Microsoft was long known as “the world’s largest software company.” Its very name (established in the pre-PC era when personal-sized systems were called microcomputers) stands for “Microcomputer Software.” Even though I don’t like the idea, as I wrote in a previous installation of this column, after thinking about it, I think Microsoft pulling out of CES makes sense.
If you look at the list of exhibitors, you can’t help noticing that most of the big guys — Samsung, Intel, Sony, Panasonic, and others with the gigantic booths — are hardware companies. After all, the show is about the devices and gadgets, the TVs and computers and phones and even cars, that run the software. That’s what people are really there to see.
Microsoft grew into the behemoth it is today by making and selling software, starting with MS-DOS and expanding from operating systems into office productivity software, server software (SQL, Exchange, SharePoint, et al.), software-based security products (ISA/TMG, UAG, Windows Defender, Security Essentials), IT management software (SMS, MOM, SCCM), developer tools (Visual Studio), PC games (Flight Simulator, Halo, Age of Empires), and, at one time or another, just about every category of software (accounting software, reference works, mapping software, mail client, web browser, music player, and on and on and on).
Moving into hardware
Even though software has been the company’s core competency, and Windows and Office have dominated their product categories, Microsoft has been gradually expanding into the hardware side of the business. Their mice, keyboards, and joysticks have been very popular and very profitable, leading some to suggest, over a decade ago, that they become more of a hardware company.
And since then, they’ve done just that. With the release of the Xbox in November 2001, the company made the leap from just making small computer peripherals to offering a major stand-alone hardware device. And it has proven to be a big seller, slowly but surely outpacing the competition (Sony Playstation and Nintendo Wii) to capture the top spot in market share for gaming consoles in 2010 and 2011.
Not all of Microsoft’s hardware ventures have done as well, though. The Zune music player, which was released in 2006 as Microsoft’s response to Apple’s iPod, never got much sales traction despite good reviews. In 2011, it was no big surprise when Bloomberg reported that Microsoft was discontinuing production of the Zune and would instead be putting the Zune software into their mobile phones.
Making PCs and phones?
Now some are calling for Microsoft to get “all in” with the hardware business and start making their own phones, a la Apple — or even make PCs. I’m not excited by the idea. There have been a number of reports floating around the Internet over the past week, saying that Microsoft is in talks to buy Nokia’s smartphone division.
Others say “no way,” with Nokia’s office in the U.K. denying the rumors. Nokia has just acquired Smarterphone, a company that makes a feature phone OS, which could be taken either as a sign that the company is committed to making phones and not interested in selling its phone business or that it plans to make only feature phones and sell the smartphone part of the business to Microsoft.
Even if the Nokia acquisition rumors were true, would that necessarily mean Microsoft plans to build their own phones, or would they simply be buying Nokia for its patent portfolio (rumored to be the primary motivation behind Google’s purchase of Motorola Mobility)?
As if the idea of Microsoft making phones wasn’t enough, now Nicole Kobie over at PC Pro is suggesting that Microsoft should get into the PC business, too — perhaps by convincing HP to change its mind (again) and sell out. Her argument, of course, centers on emulating Apple’s success by doing what they do.
Why it’s a bad idea
I’ve already stated my case, in several different contexts, for why Microsoft shouldn’t try to be an Apple copycat. As I wrote back in November, I don’t even think Microsoft should be trying to control the hardware vendors to the extent they do with Windows Phone, much less take over the building of the hardware completely. I think it would be bad for Microsoft, for all the reasons I’ve already discussed. I also think it would be bad for consumers and for the industry in general.
Imagine for a moment how different the tech industry would be today if Microsoft had taken the Apple approach from the beginning and made its own hardware, refusing to license the software to other hardware vendors. The huge economic ecosystem that grew up around Microsoft’s software wouldn’t exist. Many of the industry’s largest companies, such as Dell, HP, Acer, Intel, etc., either wouldn’t exist or would be much smaller.
It’s popular in today’s political climate to talk about “jobs creators.” But Microsoft is not just a jobs creator (although it’s certainly that, with more than 90,000 employees on the payroll and thousands more independent contractors to whom they pay millions every year for services). The company is also a “jobs creator creator” — that is, all the small and large companies that make hardware to run Microsoft software employ countless additional people.
Thank goodness Microsoft took the other route, partnering with hardware vendors instead of taking the DIY approach. But what would happen if they decided to change that now? Those partners wouldn’t be very happy. Neither would customers who want to run Microsoft’s software but don’t want to be locked in to just a few hardware choices.
Of course, there is a “middle-of-the-road” alternative. Microsoft could make their own phones and/or PCs but also continue to allow other vendors to do so. But do they really want to compete with their own partners in that way? Sure, Google has its “own” Nexus Android phones, but they’re made by one of the major hardware vendors (HTC, Samsung), not by Google itself (and it will be interesting to see whether that changes now that Google has purchased Motorola Mobility). And a Nexus was not among the top 10 best-selling Android phones of 2011, although the Nexus One was one of the top phones of 2010.
I know the idea of having total control of the hardware must look pretty good to Microsoft, given the way it’s worked for Apple. But I still say what works for Apple won’t necessarily work for Microsoft and could instead lead to more trouble than it’s worth, in terms of partner relationships, customer relations, and cost. I’d prefer to see Microsoft focus on making the software better and letting companies with far more experience worry about the phone and PC hardware.