A New iTunes Rip-Off? Microsoft Reinventing Itself in all the Wrong Ways (MSFT)

Evidently Microsoft (MSFT) is developing a digital music device and download service to compete with the iPod and iTunes from Apple (AAPL). Headlines like these show that Microsoft is feeling the heat and believes it must reinvent itself. I would agree completely with that assessment, but I also disagree with their apparent strategy.

Merely copying successful products that have already attracted scores of competition is not going to reinvigorate growth at Microsoft. They need to play offense, and by that I mean, develop new technologies and products. They should aim to be first to market, and force others to play defense by copying them.

Adding another video game system to the market is not very innovative. Adding another mp3 player to the market is not innovative. Ditto for a music download service. The companies that are taking aim at them today aren't doing so by copying. They are doing so by innovating. Google (GOOG) changed the online advertising market, has the best product out there, and now dominates.

Google's beta of a new, free, online spreadsheet program isn't merely an imitation of Excel. You can see where Google is going with this. Low end computers nowadays can cost as little as $300 with a monitor included. However, if you want to put a copy of Microsoft Office on your new home machine in order to do work on weekends, the software package could easily double your system's cost to $600.

Large corporations have big pockets, so they will likely continue to equip all new systems with the full version of Office. Consumers though, hate paying hundreds of dollars for software that is oftentimes essential to do anything productive on their computer. Microsoft may have a monopoly on desktop software, but their dominance has nowhere to go but down the drain as other companies innovate. An online spreadsheet program complete with free storage space on Google's own servers could ultimately dent Microsoft's Office business, though it will take time.

Selling video game consoles and imitation iPods might make up for some of the business Microsft will undoubtedly lose to companies such as Google, but the margins will be so much lower that it will never completely make up for it. Right now Microsoft gets nearly all of their operating income from Windows and Office. Those businesses are under attack, but do you really think the way to reinvent the largest software company on the planet is to go after the iPod?

MSFT-AAPL-GOOG 1-yr comparison:

Comments

[VennData]

...but that's what they've ALWAYS done. They are a copycat franchise, that uses their Windows monopoly to add products, drive out competitors, potential competitors etc.

The Gates / Balmer business model is to copy and extend. They are doing exactly what they know how to do, the only thing they’ve ever done, and the US government let's them get away with it.

All the talk about inventiveness and creativity from entreprenurial ventures is stifled or stolen by Microsoft. We’re still using the same operating system, the same word proecessor etc etc they they ripped off of Apple and Word perfect a decade and a half ago. MSN? A clone. Internet Explorer? C’mon!

One day Microsoft will be superfluous, it will be soon, in the mean time their sclerotic management would be hard-pressed to operate a real company in a competitive market.

I bet: their iPod clone will be late, poorly functioning, non-interoperable, and with limited selection.

[Tom B]

MSFT = GM in the 1970's. Apple, Google, Yahoo are Honda, Toyota, and Datsun. You all know what GM is doing to survive-- cutting headcount and benefits. MSFT has been playing the China/India cheap labor game, and that might be part of the reason they can't seem to achieve a releasable version of Vista. You get what you pay for.

[jbelkin]

Chad is absolutely right but John also brings up an intersting point and why MS' old habits no longer work. BG & MS were brilliant at selling to corporations, agencies & governments because MS looked at the best features and threw them all into their OS & apps. Didn't really matter that you don't need 200 starburst shapes in PPT - it beats Harvard Graphics by 175 shapes.

Corporations who don't mind buying something and getting it right three years later on a maintenace upgrade because they are two budgets from two different departments - the guy who okayed the purchase (capital expenditures) could care less about the upgrade contract or viruses - those costs do not his his bottom line or his responsibility.

Conversely, there are limited sellers to the corporate marketplace - easy for MS to give them free tools or lock up contracts (legal or otherwise) but on the consumer, things are literally the wild west. We'll say one thing but we do not follow through - sure we want a Pc we can write and change our scribbles (tablet pc) but the reality is we're willing to pay maybe a $25 premium and not if it's weird ... or we don't really know what we want until it's out (do I want to convert all my Cd to figital files and carry it around with me? Why?) But then you put an ipod in front of 50 million people and they go - ah ... yes ...

MS is clueless because their old habits/culture doesn't work on consumers.

a) we don't really care if something has more "features," if anything, we actually prefer many things with less features.

b) unlike corporations who will tell you straight out - here's our spec list, consumers say they want video on the phones but not if it's too hard and they won't pay $15 a month for that feature. Or ultimately - show us, if we like it, we'll buy it ... but only after you build the thing.

c) collolary to that is that consumers will not buy if it doesn't work and until you do, we'll wait ... unlike corporations, we only have one budget and as you point out, we do CARE if you copy and WE KNOW.

That's why Ms is confused about consumers in more ways than one. They presume they are smarter than us and don't get it when we don't buy what they offer (MSN, MSN search, WMA stores, WebTV and even XBox) ...

Compounded is that all the real go-getters have left to start their own companies - leaving just bureaucrats who are good at creating their own fiefdom and "maintaining,&quo... and with Bill metaphorically gone, it'll only get worse as things will bog down with:

This isn't the way would've done it.

You're not Bill G, I'm not following this order.

and for engineers and programmers, Steve Ballmer is just a pile of sweaty steaming detergent salesman who garners no respect.

MS in the 1990's weere the 1950's to GM. They are ot what they once were ...