not only be a great way to stay competitive in the productivity tools market, but also a great way to combat piracy. Every time you want to use the collaboration features that Office comes with, there would be some sort of account validation. If you had a pirated copy of Office, you would not be locked out of the features.

Colin Henderson

RE: "simpler, cheaper, less functional products that disrupt the market"

There is a key element missing in this analysis. Microsoft internet products are premised on desktop products. Live Mail is a web interpretation of Outlook, and resistance to leaving Hotmail is the only reason people are staying.

But more to the point this is a shift away from over-architected software to simple collaborative stuff, that will no doubt gain in function but at the right pace. Collaberation first. PBWiki recently introduced an rtf bar for example.

Personally I do all my thinking now in a text editor.

Internet software needs more than functionality, and this requires innovation. Innovation in this case is understanding the new attributes that are required, such as collaboration, social, network centric etc. To achieve this requires scaling back the functions, and building out the new parts.

SharePoint and Live Mail are perfect examples of trying to fit a square peg into a round hole. Ask anyone who has used both - Sharepoint or BaseCamp ... which is better?


Nothing new here? I don't know of any other spreadsheet that allows users around the world to collaborate, in real time, for free -- and at scale. Some of the other experiments in the market work fine at low volume but fail miserably when scaled up to hundreds of thousands of concurrent users.

Google D&S is missing many features, and that's why I still use Excel. But I also use Google D&S several times a day for simple spreadsheets that require collaboration.

It's innovative, easy to use, and most of all, useful.

Steve Morsa

Google...the teflon company...with an angel's halo...on a media adulation pedestal.

As that old car commercial ditty goes..."who could ask for anything more?"


Nintendo is still perceived as the most innovative gaming company. Ever heard of the Wii?

Google already has General Electric trying out its new system as well as Proctor and Gamble.

Let me know how ignoring the problem works out for you.


Iceanfire, I have done 5 start-ups and my attitude is to always be ahead of the curve, move fast, and not get into react mode.

But, in a huge business like Microsoft you can't and shouldn't do that. It is important to keep everyone focused on the long term goals and strategies. You can't be constantly reacting to "perceived" threats. You would never get anything done.

I was at AltaVista, Napster, Bowstreet, and several other startups that looked like they were going to be the next big thing. They weren't. iTunes came along 4 years later after Napster and is doing fine. Google came along several years after AltaVista.

Microsoft is not ignoring what Google is doing. In fact, Microsoft already has products in this area. Did you read my post?

GE and P&G are "testing" Google Apps, not using them. Translation? They assigned an IT group to take a look at it, maybe do a small trial with a few users in a small division, then give feedback on all the things that don't work.

Believe me I have been there with lots of startups. You say Pfizer and General Motors are using the product, but the reality is they are just kicking the tires.

This is not ignoring, or underestimating the threat. It is reality. There is plenty of time for Microsoft to respond...and they already are. Office Live is available now, and there is a LOT more coming. Microsoft has already built one $500M data center and has another one in the works.

Microsoft Office brings in more than $10 Billion in revenue. How much revenue will Google Apps bring in? Have you done the math?


Terrific post, Don! Your previous post explained the Innovator's Dilemma very well.

I think the issue in this case is not revenue or current market share; I have no doubt that MS is spending hundreds of millions of dollars on bridging the gap to provide users with "the best of both worlds".
I think the real issue is one of *mindset* - Microsoft still appears to think in desktop/OS terms first and foremost. Here's a blog post that makes this point for me:
(you have to join the url manually, or it gets cut off in the comment)


I tried the Google Apps this weekend with a dormant domain I had. Perhaps the major thing missing was the ability to delegate mail functions (such as allow somebody else in your orgnanization to monitor your mail), which I feel it is a nececessity even for the smaller businesses, so bad way we started.

But the simplificy of its setup (in just a few minutes everything was configured) was appealing.

The cost of the experiment was zero because I did not try the Premium Edition, and there was a lot of value for a cost of zero. It can even be used in small business as a back-up mail system or in larger organizations as an alternative e-mail system for users how need a mobile interface to e-mail.

I don't think that Google gets much revenue with Premium Edition, in fact I think that the only value the Premium Edition has as of now is the marketing value thats suggest customers that they won't drop the service.

If a free service was the only option, I don't think I would consider it even for a small business. So in my view, the Premium Edition is for the moment a marketing icon and in the future, when applications get a a few more corporate features, it will become a real service that might appeal.

They now set the price point ($50/user), and now the next step is to add features slowly but surely to make those $50 more appealing.

I think that altough currently underfeatured, Google Apps are here to stay.

Yin-So Chen

Don -

in your opinion, is Innovator's Dilemma very applicable to the software world? Software business has tendency toward singularity and *natural* monopoly, and while there were many companies failed because they couldn't ride the wave, Microsoft certainly has the track record here.

Innovator's Dilemma speaks to situations where the incumbent's rational decision is to retreat from the market rather than fight, and since Netscape's days there is no doubt that Microsoft has designs for the web, so I agree with you that MS will not fall in the trap here (MS is even co-opting open source models, which arguably IS a place MS does not want to go).

The question is - how much of the legacy is MS going to drag along? Internet is bigger than Windows, and how much is the true cost of making Windows the centerpiece of the strategy? We can only speculate what MS could be with less legacy.

Google is of course having its own legacy that it needs to protect - at this level it will come down to who will have the capital to fight multi theater wars.

Anyhow - just some of my thoughts - thanks for the great post.


I appreciate your effort to discuss the risk of an innovators dilemma to Microsoft. I am however, not particular convinced by your arguments, so I would like to give my comments.

