The man who ‘got it’ too much

By Pascal-Emmanuel Gobry on August 26th, 2013

The classic story of technological disruption is too often told as a morality tale. We know how disruption works: a technological or other shift allows a new entrant to enter a market with a lower-priced, lower-featured product. Because the products are lower-priced and lower-featured, the incumbents dismiss the threat, preferring to focus on the much bigger and much more profitable side of the market.

But as the technology and the products improve, the new entrants start to eat more and more of the incumbents’ market share, until the incumbent either collapses or is relegated to a niche. That’s the classic story of the “innovator’s dilemma”, and it’s easy to spin this impersonal action of market and technological forces as a morality tale: the incumbent is “clueless”. He doesn’t “get it”. Basically, we enjoy stories with villains and good guys.

And since Steve Ballmer announced he would resign as chief executive of Microsoft, this is the classic story we’ve been telling ourselves about Microsoft. Under Bill Gates, an engineer and entrepreneur, Microsoft disrupted IBM. Under Steve Ballmer, a salesman and a suit, Microsoft is being disrupted by the post-PC landscape: smartphones, tablets and the cloud. Microsoft’s problem is that Steve Ballmer simply doesn’t “get it”: witness the cornucopia of silly quotes about the iPhone. And remember the Zune?

There’s just one problem with this story: it isn’t true. Everyone who knows Steve Ballmer knows that he is an incredibly smart guy. It’s pretty clear he’s familiar with the concept of technological disruption. And it’s pretty clear that he understands very much what’s going on. The thing you have to understand about Microsoft is precisely its history of having disrupted IBM. Bill Gates is an engineering and business genius, and he understood extremely well what he was doing, and once Microsoft made it to the pinnacle of the industry, he understood extremely well what the risk was.

One possibility that Ballmer critics don’t consider, because it would entail rethinking the morality tale version of technological disruption, is that Ballmer not only “gets it”, but gets it… too much.

Hence Gates’ infamous “Internet Memo” of 1995, which launched Microsoft on the path of being an internet company, a war whose first battles, you’ll recall, it won comfortably, destroying Netscape. And fair and square, too: here, Joel Spolsky explains how Internet Explorer crushed Netscape simply because Microsoft executed better.

Microsoft is a company that for at least twenty years has lived in paranoia of being disrupted, and Steve Ballmer was there every step of the way. Steve Ballmer clearly “gets it.” So why is Microsoft lagging in every one of these important future markets – the cloud, smartphones and tablets?

One possibility that Ballmer critics don’t consider, because it would entail rethinking the morality tale version of technological disruption, is that Ballmer not only “gets it”, but gets it… too much.


Our conceptual framework of technological disruption comes from Clay Christensen’s landmark book The Innovator’s Dilemma. It was first published in 1997, over 15 years ago. Since then, it’s been on the must-read list in pretty much every business school and certainly every tech industry boardroom. Unless its chief executive is truly terminally clueless – a possibility, sure, but if we’re honest not the most likely one – every company that is under threat of disruption is pretty familiar with the framework.

And one thing that has gone under-noticed – because it doesn’t fit with the morality tale of the “clueless” incumbent who “just doesn’t get it” – is that sometimes incumbents go awry because they’re all too aware of the disruption, do everything they can to disrupt themselves, as the conventional narrative of disruption requires, and, in the process, lose sight of their original business.

A great case study here is Kodak. The classic story of Kodak’s downfall is that it just didn’t get it. Kodak built film cameras, and made money on the film, not the cameras (the classic “Gillette” business model), and was so obsessed with this profit stream that it completely missed the tidal wave of digital photography and the internet, and thus ended up in the ash heap of history.

The reality is much more complex. As an illuminating Harvard Business School case study shows, Kodak executives understood the threat extremely well, and from the very start. As soon as computers came along – not even the internet, computers – people at Kodak understood what it meant. You know, they weren’t drooling morons.

And when they understood this, they understood that they had to disrupt themselves to survive into the next century. Kodak spent billions of dollars of research and development into digital imagery. They bought a large photo sharing site in 2001. They spent the 1990s and the 2000s trying to find a way to combine their cameras with computers and the internet, and to build software and services to try to enable that.

So, what happened? Well, what happened is that the next step for digital photography wasn’t the internet. It was point-and-shoots. Canon and Fujitsu and other companies came out with really good, simple to use point-and-shoot cameras at the right price point that people loved. They didn’t have fancy photo-editing software or photo-sharing sites, but people didn’t care, because they were good cameras.

Kodak completely missed the wave of point-and-shoot, and that’s what caused it to crumble. Instead of, like a smart company, pouring billions into software and services R&D, Kodak should have been clueless and poured billions into camera R&D.

In other words, Kodak was so focused on disrupting itself and not falling into the trap of the innovator’s dilemma that it lost a grip on its core business: making good cameras. It turned out that in order to remain relevant in the internet age, a camera company didn’t have to turn itself into a photo-sharing website. It just had to make good cameras.

Kodak wasn’t “clueless.” Kodak didn’t “not get it”. It “got it”, and that was the problem. It “got it” too much.

Moving too fast

Which takes us back to Ballmer. Steve Ballmer is the guy who is transitioning Microsoft into delivering everything through the cloud. Steve Ballmer is the guy who invested in Facebook when everybody thought it was crazy. Steve Ballmer is the guy who is completely refocusing Microsoft towards smartphones and tablets. Steve Ballmer is the guy who gave you Office in the cloud, disrupting a product – his own product – which is even more profitable than the Windows monopoly.

