Tuesday, July 14, 2009

Microsoft cannibalizing itself

Microsoft Office is a cash cow that provides $15+ billion in revenue to the company. Thus far it‘s been more immune to open source competition than, say, Microsoft server and mobile phone operating systems, which compete with Linux and Android (and LiMo and Symbian) respectively.

Thus, Microsoft’s willingness to cannibalize its Office licensing business (as reiterated Monday) with a web-based subset of Office 2010 shows that it takes the challenge of Google Docs seriously. Sure, it’s doing this years after Google created its online offering. Sure, there may be limits as to how much the online Office can do. I’ll agree this is a measured experiment, not blowing up the existing revenue model.

But my estimate is that the actual impact of Google Docs on Office sales right now are probably barely measurable. Microsoft is responding not to a decline in its core business, but what it correctly recognizes is an incipient threat down the road — a Clay Christensen-style disruptive innovation. (Would that DEC, IBM, Sun, Apple and other big proprietary companies were able to do this when they faced similar threats in the past 20 years).

Perhaps this is another sign of the new and improved Microsoft. Perhaps not a kindler or gentler Microsoft, but one that expects to fight for revenue and customers rather than to have a perpetual annuity from customers too lazy, stupid or handcuffed to ever switch. In a perverse way, the mistakes of Windows Vista may have saved the company.

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