Protection of Core Markets Stifling Innovation

By Reuters  |  Print this article Print

Microsoft is entrenched in business and consumer consciousness as the company that owns the Windows OS and the Office productivity suite. But Apple has made serious inroads recently, capturing the imagination of both business and consumers with its iPad tablet device. Is Microsoft's efforts to protect its core markets hampering innovation? Some say yes.

One explanation is that Microsoft has been hampered by what's known as the innovator's dilemma. After revolutionizing the world with computer software, the company's priority has been to protect its core markets rather than commit itself to anything that may pose a serious threat to that.

"Microsoft's been playing defense for the last 10 years," said the former executive. "They are trying to protect existing revenue streams rather than taking risks. New revenue streams put the old ones at risk, and those old ones support thousands of people in the company. It's a difficult situation to be in."

Microsoft was touting tablet computers 10 years ago. It was one of the first to see the smartphone market and even the potential of web search as a business. But a failure to put the right resources on the right projects at the right time means that it now lags Apple and Google in all those important markets.

"Once (Microsoft) felt the Internet threat had been disposed of, it retrenched back into retrograde behavior protecting Windows," said the anonymous former executive. "The rest of the world didn't stand still, it moved ahead quite fast and left Microsoft in the position it is today."

Ballmer Problem

Some pin the blame for Microsoft's failures on its leader. Ballmer, 54, has been CEO since January 2000, although he has been thrust more into the spotlight since co-founder and Chairman Bill Gates retired from day-to-day duties in the summer of 2008 to focus on philanthropy.

A friend of Gates from Harvard University, Ballmer was the first business manager hired by Microsoft in 1980, five years after the company was founded. At the height of Microsoft's power in the 1990s, a software rival referred to the two as Pearly Gates and the Embalmer.

Ballmer's passionate, sometimes sweat-soaked, public performances have made him a YouTube celebrity. His loud and gregarious persona is the stylistic opposite of Apple CEO Steve Jobs. Ballmer tends to delegate hands-on demonstrations of new products to lower managers, whereas Jobs delights in his.

Ballmer has a habit of retreating into corporate-speak, or saying "bleh, bleh bleh, bleh bleh" at important moments. His frequent public appearances don't generate excitement outside the tech world, whereas Jobs says little but still manages to captivate the mainstream media.

"If they (Microsoft) are not successful with their consumer product launches that are coming in the next year, I think all of us will stop listening to him period," says Becker at Becker Capital. "And that's coming from a supporter." It may be time for a change, Becker says, if Ballmer cannot deliver that success.