"If Google Apps were released by any other company they would be panned as immature and irrelevant"

Of course it means a lot that Google is behind this, rather than by some startup. Its not just about brand or "Google can do no wrong", but as much about execution capabilities and opportunities to leverage an exising userbase. This is what Google have, that a startup typically does not have.

"Maybe at other companies, but not at Microsoft. Microsoft takes this threat very seriously. Ray Ozzie has a grand vision for the Client/Server/Services continuum, and is already building out the infrastructure and products to make it happen."

Not to be sarcastic or anything, but I think that most of us outside of Microsoft is unaware of what this grand vision actually entails. So far I have only seen a bunch of applications, and a "Live" brand, that at best seems fuzzy.

"Henry Blodget has a clear view of where things are today, but doesn't see what Microsoft is doing to build a seamless transition from Microsoft Office to Office Live."

As Henry, I am a bit lost here. Care to give any pointers? And one thing is to succeed in the web space, but to also maintain the same level of profitability that comes from having a near desktop monopoly, is a quite different thing.

"Microsoft will do everything possible to preserve these businesses while transitioning to the new Live strategy. The technical vision is to give users the best of both worlds. That is the business strategy too. No Innovators Dilemma here."

Too me that sounds exactly like an innovators dilemma. The new strategy must not cannibalize existing cashcows? What if customers starts to migrate to competitors good-enough web apps?

"Microsoft Office brings in more than $10 Billion in revenue. How much revenue will Google Apps bring in? Have you done the math?"

I don´t really see the point here. The risk is not that Google suddenly will grab a huge part of the market. The risk is rather that basic Office functionality slowly will be commoditized by Google Apps, OpenOffice etc. Microsoft cannot live on Google not making money on an application package.

Frankly, I think you are overstating the "Google can do no wrong" point. This is about much more than perception. I am personally convinced that the ongoing move towards webbased applications represents a genuine risk of disruption to Microsoft, just as it brings some opportunities in form of subscription based services. So I would never count Microsoft out. I just think the game is more open that it has been for many many years.

All in all, you have in no way convinced me, that there couldn´t be an innovators dilemma on the horizon here. Hope that you will elaborate your points.


Google has so many Netscape employees that it's trying to get some revenge for Microsoft beating Netscape. There is this "theirs is bigger than ours" mentality that is taking Google down the same cattle chute as Netscape. Meanwhile, it's search is lagging.

However, Microsoft is not a gung ho company any more either. Ray and Steve aren't as gungo ho as Bill. Bill is a scrapper, those other guys are employees.


Lots of people have gotten rich off of opening microsoft boxes and installing software. I had a cook at my fraternity that opened cans and warmed our food. But she wasn't really a cook. And most IT people are not really engineers.

MS is now 10 years late to the game. Apparently, Government and many businesses can wait for Microsoft to catch up. Maybe they will continue to wait for MS to roll out their latest and greatest next big thing so all they have to do is install it.

But anybody who wants to get into the on-line market early has long left the MS fold. The tools and techniques they are using will slowly filter into even the worst IT departments.


Again, you're missing the point, Don. Google's strategy to chip away at MSFT. And it's working. As time goes on, every company will be offering web-only free software, and eventually there will be a free operating system out there fully integrated with the web. Desktop vs. internet will be a battle ending with full integration and people will only want to pay for hardware and content.

They will want free personal space, like Myspace; free search, and free apps that are uber-compatible. They will pay for content only - movies, music, and videogames. That's it.

Which means MSFT is toast. Do you know why Windows XP is still going like hotcakes on Ebay? Because everyone is perfectly satisfied with XP and Office 2000. Vista has been a failure.

Instead of talking to industry execs and startup guys and industry employees, go talk to random kids age 8 - 21. They neither know nor care about anything MSFT is doing. They don't care about Office, or even know what it is, other than a word processor for finishing a paper on time.

They don't care about Live Search, or Windows Live, or Outlook or Vista. In fact, they've never heard of these things either and they have never used them. And they will never want these products, let alone need them. But these kids NEED Myspace and Google and their iPod and Youtube, believe it or not.

This is the future. These kids are talking about their new iMacs or Mac Mini's and they want the iPhone and they all have iPods. They are growing up in a world without MSFT. Indeed, many of these kids have never even heard of Microsoft, period. Even some who own Xbox 360's don't know that the same company makes Windows. All these kids want is a computer that runs good-enough software. That's it. The 21 - 55 year old crowd, who work 9 to 5 - they're happy with Windows XP and Office 2000.

MSFT knows what's coming, like you say. But they're not prepared.

Eventually, flash memory computers will be the norm - instant loading time with everpresent Internet. The line between desktop and Internet will be erased. Software will be plentiful and mostly free and compatible. Eventually, several operating systems will arrive - stable, barebones, and free - and they will compete for advertising dollars and market share only. That is when you will see the MSFT era come to a close.

MSFT will still be around, but remember, without Bill Gates. First, MSFT will blindly and clumsily attempt to increase market share by becoming a hardware creator, like Apple. I bet you they'll make a clumsy iPhone imitator, they'll make another attempt at the TV, they'll cancel the Zune marketplace and rename it and try to expand it, and eventually, they'll anger partners like Palm and Dell and HP, and as those companies look for other solutions - indeed, they already are - MSFT will reach the ultimate point of desperation. They'll start making their own computers and they'll design them to look just like whatever's hot at the time and they will fail.

This clumsy initiative will begin in earnest, probably five years from now as they hit the wall in frustration with the successor to Vista. Thus will begin the decline.

They'll never out-Google Google or out-Apple Apple. And that, my friend, is when the fat lady will sing.


I agree with Bob.
The kids live in the browser.
"Consumer" apps that don't need IT managers are invading the workplace.
MS products may survive but NOT at 60% profit margins.
Office online's competitor is G/apps.
Do the math.
The market has: MS p/e about 12x, Google about 30x

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