Business Strategy 101

The Wall Street Journal obtained an internal strategy memo from Microsoft CEO Steve Ballmer. It is an oddly defensive letter. There are three paragraphs that are particularly interesting. Having just been to the Baseball Hall of Fame (to be covered in another post) I would remind Mr. Ballmer of Professor Satchel Paige's advice on competitive strategy - Don't look back. Something might be gaining on you. Microsoft makes some very good products but Ballmer seems obsessed with the competition. Here are the two paragraphs in the memo that caught my eye. (His language is in envious green for obvious reasons.)

Apple: In the competition between PCs and Macs, we outsell Apple 30-to-1. But there is no doubt that Apple is thriving. Why? Because they are good at providing an experience that is narrow but complete, while our commitment to choice often comes with some compromises to the end-to-end experience. Today, we’re changing the way we work with hardware vendors to ensure that we can provide complete experiences with absolutely no compromises. We’ll do the same with phones—providing choice as we work to create great end-to-end experiences.

For the last couple of quarters Apple, as we have covered before, has been batting it out of the park. The 30 to 1 comparison is a hard one to justify. Apple made $1.1 billion in the most recent quarter. Microsoft's most recent quarter pegged their profits at about $4.4 billion. Unit share of sales of personal computers show Apple selling as high as 14% of market share (or when counting profits because Apple sells at a higher margin 25%) of the US market. Ballmer does not mention the music player business. (That is probably a good idea - the Zune, the Microsoft music player - sales may hit 2 million units TOTAL.) When compared to the iPod, Apple sells more in a month than Microsoft has sold since it introduced the player. On phones the sales of the 3G seem to be cutting into Microsoft's share of the Smartphone market. He also does not mention the integration of devices. Apple's push technology has had a rough rollout. But the similarities of the iTunes platform for synching devices and their MobileMe platform cannot be understated. Apple seems to be going after the Exchange model which Microsoft has led on for so long. But they are not trying to copy - rather they are trying to change the game. If Apple is able to move the concept down to the individual - from the more centralized model that exchange relies on - the comparison that Ballmer speaks about on enterprise (especially in what he talks about in his Google comments) maybe out of date - he may be competing in a space where the market has moved on. So his comparisons are fanciful at best.

· Google: We continue to compete with Google on two fronts—in the enterprise, where we lead; and in search, where we trail. In search, our technology has come a long way in a very short time and it’s an area where we’ll continue to invest to be a market leader. Why? Because search is the key to unlocking the enormous market opportunities in advertising, and it is an area that is ripe for innovation. In the coming years, we’ll make progress against Google in search first by upping the ante in R&D through organic innovation and strategic acquisitions. Second, we will out-innovate Google in key areas—we’re already seeing this in our maps and news search. Third, we are going to reinvent the search category through user experience and business model innovation. We’ll introduce new approaches that move beyond a white page with 10 blue links to provide customers with a customized view of their world. This is a long-term battle for our company—and it’s one we’ll continue to fight with persistence and tenacity.

This sounds an awful lot like whistling in a graveyard. I am not sure what he means by enterprise here - Microsoft does not have a competing product to Google Documents - which are an increasingly useful way to do document sharing and creation in workgroups. The search business is morphing very quickly - I believe most people still rely more on Google maps than Microsoft maps (although the Microsoft map function is pretty good.) And the geo-tagging features of Google's products seem to be evolving in positive ways almost daily. As I have used the social networking features of my iPhone, I have begun to think about how the features in Whrrl, or Loopt could be used in enterprises. Microsoft competes in that arena but they are hardly the winner.

FInally, there is his conclusion.(This one is red because that is what "monkey boy" is famous for - screaming to the troops.) Looking ahead, I see an incredibly bright future for our company. As I said at the June 27th Town Hall for Bill, we are the best in the world at doing software and nobody should be confused about this. It doesn’t mean that we can’t improve, but nobody is better than we are. Nobody works harder than we do. Nobody is more tenacious than we are. We’re investing more broadly and more seriously than anybody else. Our opportunities to change the world have never been greater.

Microsoft makes some very good products. But their vision, with Ballmer's leadership, has been limited. If, as many independent observers believe, the computing world is moving to Web based platforms - then it's software model is increasingly outdated. He describes the attempt to acquire Yahoo as a "tactic not a strategy" - I'm not even sure what that means. But it surely is not the reality. A good part of the reason to acquire Yahoo was that Ballmer and his team believed that Yahoo had some capabilities that were better than what Microsoft had in the same space. If this was merely a "tactic, then why spend all that energy which could have been better spent on perfecting the skills internally? Ultimately, if as one other writer on Ballmer's memo described it Microsoft would like to offer an "Apple-like experience" - why bother? Imitation may be the sincerest form of strategy but it is not a very good way to compete in a market where change is the byword.