The influential Wall Street commentator Henry Blodgett has some darned good advice for Yahoos Jerry Yang as he begins to digest Microsofts 45 billion dollar takeover bid:
Bring Steve [Ballmer, Microsoft CEO] a copy of The Innovator's Dilemma and ask him to read it before he goes to sleep. Suggest he focus on the chapter that describes how some companies have successfully resisted being disrupted (by creating stand-alone entities that are free to destroy the mothership).
Blodgett is exactly right. As he argues, Microsoft is so focused on sustaining its massively successful core products Windows and Office that its approach to the Internet is inherently shackled. It has never fully embraced the dynamic power of the Internet to unleash transformative new business models. Instead, it has used the Internet in a sustaining fashion to supplement its core properties (Internet-based help for Microsoft Word, anyone?), while clinging to web 1.0 platforms like Hotmail.
Unsurprisingly, MSN continues to lose ground to Google. While everyones favorite search engine wholeheartedly embraces cloud computing as the ultimate destiny of the Internet and fashions its business model accordingly, Microsoft demurs. Cloud computing, after all, will spell the death of its core products as we know them.
This, of course, is the sort of classic behavior that Clayton Christensen describes in his books. The essence of the Innovators Dilemma is that powerful incumbent companies become blinded by their success to the point where they cannot understand or contextualize new, different, and disruptive business models that threaten their core businesses. This pattern has played out in industry after industry, from the disk drive companies, minicomputer manufacturers, and integrated steel mills that Christensen first wrote about to the newspapers, cable TV providers, and department stores that continue to get disrupted today.
Microsoft is no different. Over a decade after it publicly committed to the Internet and took on Netscape, the company still has not opened the aperture to new and different business models, still has not thought outside the box about what the Internet is and can be. Unless it handles the Yahoo acquisition correctly by maintaining an appropriate degree of autonomy, or, as Blodgett calls it, leaving it free to destroy the mothership Googles disruptive march will continue.