Why Microsoft Is Being Left in the Dust

Alex Goldfayn’s new book is called Evangelist Marketing: What Apple Amazon and Netflix Understand About Their Customers (That Your Company Probably Doesn’t). He is CEO of the Evangelist Marketing Institute, a marketing consultancy with clients that include T-Mobile, TiVo, and Logitech. Follow him @alexgoldfayn.
There are now a number of companies — Apple, Google, Amazon, and others — that have Microsoft in their rear-view mirrors, disappearing quickly on the horizon in a cloud of dust.
That kick of dust in the company’s face is being emitted by Apple’s iPhone and iPad, Amazon’s Kindle, and Google’s search and cloud domination. Microsoft’s own wild lunges into various technology segments are also contributing considerably to it being left behind. Take the company’s recent partnership with Barnes & Noble, where it took 18% of the Nook e-reader for $605 million in cash and future guarantees. This was a move to compete with Amazon, but can it really compete?
If you want to know why Microsoft’s share price has been flat for 11 years while Apple, Amazon, and Google shares have soared, this is why. Microsoft is not innovating aggressively. It is not leading categories or blazing trails. No, it’s acquiring aggressively as a shortcut to innovation. That isn’t working. Its own history suggests as much.

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Microsoft Has Not Capitalized on its Partnerships and Acquisitions

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Last year, Microsoft announced a broad strategic partnership with Nokia, presumably to use Windows operating systems and software on Nokia’s smartphones. This was 15 months ago. But last week, a report found that Apple and Samsung generated 99 percent of the profits in the mobile phone category. Nokia, which once enjoyed more than half of all mobile phone profits, made zero.
In 2009, Microsoft acquired a 10-year license to use Yahoo’s core search technology, which later became the Bing search engine. Today, Google’s search market share is a dominant 66%, with Microsoft’s Bing a very distant second at 15%. After spending billions building and marketing Bing, Microsoft is barely visible in Google’s rear-view mirror.
Finally, what of Microsoft’s Skype acquisition a year ago? It’s too early to tell, but here’s a fact worth noting: The Wall Street Journal reports that 85% of Microsoft’s revenue comes from Windows and Office software. The rest of it? Barely a blip.
And so, Microsoft is proving, like many have before it, that acquiring companies outside your core competencies are recipes for failure. Remember when Cisco purchased the Flip video camera, at the time one of the most popular consumer electronics products on the planet? How did that work out? In 2010, HP bought Palm for $1.2 billion, but we haven’t seen any industry-altering smartphones from HP.
Conversely, consider Apple’s acquisition of Siri: a technology that immediately and profoundly complimented and enhanced its iPhone. It fit obviously and very successfully.

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Microsoft Does Not Need to Compete with Amazon

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Another major problem with Microsoft’s partnership involving the Nook is that there is simply no need for it to compete with Amazon. This is like Best Buy focusing all of its efforts on its ecommerce site while neglecting its one major competitive advantage: its brick-and-mortar stores. This is also like Research in Motion spending a year building its atrociously received tablet, the PlayBook, while neglecting its core competency of Blackberry smartphones.
Microsoft dominates the competition in computer operating systems and software. Computers are dying, right? And yet, in May 2012, there is no Microsoft Office for tablets and smartphones. Millions of iPads and Android tablets are being adopted in corporate environments, and most of those customers would be happy to spend $70 on Microsoft Office for each device. Except, it does not exist.
I can only guess why: because with its many categories, acquisitions and partnerships, Microsoft is physically incapable of putting its full focus behind converting its desktop products to mobile devices.

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Microsoft is Going Wide, Not Deep

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Which brings me to the third and final big problem with Microsoft’s Nook play. It is keeping with the strategy of going as wide as possible. Microsoft is not, and cannot be, all things to all people. In fact, no company can.
Here’s the truth: The wider you go, the more priorities you focus on, the less chance you have to be successful. But when you go deep, you can dominate. (See Apple, and Amazon.) When you go deep, you can continue perfecting. You become the world’s expert on a certain specialty. Apple is seen as the world’s expert on smartphones and tablets. Amazon is the accepted leader in online shopping and electronic reading. It’s because these two companies relentlessly focus on their strengths, saying no to nearly everything else. No. That’s a word Microsoft should consider trying out before it gets left in the dust permanently.