Innovation is Hard: The Real Story of Microsoft's Fall From Grace

By R. Joven - 07-26-2012, 07:16 PM - Boxden > BX Tech

By Matthew Yglesias | Posted Thursday, July 26, 2012, at 4:22 PM ET

> Innovation is Hard: The Real Story of Microsoft's Fall From Grace - Photo posted in BX Tech | Sign in and leave a comment below!

> Innovation is Hard: The Real Story of Microsoft's Fall From Grace - Photo posted in BX Tech | Sign in and leave a comment below!

LOS ANGELES, CA - JUNE 18: Microsoft CEO Steve Ballmer shows the new tablet called Surface during a news conference at Milk Studios on June 18, 2012 in Los Angeles, California.
Photo by Kevork Djansezian/Getty Images

I can't believe it took me this long to read Kurt Eichenwald's long article on Steve Ballmer and the fall of Microsoft. It's a great piece full of telling detail. But I do think it's worth offering a more analytic take. There's a reason people in Ballmer's position tend to fail.

The basic issue facing Microsoft over the past ten years has been this—innovating is really hard.

The company reached a point where Office and Windows were so popular that wasn't much you could do to increase their popularity by improving the product. They continued to work on improving the product, and kept these divisions very healthy and profitable, but there simply wasn't an explosive growth opportunity left to be had because the previous successes had been so enormous. So you create a situation where the company as a whole is basically a venture capital firm. It has this huge stream of Office/Windows profits and needs to figure out how to invest those profits in exciting new products. But successful venture capitalists are really rare, and for all we know most of them are just getting lucky. The average financial returns from the venture capital sector as a whole are terrible. But Microsoft qua venture capitalist faces the additional burden that the top management of the company has to be good at running the giant existing Office/Windows businesses. It's as if you were trying to hire a tax attorney who could also perform open heart surgery.

One alternative strategy could have been to just give up. Pay huge dividends, keep focusing on incremental improvements to the core products, and basically don't worry if other firms dominate mobile and online services. But not only is that psychologically unappealing to managers, it'd be weirdly demoralizing to the staff. Windows and Office need to be able to hire talented engineers—the kind of people who are going to want to work for a company that aspires to be forever on the cutting edge, not a company that's resigned itself to operating as a boring dividend machine.

So what are you supposed to do? Obviously "kill an early promising e-reader project and bury the team working on it in your office division," "kill morale with a creepy evaluation system," and "lose billions on developing a search engine" seem in retrospect like misguided ideas. But this is genuinely hard stuff. And it's at least possible that Windows 8 will be a huge hit and people will turn in drove to buy smartphones and tablets that seemlessly integrate with the still-dominant desktop PC platform and we'll all look back on the ten-year Apple Bubble and laugh. Financial markets are betting against that, but it's not a crazy story. Anyway, read Eichenwald's piece. Laugh at Ballmer's errors. But just remember that basic reality. Innovation is really hard. Staying on top once your core business has saturated the market is really hard. Having the third-highest market capitalization in America is pretty damn impressive.

Source: Microsoft's fall: The real lesson is that innovation is hard

07-27-2012, 10:14 AM

In a lengthy piece, titled “Microsoft’s Lost Decade”, Kurt Eichenwald of Vanity Fair profiled CEO Steve Ballmer and his role in the company’s steadily decreasing dominance. The piece includes interviews with current and past executives of the company, thousands of internal docs and legal records, and, not surprisingly, Apple’s role in the decline of Microsoft makes up a large part of the story:
Truly, for senior management, the problems didn’t make sense. Microsoft had some of the smartest people in the technology business. It had billions of dollars at its disposal, and the ability to throw that money into any project the executives chose… Current and former executives said that, each year, they tried to explain to Microsoft’s top executives why the company was struggling in the quality of its innovation compared with Apple… Exhibit A: today the iPhone brings in more revenue than the entirety of Microsoft… One Apple product, something that didn’t exist five years ago, has higher sales than everything Microsoft has to offer. More than Windows, Office, Xbox, Bing, Windows Phone, and every other product that Microsoft has created since 1975. In the quarter ended March 31, 2012, iPhone had sales of $22.7 billion; Microsoft Corporation, $17.4 billion.
One anecdote covered in the story comes from emails that circulated around Microsoft following the introduction of Tiger:
Then, in June 2004, Steve Jobs announced that Apple was releasing its new operating system, called “Tiger.” And inside Microsoft, jaws dropped. Tiger did much of what was planned for Longhorn—except that it worked.
E-mails flew around Microsoft, expressing dismay about the quality of Tiger. To executives’ disbelief, it contained functional equivalents of Avalon and WinFS.
“It was fu-king amazing,” wrote Lenn Pryor, part of the Longhorn team. “It is like I just got a free pass to Longhorn land today.”
Vic Gundotra, another member of the group, tried out Tiger. “Their Avalon competitor (core video, core image) was hot,” he wrote. “I have the cool widgets (dashboard) running on my MAC right now with all the effects [Jobs] showed on stage. I’ve had no crashes in 5 hours.”
The videoconferencing function? “Amazing,” Gundotra wrote. Scripting software? “Very cool.”
The Gundotra e-mail was sent to executives throughout Microsoft headquarters, including Allchin. He forwarded it to Gates and Ballmer, adding his name and one word: “Sigh … ”

