At the start of the 21st century, Microsoft was a dominant force in the technology world, with its software integral to nearly all computer-based activities. In 2000, Bill Gates chose his long-serving deputy, Steve Ballmer, to take over leadership at Microsoft. Microsoft missed the mark on the five key technology trends of the 21st century. In the next decade and a half that followed, Microsoft was outpaced by Google in search technology, by Apple in smartphones, by Google and Apple in mobile operating systems, by Apple and Netflix in media, and by Amazon in cloud computing. At the close of the 20th century, Microsoft controlled over 95% of the operating systems used in computers, which were primarily desktops. Fast forward fifteen years, with 2 billion smartphones shipped in the 21st century, Microsoft’s share of the mobile operating system market had dwindled to 1%.
One might think Microsoft missed out on these opportunities because it couldn’t foresee these trends. That was not the case. “The Road Ahead” authored by Bill Gates got published in 1995. In this book, Bill Gates made an observation – “We will always overestimate the change that will occur in the next 2 years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.” Unfortunately, or rather ironically, Microsoft lost out on the “5 biggest technology trends of the 21st Century” to the companies that exploited these weak signals. The period between 1995 – 2000 was the time when there was a looming confusion on the potential of the Internet. So, on one side, we had people like Clifford Stoll who rejected that Internet had a potential and in the same year Amazon makes it first Sales and about 300 companies make their web pages. In essence, Microsoft did not miss to foresee a future.
By definition, an inflection point happens when a significant change, often referred to as a 10X change, overturns the fundamental assumptions underlying a business model. Being at the fringe, it is difficult to say how these inflection points will shape up, making it challenging to predict their future potential accurately. Since there is no ecosystem, policies, protocols, this period is marked by confusion, as it is entirely possible for people to hold significantly divergent views on the importance, impact, risk, or value of a change in the environment. Identifying subtle or weak signals of a looming change early on can provide an advantage, allowing Companies to prepare and seize opportunities of the coming inflection point.
Nira, a real time access security tool provider in their blog article named “The Most Important Turning points in Microsoft’s History” mention that early culture of dominating by sheer force of numbers, as opposed to creating genuinely superior products, continued to shape Microsoft’s approach to product development even as it attempted to break into new, highly competitive verticals.”
The article argues that Microsoft has historically struggled with creating consumer products that genuinely resonate with users. This shortcoming didn’t impact the company significantly in its initial stages since early PC users were essentially compelled to use Microsoft’s software. Likewise, it didn’t affect Microsoft’s enterprise software sectors, given that many businesses had integrated Microsoft’s productivity tools into their operations. However, Microsoft’s lack of insight into consumer preferences turned into a significant disadvantage as competitors emerged, offering fundamentally superior products. Faced with these new challenges, Microsoft found itself at a loss on how to compete based on product quality alone.
Microsoft managed to invent and then lead a completely new market by smartly foreseeing major transitions in the emerging home computing sector. However, it’s rigid adherence to the traditional boxed-software model nearly led to its downfall. To pivot successfully in an evolving market, it’s crucial to have a deep awareness of both your primary strengths and your most significant vulnerabilities. Nonetheless, where Microsoft fell short was in its delayed response to the obvious shifts in consumer software purchasing and usage habits, failing to adjust its strategy accordingly.