Oh, but Steve Ballmer said that in 2007 that the iPhone was too expensive! Well, yes. That’s because it was, and for the next generation iPhone Apple changed the pricing scheme. Oh, but he said business users wouldn’t use the iPhone because it didn’t have a keyboard! Well, in this, he was on the same page as Steve Jobs, who saw the iPhone as a consumer device.

Everyone at Apple was surprised by the iPhone’s uptake in enterprise – but you don’t see this cited as evidence of Steve Jobs’s cluelessness. You have to wonder what the Microsoft-haters were expecting. When his competitor came out with a new, untried product, should Ballmer have said: “It totally rocks. It’s so awesome. I’ll go dump my Windows phone right now”?

Steve Ballmer is the guy who, when it became obvious the iPhone was a success, completely changed Microsoft’s mobile strategy, and got his huge lumbering elephant of a company to deliver excellent software that is anything but a carbon copy of iOS (unlike a certain other mobile operating system of a certain other North California company).

He’s a guy who, when he saw how successful software-hardware integration was on mobile devices, built a close partnership with Nokia to deliver the same level of integration, and even experimented with building his own devices, going against 20 years of Microsoft tradition and potentially alienating dozens of partners.

Steve Ballmer is the guy who before retiring published a public strategic memo defining Microsoft as a “devices and services” company – for a company that has always rejected those two types of businesses. A memo where the word “software”, which has defined Microsoft for 30 years, doesn’t appear even once.  Steve Ballmer “doesn’t get it”? Puh-leeze. 

If Steve Ballmer “gets it”, then why is Microsoft lagging behind? And if he “gets it too much”, what should he have done differently?

Steve Ballmer gets it so much that he completely refocused the development of Windows – the company’s vital, most important product – around touch, when it was otherwise almost ready. Windows 8 shipped with a Start Screen built for a touch interface, and hid the familiar Start button that was part of the Windows language since 1995.

The problem was that this unfamiliar Start Screen interface alienated Microsoft’s hundreds of millions of loyal PC customers so much that Microsoft had to ship a rush update that restored the Start button. Instead of building the best possible PC operating system, Microsoft built an operating system for the post-PC world. This isn’t the sign of a CEO who “doesn’t get it.” This is the sign of a CEO who gets it too much.

And, of course, Steve Ballmer is the guy who understands so much that the future is services and the cloud that he “over-paid” for Yammer and Skype, assets that may in the long run be worth more than Office and Windows. But, you will be asking by now, if Steve Ballmer “gets it”, then why is Microsoft lagging behind? And if he “gets it too much”, what should he have done differently?

Future first

Unlike most analysts, I don’t claim to be smarter than everyone else. Runner-up is a very hard position to be in for any technology company. One can always paint scenarios, and one can always have hindsight, but one should always be humble when saying “coulda, woulda, shoulda.”

First, one thing must be highlighted, which is the fact that Microsoft has become an impossibly bloated bureaucracy. The problem with Windows Phone wasn’t the strategy, it was that it shipped too late. Microsoft won the browser wars, first and foremost, because it shipped. I don’t know any Microsoft-watcher who doesn’t think that the organisation has many rungs too many, and that it could stand to have the herd culled.

One can imagine a world in which, instead of focusing so much on building a high-end iPhone-killer, Microsoft also focused on “lite” smartphones for emerging markets and cost-conscious customers in rich markets. These smartphones wouldn’t have the pizzazz or the full features of iOS and Android devices. They would have been laughed at by the digerati.

But they would have been loaded with Microsoft services (Facebook, Xbox Live, Skype, Office 360…), and they would have been good enough for tens, maybe hundreds of millions of customers, who would have been happy to graduate to “full” Windows Phones once smartphones became accessible enough (circa now, a full six years after the first iPhone launch).

One can imagine a world in which, while pursuing the Windows Phone and Surface strategies, Microsoft also tried to expand the PC market instead of taking its irrelevance as a given. Lots of people actually need and want small, light, portable computing devices with keyboards: witness the success of Google’s Chromebooks. The paradox is that Google, the essential post-PC company, has a better PC strategy than Microsoft.

And, finally, one can imagine a world in which Microsoft looked at its situation not so much from the outside in – looking at the post-PC universe, “getting it” – but from the inside out: looking at its own strengths. Microsoft remains a terrific brand. It still has a great universe of partners. It has one of the most impressive sales forces in the world.

PCs remain useful and will remain ubiquitous. Everybody focuses on Windows and phones and tablets, but hiding under there, we can see that most of Microsoft is actually the world’s most successful enterprise software company, selling server software and organisation software and all the rest.

One can imagine a situation where Microsoft decides to reinvent itself as the next, rather than the next Apple or Google, becoming the provider of choice of enterprise cloud software through its own software development and through acquisitions.

These are all things that Microsoft is already doing to some extent. That’s the most frustrating thing about Microsoft’s situation. Steve Ballmer really does get it. It seems that when you’re in the innovator’s dilemma, you’re damned if you don’t, and damned if you do. It seems that in order to stay relevant, it’s not enough to “get it.”

That’s a much harsher reality than simple morality tales.