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Is Microsoft The Next IBM?

This article is more than 10 years old.

The parallels here are interesting, and of course the irony is marvelous.

If you roll back to the early 1990s, you see IBM entrenched with enterprise* customers, Apple holding the consumer’s imagination with the best products, other companies strong in key niches (Novell in network operating systems, Sun in technical computing), and Microsoft stealthily disrupting IBM’s birthright by taking over the software layers on top of the PC. We know how this story ends: IBM's financial performance deteriorated, hundreds of thousands of employees were laid off, and CEO John Akers was forced out.

Fast forward 20 years and one Internet revolution, and you see Microsoft entrenched with the enterprise, Apple once again holding the consumer’s imagination with arguably the best products (having lost and regained this position), and Google with a strong lead in cloud intelligence (the new network operating system**) and a strong position in mobile operating systems: the key software layers above the end-user device.

Google dominates the key network service: search. It has worked out how to monetize this position, gloriously. And it has built a big ecosystem of related network services (maps, voice, now, docs, drive, etc., etc.) that give it clearly the strongest value prop for non-enterprise users to who want to take full advantage of the cloud. Facebook has carved out a piece of this with its dominance of the social cloud. Greg Satell, whose posts are linked here and in the vest pocket at left, provides his own comprehensive take on this.

These guys are fighting particularly over the mobile operating system, which contains hooks back to cloud services/intelligence, and cloud services themselves: each has its own search product, storage product, cloud apps product, ad platform, and so forth.

Which competitor is most threatened? My pick is Apple. Its success depends on continued ability to invent new products for which consumers lust. That’s a tall order, and inevitably there are waves of fundamental innovation followed by troughs of incremental improvement, where Apple seems stuck now. And, Apple's core mobile device business is threatened: Google has conquered a lot of the mobile OS layer and backs that position with its superior cloud services.

The least threatened is Microsoft. Neither Apple nor Google (nor anyone else) is making serious inroads into the enterprise, and neither has a strong enterprise skill set. You can view making Windows 8 a mobile-first OS as a smart defensive move on Microsoft’s part: they have little risk of losing the corporate desktop (as Win 8’s numbers attest), so aiming Win 8 at the corporate tablet market (with some phone participation too) is a way to secure the flank of the enterprise business: keep the iPads and Nexi at bay. Meanwhile Microsoft is working hard to expand its position in the cloud with services designed for its enterprise customer base.

Stock performance over the last two years bears this out: Apple has fallen, Google has soared, and Microsoft has forged ahead.

So, is Microsoft the new IBM? Yes and no. Yes in the sense that it occupies a strategic position similar to IBM in the 1990s. No, however, because it is doing a good job of cultivating and defending its core, and its financial performance is solid. Although we gadget-guys and girls may not enjoy Microsoft’s products, it’s way early to write their obit.

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*I use “enterprise” to mean organizations big enough (roughly) to employ a professional CIO. IBM is still in the enterprise, too, but higher up the pyramid, and now primarily a service business.

**It’s interesting to note that, before becoming CEO of Google, Eric Schmidt was CEO of Novell.