Read more at

07-27-2012, 07:39 PM

they will be fine

07-27-2012, 10:14 PM

fell from grace is a big[..] stretch

07-27-2012, 11:45 PM

Right. Let me know when 3/4 of the planet starts using Linux or an Apple based OS.

07-28-2012, 11:02 AM

Originally Posted by Sleazy

Right. Let me know when 3/4 of the planet starts using Linux or an Apple based OS.

Word....Whoever did this book act like Microsoft not
holding on to 90% of the PC market still [pic]

07-28-2012, 11:35 AM

over 1 billion Windows pc's are running in the world right now. Keep it moving. Plus when was the last time Apple or google made a product that was innovative? Microsoft is working on a lot of new innovative products in gaming, computing, etc.. They spend more than anyone on R&D.

07-28-2012, 01:26 PM

As if 90% of consumer computers isn't Windows based.. and corporations is looking at Apple by & large on some "i need a Mac based server" [pic]

Mobile products sure make the argument, outside of that and just reaching on some
(-o_o)--------------------------> []

07-28-2012, 02:40 PM

windows is 89%...other is 4%...apple...has that whopping 7% market share....but its not a niche product....god I can't wait for them to take that massive L thats coming soon...

07-28-2012, 07:22 PM

Originally Posted by AmazinJay

over 1 billion Windows pc's are running in the world right now. Keep it moving. Plus when was the last time Apple or google made a product that was innovative? Microsoft is working on a lot of new innovative products in gaming, computing, etc.. They spend more than anyone on R&D.

Microsoft wipe they[..] with R&D money LOL

07-29-2012, 02:00 PM

Originally Posted by purpleaxxe

In a lengthy piece, titled “Microsoft’s Lost Decade”, Kurt Eichenwald of Vanity Fair profiled CEO Steve Ballmer and his role in the company’s steadily decreasing dominance. The piece includes interviews with current and past executives of the company, thousands of internal docs and legal records, and, not surprisingly, Apple’s role in the decline of Microsoft makes up a large part of the story:
Truly, for senior management, the problems didn’t make sense. Microsoft had some of the smartest people in the technology business. It had billions of dollars at its disposal, and the ability to throw that money into any project the executives chose… Current and former executives said that, each year, they tried to explain to Microsoft’s top executives why the company was struggling in the quality of its innovation compared with Apple… Exhibit A: today the iPhone brings in more revenue than the entirety of Microsoft… One Apple product, something that didn’t exist five years ago, has higher sales than everything Microsoft has to offer. More than Windows, Office, Xbox, Bing, Windows Phone, and every other product that Microsoft has created since 1975. In the quarter ended March 31, 2012, iPhone had sales of $22.7 billion; Microsoft Corporation, $17.4 billion.
One anecdote covered in the story comes from emails that circulated around Microsoft following the introduction of Tiger:
Then, in June 2004, Steve Jobs announced that Apple was releasing its new operating system, called “Tiger.” And inside Microsoft, jaws dropped. Tiger did much of what was planned for Longhorn—except that it worked.
E-mails flew around Microsoft, expressing dismay about the quality of Tiger. To executives’ disbelief, it contained functional equivalents of Avalon and WinFS.
“It was fu-king amazing,” wrote Lenn Pryor, part of the Longhorn team. “It is like I just got a free pass to Longhorn land today.”
Vic Gundotra, another member of the group, tried out Tiger. “Their Avalon competitor (core video, core image) was hot,” he wrote. “I have the cool widgets (dashboard) running on my MAC right now with all the effects [Jobs] showed on stage. I’ve had no crashes in 5 hours.”
The videoconferencing function? “Amazing,” Gundotra wrote. Scripting software? “Very cool.”
The Gundotra e-mail was sent to executives throughout Microsoft headquarters, including Allchin. He forwarded it to Gates and Ballmer, adding his name and one word: “Sigh … ”

Read more at

Are you !!in serious?! How the !! is that possible?!

07-29-2012, 06:34 PM

Originally Posted by cold_young_thug

Are you !!in serious?! How the !! is that possible?!

Subsidies from the carriers.

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