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High Density #3: Staying hungry with Ben Thompson

5by5 | High Density #3: Staying hungry with Ben Thompson.

The Parable of Microsoft

Show Notes & Links:

Stratechery

Written by Ben Thompson (@monkbent)

  • StevenDrost

    I’m really fascinated by Ben’s comments on that companies should not try to expand and enter new markets, but should stick to their core competencies. They should maximize their profits and give the proceeds back to the shareholders so it can be invested with the startups, which seem to innovate much better.
    Wow, there is something really powerful about this idea and clearly he is onto something, but working thought the details I have real troubles with this.

    1 In this future, Microsoft, Apple, Google, ect are here today and gone tomorrow. Millions of workers in bleeding edge industries like tech being laid off regularly and switching jobs every few years. We have been seeing this trend develop over the last few generations, but i question how efficient that system would be because of training, culture and switching costs for all parties.
    2 Companies are like organisms, they want to survive and grow at all costs, why would they choose not to?
    3 Startups do not create the IPhone or engage in Manhattan Project sized endeavors.

    I think your onto something and would love to hear more about it, Best Podcast/analysis I’ve heard in a while.

    -

    • Ben Thompson

      To be clear, I’m not saying that’s the way it ought to be. I’m saying from a certain perspective, it is indeed true.

      I myself am unsure how much I hold to that though; it’s so against human nature, and that usually leads to trouble.

      • Bruce_Mc

        “Corporate Death” happens to most companies. I do think that it can be managed better, both internally and legislatively. Right now it seems difficult for a company to dissolve after accomplishing it’s goals, and do so in a way that is positive for employees and investors.

        As you said in the podcast, Microsoft’s original goal was, “A computer on every desktop.” Now there is nothing left to do to accomplish that goal. Did Microsoft, or does any company, have metrics and procedures in place to determine when they have accomplished their goals and to then decide if they want to stop or if they want to set a new goal?

        I think, “Take care of the computers on every desktop,” is a reasonable suggestion for a new goal for Microsoft. This is more or less what you advanced towards the end of the show.

        But I think the larger question you touched on is important. Could there be more attractive ways for a company to recycle it’s resources, including people, rather than just throwing itself on the scrap heap?

        Certainly in Silicon Valley people start companies with the hope that they will die soon – by being bought up by a larger company. Are their other ways that people could start up a company, knowing it will only exist for a few decades, and still have it end successfully?

        That was an interesting and enjoyable podcast.

    • obarthelemy

      The issue is, it’s hard to develop the skillset for a new market, while at the same time not dropping the ball in your original one (which may be evolving, disrupting…), and develop the extra skillset of managing all that (and a lot more people).

    • Walt French

      My concerns, too.

      But I note that as the industry matures, interchangeable software parts and expertise-for-hire gets ever easier to come by. It’s really incredible what 4 people and a million dollars can do in a year’s time.

    • Bruce_Mc

      “i question how efficient that system would be because of training, culture and switching costs for all parties.”

      There are inefficiencies of the current system are taken for granted. For example, the auto and oil industries have many long lived corporations that have spent a lot of time and money on subsidies, tax breaks, and lenient environmental laws. That could be a source of a lot of inefficiency.

  • Space Gorilla

    It seems like Apple’s process/culture is “Do what works best”. While that sounds simple, I do a lot of work with large non-profits and large businesses, and doing what works best is not the norm. What is more common is doing what everyone can agree on. Perfect example of the difference between those two approaches: iPad vs Surface.

  • Walt French

    This is the first-ever podcast where I found the synergy being worth the time. In fact, I listened twice.

