Microsoft’s Biggest Threat

I had a Microsoft product planning interview for an intern position this past Monday, and while I’ve not been informed of the result, I have been thinking about one of the discussion questions posed during the interview: ‘What do you see as Microsoft’s biggest threat?’

I thought about the question for a moment and came up with my answer – offline web applications. Think Google Gears, Adobe AIR, and Firefox’s local store enabling the use of centrally stored data in disconnected situations. Microsoft’s core software business could be severely affected by this new application paradigm. Applications without network capabilities would go by the way of the dodo and Microsoft would have to revamp its business model to adapt. However, as I was walking home after the interview, a new threat crept into my mind.

This year’s Computex really drove home what I believe will be Microsoft’s biggest challenge over the next 5 to 10 years: the next billion. And I don’t mean the next billion in revenues or net income. Those are easy to come by. I’m talking about the next billion internet (and computer) users and the current idea (which I really think owes its existence to the OLPC) of delivering that vision through cheap sub-notebooks is gaining significant traction.

Computer makers are seeing the potential in the low-cost ‘netbook’ market and while Windows will continue to be an option on these devices, those configurations typically occupy the higher-end portion of the market. Take a look at MSI’s Wind or HP’s offerings. The lower end is dominated by one Linux distribution or another. While Linux isn’t doing so well on fully-featured systems sold by the likes of Dell and Lenovo, the simplistic interface found on devices like the ASUS Eee PC is well suited to their typical use of web browsing, email and productivity work. When a consumer spends $1000 on a computer, they expect a certain level of functionality, comfort and application compatibility that Linux just can’t quite satisfy, yet. However when the device in question is a sub $500 mini-laptop, the requirements are quite different. Ease of use (intuitiveness) and cost become major considerations. Being able to install Photoshop isn’t likely to be a high priority.

I would challenge that for a completely new computer user, the Eee PC’s user interface is significantly more intuitive than Windows. The Eee PC’s operating system is function-based, which makes more sense to a new user than the Windows interface. Windows’ design makes the assumption that the user has either used a previous version of Windows or has at least come in contact with some version of it. This is usually a fair assumption in the developed world but certainly not for the next billion computer users, many of whom may have never seen a computer at all, much less used Windows.


Which one is more intuitive to you?

Microsoft’s biggest threat is the potential loss of dominance of its Windows operating system and subsequently its whole software ecosystem built around that platform. Netbooks, outfitted with simplified Linux distributions will flood the market and find computer users, both new and existing. In many ways, Microsoft’s current operating system dominance is self-perpetuating. Many migrate along the path set out by Microsoft as it is what’s most familiar and easiest for them. But the next billion users may find the Linux operating systems outfitted on many netbooks to be sufficient and perhaps even better suited to their needs than Windows.

If you look at something like Windows Vista, it’s clear that it was not intended for the netbook market. Its features are intended to take advantage and even push the progress of computer hardware, not simple machines designed for simple functions. Even Windows XP, which will be kept around for the netbooks only, isn’t well suited to the function-orientation of the netbook market. Granted the netbook market is still young, having only recently exploded onto the front page of just about every online tech publication in existence, I think Microsoft needs to think about how it can modify what it currently has, or even start development on a new operating system altogether. To be honest, I’d be surprised if there were no prototype OSes for netbooks floating around Redmond right now. Their work on a customized version of Windows XP for the OLPC shows that the market is definitely on their to-do list.

So that’s what I would answer if I had another chance at the question – ‘What do you see as Microsoft’s biggest threat?’ I think it’s time Microsoft’s consumer operating systems were differentiated by a bit more than media centers and ultimate extras. The netbook market needs these function-oriented operating systems at a low price and currently, Linux is eating Microsoft’s lunch.

2 thoughts on “Microsoft’s Biggest Threat”

  1. I think both the ideas you offered, the one in your interview and the one thought of after, are both incredible. I guess that’s where you and I differ, since you are able to see the bigger picture. I would’ve said something like Microsoft increasingly being marginalized by their smartphone, browser, and OS market percentage diminishing (though their OS is still going strong). Something that probably would’ve been shared by every other interviewed candidate.

    I think the one you offered is better than the “next billion” idea though. My personal opinion is that where these netbooks are going are third-world countries that want to just get online (except maybe the developing countries like India, but for argument’s sake let’s talk about everyone else like South America), instead of actually turning into loyal and dedicated customers. My personal opinion sees XP being ported to these netbooks as an attempt to minimize Linux’s expansion as opposed to getting these kids to bleed Microsoft blood.

    I think that with the current power distribution in the world, these third-world countries don’t have much of a chance in rising up and toppling the Englands and the USAs of the world. The powers of the world will stay in power for as long as there are resources available to them (in their own country or in other countries of the world they can exploit) and when those run out, I’m pretty sure the last worry on people’s minds will be which OS they’re running (unless that OS is powering mission-critical weapons systems… which it isn’t).

    Basically since my mind is wandering now, to summarize: poor countries will remain poor, Africa won’t suddenly mobilize and feed its people, rich countries won’t stop being rich, and that’s where the market for Microsoft is – fighting the large corporations like Google and Adobe for the money in the rich world. Exposing kids to Linux may give them the knowledge of the world, but as long as they’re kept down by the dictators and tribal leaders skimming the GDP of their countries, those kids, as unfortunate as it sounds, won’t be shifting the balance of power between Microsoft, Apple, and various Linux distros.

    My two cents. 🙂

    Signed,

    The resident pessimist loon

  2. Richard, you are too kind. 😉 And quite the pessimist as well!

    You’re absolutely right – developing countries aren’t going to rise up tomorrow and shift the balance of power. But don’t underestimate the power of these countries either. The BRIC countries (Brazil, Russia, India, and China) will increasingly play a large role in all these multinational companies’ revenue steams. I think Microsoft absolutely wants to make as many of those customers Windows users, even if they’re only looking to get online and nothing more.

    As I mentioned, the whole Windows ecosystem is a bit self-perpetuating. For a simple web browsing machine, any decently pre-configured Linux operating system would be sufficient, if not be better suited than Windows. But there’s that scary aura around the work Linux in most peoples’ minds (if the word even exists at all to them). But the operating system is being forced on people if they’re looking for a small, cheap laptop. And I think if you look at the sales breakdown, most buyers are getting these netbooks as a second machine, not new third world users. They probably run Windows on their main box, but are exposed to Linux through the netbook. That’s definitely threatening to Microsoft.

    I’m interested in seeing how it plays out, but I get the feeling Microsoft will need to address this market directly to compete effectively. Although you probably hear about their battles with Google on the net more than anything else, over half their revenues are based around this whole Windows ecosystem. It’s something they want to keep a firm grasp of.

    How did your interview with Microsoft go? I heard you flew out to Seattle/Redmond?

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