(B) Someone asked me a few days ago the following question: who is the most threatening competitor to Microsoft? Without thinking, I answered Google! Wrong answer, I was told, it is not Google – it is VMware! Actually, I was not completely wrong but my interviewer was not completely right either. The complete answer is that Microsoft has not one but four types of competitors: VMware, Google, Apple and OpenSouce Inc. or in other terms there are four types of disruptive technologies to Microsoft’s business model namely: virtualization, cloud computing, mobility, and open source software.
Microsoft business model has always been to OEM its Window Operating System to PC manufacturers and to sell in addition to large enterprises and consumers its suite of Office and Exchange application products. Virtualization first disrupts Microsoft licensing model. I have the same Windows machine on two Macs using the same Parallels virtual machine. Second, with cloud computing, I can develop my documents and presentations leveraging Google Docs over the Internet without installing Google Docs on my Mac. Third, the more we do on our iPhone and Android, the less we do on our desktops. And last, the more Linux and other open source software are matching the capabilities of commercial consumer and enterprise-grade software, the more options are available to software users.
Long answer to an initial simple question. The most threatening competitors to an established player are the ones that are going to challenge its business model with new disruptive technologies. In that process, significant market value is destroyed for the incumbents but new market value is created by the challengers.
In the 80s, IBM, DEC, and Unisys lost billions of market value, while Microsoft, Intel, and Oracle created billions of new market value in the 90s – now Microsoft and Oracle have lost billions of market value that has been created in the 00s by Google, VMware, Apple and OpenSouce Inc.
New disruptive technology has never come from thorough planning and careful design but is always the fruit of Positive Gray Swans. Great technologies always came from nowhere.
If Tim Berners-Lee did not have the idea in 1994 to create the Web to share his ideas at the CERN, and Marc Andreessen and a few students from the University of Illinois at Urbana-Champaign did not create Mosaic the first browser, there will be probably no Internet today.
And a new technology always leads to another one. The MAC and the PC led to the LANs, LANs to client-server architectures, client-servers to the Internet, the Internet to mobility and mobility to cloud computing.
In that process, existing market value is destroyed for the present market players and new market value is created by the emerging market players.
Note 1: I borrowed the concept of value migration between players of the same industry from Adrian Slywotzky’s book “Value Migration”.
Note 2: I borrowed the concept of disruptive technology from Clayton Christensen’s book “The Innovator’s Dilemma”.
Note 3: The picture above is an “ecluse” from Brittany to regulate the flow of water.