    Horace and Ben make so many great points and logical—if debatable, which is half the fun—assertions here that need to get called out, maybe refined by the type of comments that StevenDrost makes. I’ll blend in my ideas and encourage others to pay attention as they listen:

    • Apple is driven by the 90s, when they nearly failed. Today’s employees lack that sense of danger; maintaining the culture w/o the company ossifying is a challenge.
    • During the 80s and 90s, Microsoft was all about low-end disruption; only in the 00′s did it take for granted how hard it’d be to change, and assume that a Surface or Zune would succeed because… well, just because. Maybe, “we’re grownups now; we don’t have to do that any more.
    • How did Microsoft forget its own past, and let Google disrupt its business, not responding by aggressively going for low-end disruption itself?
    • Ballmer was ALWAYS a believer in the necessity of Microsoft being in the consumer marketplace, but Microsoft never really grokked the consumer. Now, too late!
    • Ben contends MS was too inward-focused, but also that Apple Envy runs rife. The combo caused them to try to replicate Apple’s business with only a shallow understanding of it, resulting in e.g., a copycat Retail store net that has no reason for being.
    • The functional model is example #2. Horace sees the potential in it but Ben believes it’s setting up Microsoft for a huge failure, as it abandons its old strengths before they build up the culture that’d support it.
    • What’s the future for Microsoft? Ben sees them aiming for the same business that IBM moved to, and that “HP and Dell are targeting,” supplanting the many OEMs, VARs and resellers that are the lion’s share of the Windows ecosystem business. (Note: HP & Dell are currently making a fair fraction of their revenues/profits from consunting.) If this happens, Microsoft might do OK but their former partners will be pushed off the map.
    • Maybe the most dramatic assertion—and it’s mine, riffing on Ben’s—is that Microsoft, in aiming at devices, may be hoping for an impossible goal. The Surface write-down was a sharp psychological blow, reminding them of the difficulty of changing business models.
    • The question of Ballmer’s resignation: maybe the Board decided that the reorg was wrong, or maybe it decided that Microsoft needs to double down on the Enterprise and Ballmer’s (ineffectual) efforts into Consumer make him the wrong guy. I’ll guess that the Board is agnostic about whether Microsoft can make it in the consumer space, but that the still-officially-underway reorg would put too much weight on Ballmer’s shoulders; any missteps would sap morale in the company by making the rank & file feeling like they’re led by an incompetent. The combo of the reorg being based on NO existing company culture & resources, plus the fact that bloody battles would be necessary for Microsoft to break into the devices space (and for which Microsoft ALSO has recently proven no ability), means that an attempt to fight that battle will have many more negative shocks.
    • Finally, Ben made the point that companies don’t need to live forever; the best use of Microsoft’s investors’ capital might be to stick to the knitting and pay dividends that’d let the investors fund the next Microsofts. That’s a refreshing reminder of how woeful the Conglomerate Craze of the 60s was. I personally wonder whether Microsoft’s resources can’t still be usefully applied to new products and services, whether a universal cloud service for all mobile platforms mightn’t be useful, for example. But I have been one of the most vociferous in claiming that Microsoft was trying to leverage non-existent goodwill and OS importance in their products, so my biggest question is to Ben’s assertion that there’s only room for two players in phones & tablets. I can’t actually think of any market/product where that was a stable situation, ever.

    Great thinking. Great food for thought.

  • Walt French

    Horace wondered at the end about the problem of companies’ rapid rise and fall.

    Lots of apparent value is destroyed when a company flounders. Not many of the assets are recyclable. The idea that Microsoft’s ground-breaking efforts could be consigned to the dustbin are astonishing.

    But the question has been dealt with before; the Wikipedia writeup on the Theory of the Firm offers a good intro to the work of Ronald Coase (who died Monday) and his successors:

    In simplified terms, the theory of the firm aims to answer these questions:

    Existence. Why do firms emerge, why are not all transactions in the economy mediated over the market?

    Boundaries. Why is the boundary between firms and the market located exactly there as to size and output variety? Which transactions are performed internally and which are negotiated on the market?

    Organization. Why are firms structured in such a specific way, for example as to hierarchy or decentralization? What is the interplay of formal and informal relationships?

    Heterogeneity of firm actions/performances. What drives different actions and performances of firms?

    Evidence. What tests are there for respective theories of the firm?

    Firms exist as an alternative system to the market-price mechanism when it is more efficient to produce in a non-market environment.

    The last-quoted sentence is the point here, methinks: when commoditized products exist, there’s no need for a company’s internal “market” for say, a smartphone OS, and the internal battles for which Microsoft is famous. Today’s startup culture astonishingly creates in weeks, that which used to take years, creating FlashMob businesses.

  • r52097

    Samsung + BlackBerry = 4th player?