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Analysts: Top Five Things Microsoft Got Right

Virtually any technology analyst will tell you that Microsoft has made a lot of mistakes and just plain dumb decisions over its 33 year history. So how did it get to be the largest software company in the world?

Some would argue by conniving, cheating, and copping other companies' innovations. Microsoft (NASDAQ: MSFT) certainly has plenty of detractors. However, it's hard to explain its dominance across the board without a tip of the hat to Microsoft's business acumen and key strategies it has stuck with through the years.

That's the topic of a report released Monday by tracking firm Directions on Microsoft, an independent analysis company located in Kirkland, Wash., almost within spitting distance of the software titan's sprawling Redmond, Wash. campus. The brief report is entitled "Five Strategies Microsoft Got Right" and is a compilation of viewpoints from all the Directions on Microsoft analysts.

First on the list: Microsoft was unique early on in deciding that software was more important than hardware. At the time, the report points out, software for an IBM computer would only run on an IBM (NYSE: IBM) computer and that for an HP (NYSE: HPQ) would only run HP software. From the very early days, however, founder Bill Gates and company focused on software that would run on multiple computers – not just those from one hardware manufacturer.

"That was really the first thing they got right … selling [the] Basic [language] separate from the hardware was fairly innovative for the time," Rob Helm, director of research at Directions on Microsoft, told InternetNews.com. Microsoft soon went on to releasing the MS-DOS operating system that became standard on virtually all PCs in the 1980s – not just on IBM PCs as it started out.

A second strategic move by Microsoft that the report identified was the company's early embrace of outsourcing sales to an army of reseller partners in order to grow more quickly than if it had built its own in-house sales force.

"Today, more than 90 percent of Microsoft products are sold by somebody else," the report states. "This partner community, from small mom-and-pop computer shops to the world's largest systems integrators, enabled the company to achieve unprecedented sales volumes with astounding speed without having to spend huge sums to build a direct sales force and consulting practice."

The third successful strategy was to target its software at "the masses" by undercutting competitors on price while producing products that are simple enough to hold down support costs.

"Technologies for the masses [means] that Microsoft takes its technology mainstream by dialing down the cost and cutting back on the complexity so that IT can make it work, even in smaller IT shops," Helm said.

Strategy number four has almost become a mantra for CEO Steve Ballmer, who more than once has yelled out onstage: "developers, developers, developers."

Over the years, Microsoft has gone from courting developers with Basic to locking them in with Visual Studio, the company's integrated development environment and the high-level languages it supports. Visual Studio and the new Azure development platform for cloud computing are the result of decades of hand feeding developers, even when its own development tool groups wanted to keep the technologies private and internal.

In for the long run

Finally, Microsoft has traditionally taken the "long view" when it comes to establishing new markets and new technologies. It successfully did that with its server products, including Windows Server and SQL Server and others that have now developed into billion dollar markets of their own. It also hung on with the Xbox when the rest of the industry was certain Microsoft could not compete against Nintendo and Sony.

At the same time, it has exercised patience even when a product or technology continues to lose money. That has not come without its share of outright failures. For instance, the report cites Microsoft's now-defunct LAN Manager and WebTV ventures as losing strategies that never did produce new markets or new sources of income.

Still, the company regularly invests billions each year for research and development costs, and is still willing to invest for the long run, despite the failures. For instance, Microsoft continues to invest in what's now called Windows Mobile, the report notes, even though it has been a money loser for a decade or more.

Of course, it's not as simple a picture as a short report can paint. Much of Microsoft's high-level strategy evolved over time.

However, the technology industry changes constantly so what works today may not work tomorrow. In that light, Microsoft still needs to keep moving forward even as the business environment changes radically. New areas, in fact, are some of the most expensive to continue investing in, as in the case of Microsoft's currently evolving online services businesses.

"Online services are not a net money maker right now, but Microsoft can hold on longer than anybody else," Helm said.