A Formulated Technology Column


Apple’s Pincer Attack On Microsoft’s Core Businesses

The pincer attack is one of the most classic military strategies known to man. First suggested in the Art of War by Sun Tzu, it compromises of the attacking force simultaneously advancing towards the flanks of the enemy in a pinching movement, thereby enveloping the enemy to effectively block off any escape routes. The enemy, trapped, would then most likely surrender or face destruction.

In 2013, Microsoft made roughly $77.61 billion in revenue. Of that $77.61 billion, $19.239 billion came from their Windows business and another $24.724 billion came from their Business (which includes Office) revenue. Combined, they account for 56.6% of Microsoft’s business. That’s a whole lot of money — so much, that if suppose Microsoft loses that portion of the revenue, they’ll be more or less facing bankruptcy. They’re also in, unlike the Server business, one of the most rapidly evolving businesses. They’ll have to constantly innovate, evolve and push out products that meets the customers’ satisfaction in order to stay on top of the business and in a company as red-tapped as Microsoft, agility often gets undermined.

One way to look at it is as if Microsoft is trapped in a box — they’re in that box because the Windows and Office businesses are what drives a large portion of their revenues and at the same time, they’re confined within that box because, quite literally, they have no other choice. They can’t produce other products that people would like well enough. Zune? Windows Phone? Bing? The only people using those are probably journalists covering the technology industry. Microsoft simply does not have the ability to innovate outside of Windows and Office. Or even if they can, they don’t see the need to.

Quite naturally.

Slightly more than a decade ago, there was a company that exploded into the technology scene like no other. They built what was then synonymous with the financial workplace: the pager. The simple, green-screened with black text device that made annoying noises when you take them in or out of their holders was a hit amongst many in the banking industry . Soon enough, it propelled the previously unheard of company into astonishing fame. Two years later, after receiving a massive cash injection, they started to experiment with mobile phones that would be accessible to all, essentially rethinking what mobile phones are supposed to be like — portable, reliable and indispensable. After several months of burning through their R&D dollars, they came up with something that was only a fraction of what the brick phones back then looked like back then. The engineers in the company knew that they had produced a device that was going to take the world by storm. The designers knew it. The executives knew it. Everyone in the company knew that with the release of the new phone they had produced, the entire company would be, if not the most, one of the most valuable company the world has ever seen.

They were right.

Not only did the finance industry love it, but the market for which they hadn’t planned the phone for loved it — the consumer industry.

To say that they were right was probably an understatement: that single phone alone could be attributed to the company’s extensive and rapid global expansion that came the following year.

But here was where the first problems started to emerge: they were so absorbed by their own successes that they kept replicating it — not the success part, but the strategy part. They were too afraid to go off-course, experiment a little in fear that whatever different they produced would not be as well liked. Unbeknown to them, they had also put themselves in the same box that Microsoft is in right now.

They were destined to fail. And fail, they did.

In 2007, another company released something they thought was revolutionary. People loved the new device, but the company who was already #1 wasn’t bothered at all. So much so, that they thought the new device was “impossible”.

Well, it was. And BlackBerry — the company who created the well- received pagers mentioned above — panicked.Slowly yet increasingly steadily, Apple — the company that released their own take of the smartphone in 2007 — drove the prices of the iPhone down so drastically that it drove BlackBerry out of business.

BlackBerry never saw the need to innovate, until it was too late. And even then, what they did was way too little to save their sinking ship — it was almost as though they were trying to plug the holes in their ship with balled-up rolls of tissue paper.

Microsoft, after last week, might very well meet the same fate BlackBerry met earlier this year. And there might not be anything they can do about it. Microsoft is so entirely reliant on the dated Windows and Office software for revenues that they simply can’t leave the box, even if they want to.

Here, I might add one quick point: when history repeats itself, the parallels tends to be eerily similar. By the time BlackBerry had their comeback plan to take on the iPhone formulated in early 2010, they were already too late. Worse still, what they produced were substandard and nowhere near the quality of the iPhone. The same could be said for Windows 8. It was such a radical departure from Windows 7 that people were hesitant to upgrade. That, coupled with the fact that Windows 8′s bugs were so well documented within the first few weeks of its release, meant that the adoption rate for Windows 8 was remarkably low. Quite notably, OS X Mavericks was downloaded as many times within the first 24 hours of release as Windows 8 was over the span of a few months.

The biggest blows Apple dealt to Microsoft wasn’t when they made fun of Microsoft’s business strategies on stage last week. It was when they decided to release the OS X Mavericks and the entire revamped iWork suite for free, with full knowledge that there is simply no way Microsoft can ever do the same thing they had just done. Going back to the pincer analogy, iWork and OS X Mavericks could be seen as the two advancing flanks while Microsoft is stuck in the middle, in the little box they have shoehorned themselves into.

The truth is, the iWork suite is only going to get better from here on while every single OS X update after OS X Mountain Lion will be absolutely free, as Apple confirmed in their earning calls a few days ago. Microsoft is in no position to do the same thing.

And the critical period for them to out-innovate Apple has closed.

Surrender or destruction? We’ll have to see a few years from now. But it’s definitely one or the other.


Financial details provided by: The Verge