Does Microsoft Appreciate Its Core Market?

Over at TechCrunch, Michael Arrington is running a serialized interview with Microsoft CEO Steve Ballmer. The piece published today, on what Microsoft perceives as major opportunities, is well worth reading.

What interests me about how Ballmer articulates and categorizes Microsoft’s big opportunities is that he doesn’t clearly cross-reference or group them according to whether they are aimed at consumer or business markets. Instead, he breaks them down into three broad buckets: short-term opportunities, predicated on and extending businesses in which Microsoft already is active; long-term opportunities, comprising big-market ideas that will take ten years to bring to fruition; and shortcuts, comprising acquisitions of various shapes and sizes.

The article supplies plenty of grist for the analytical mill, but Ballmer’s conflation of business (enterprise) and consumer opportunities is particularly intriguing, if only because it might account for Microsoft’s inability to fully realize its growth potential in enterprise markets. Of course, it also might explain Microsoft’s longstanding and ongoing failure in consumer markets.

This blind spot, which is all the more remarkable in a company as rigorously logical and systematic as Microsoft, comes to the fore in the Arrington interview when Ballmer discusses what he calls “communications collaboration and productivity,” the biggest area of investment for the company.

At one point in the interview, Ballmer defines the area as represented by “the tools and technologies both at home and at work to help people communicate, collaborate, to be productive.” I don’t doubt that these tools and technologies will be used at home as well at work, but they’ll be used primarily for business purposes, regardless of where they’re used. It’s a distinction that Microsoft needs to make.

One of the things Microsoft must be clear about in future, regardless of whether its products or services are used in an office or in the home, is whether the primary value of the offering is connected to business (productivity) purposes or to recreational consumer use. Microsoft sometimes fails to draw that distinction as clearly as it should, which is why we see consumer failures such as the Zune and also why we see the company fail to tap its full enterprise potential.

Here’s a simple question that starkly illustrates the issue: Do people use Office — a gargantuan Microsoft cash cow that is present in businesses and homes — because it provides productivity value as a business-oriented tool or because it delivers fun as a recreational vehicle? I think the answer is obvious.

Following from Ballmer’s conception of deriving and extending growth from areas in which Microsoft already is successful, that understanding should lead to adjacent short-term opportunities predicated on business utility. I am not saying Microsoft isn’t pursuing such opportunities, but I am wondering whether they’re fully exploiting them.

If Microsoft had remained focused on what it does well, how did it end up in the consumer weeds with Bob, MSN, Zune, Xbox and even the Xbox 360 (which continues to struggle toward profitability)? Does Microsoft fully understand what it does well and why?

Fortunately, Ballmer seems to be placing greater emphasis on Microsoft’s enterprise growth prospects. That’s a wise choice. Microsoft has plenty of headroom in enterprise markets — SMB and above — but it needs to reinforce and extend its presence before others start cutting into it.

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