Everyone Beware: Microsoft is Alive Again and May Become an Elastic Enterprise

A giant has awakened.  Microsoft’s alliance with Barnes and Noble is a major market signal. It should be a wake up call for everyone.  Yes, it’s a great deal for Barnes and Noble and just what the doctor ordered (see my previous blog on B&N). But, it also builds up Microsoft’s business platforms and adds an established e-commerce engine to Microsoft’s repertoire that could add to the appeal of Windows 8.

Yes there are detractors. On Yahoo Finance’s Daily Ticker, Dan Gross quipped, “The desperate got married to the hopeless,” and Henry Blodget added “My guess is that this is rearranging deck chairs.”  I am a fan of both commentators. But, in this case, there is more to the story. The bigger story is about the overlooked overhaul and transformation of Microsoft, the company.

Over the past 30 months Microsoft has begun to move toward elasticity by building a 21st Century business ecosystem. Apple’s iPhone and iPad was the first wake-up call and the confirmation of the post-PC era – a potential death knell for the Windows franchise.  The second, I believe came from Microsoft’s experience with the Kinect device that was introduced in November 2010 and won the Guinness World Record for the “fastest selling consumer electronics device in history.” The third came from Amazon’s continuing success with their Elastic Compute Cloud.

Microsoft was the undisputed leader in the formation of 20th Century ecosystems, along with Cisco and WalMart. Everyone envied Microsoft’s partnership with Intel and the extensive VAR (value-added reseller) system they created.  But the ecosystem was closed.  Anyone who participated in the old Microsoft ecosystem had to be approved and most importantly it did not have a powerful business platform as seen today with Apple, Amazon or Google.  But that is changing.

Since then, Microsoft lost its way and almost crumbled under its own weight. But now we see signs of real change.  Microsoft is building a 21st Century style business that will breathe new life into Microsoft, create a new renaissance in the company and ensure its future value.

Two key signs paint the picture of renaissance, the emergence of Microsoft business platforms and Microsoft business ecosystems.  As we have discussed at length in The Elastic Enterprise, these two components are the nucleus of a new dynamic for 21st century business. Microsoft should no longer be viewed as a software company or just a tech company.

Behind the scenes of the mainstream press, Microsoft experimented for several years with 21st Century business ecosystems.  But the experimentation is over:

  • The Xbox technology platform has “gone beyond the box” and turned into a thriving business platform (e.g. Xbox Live, Xbox Game Marketplace, Xbox 360 + Kinect). Microsoft now understands how the business platform enables broad participation, enlists loyalty, and empowers widespread creativity – outside the boundaries of Microsoft.  It creates what we call the elastic dynamic.
  • Kinect taught Microsoft something important about devices and modern business ecosystems.  Originally, Microsoft saw Kinect as a game product, period.  But when Kinect was introduced, it was immediately hacked.  But not by just “joy riding” hackers, but also scientists, medical technologists, cartographers, and many others.  For a brief moment, Microsoft protested.  But it learned quickly, what Apple and Google learned earlier.  A dazzling breakthrough product attracts followers and co-creators that vastly expand the original footprint and business intent.  It builds a business ecosystem, enhances the brand and increases strategic options.
  • SharePoint has grown into a formidable enterprise collaboration tool with significant global market share. Microsoft built a business ecosystem around SharePoint to enlist interested developers and co-creators that would add to the tool.  SharePoint is now a business platform – not just a tool with a powerful and competitive business ecosystem.
  • Microsoft is in the Cloud.  Azure, Microsoft’s cloud product and platform competes with Amazon’s Web Services and Elastic Compute Cloud and position Microsoft for a cloud future.
  • Microsoft’s recent acquisition of Skype is also in the cloud and is a business platform in its own right and it expands Microsoft’s service portfolio and provides additional services that can be “plugged-in” to other Microsoft business platforms and business ecosystems.
  • Microsoft is also transforming its traditional “shrink-wrap” software products, most notably, Microsoft Office into the Cloud making them business platforms that can support a broader ecosystem of partners. And its recent SkyDrive product illustrates the new approach to software products.
  • New style alliances.  Microsoft’s alliance with Nokia, its alliance with Barnes and Noble), and its investment in Facebook, shows how Microsoft is moving to a different business structure and business strategy.  Each of these moves gives Microsoft more strategic options, increases the future value of the firm, more elasticity.

So the B&N alliance is a key signal – a sign of renewed life – not puns for a flawed marriage or a maritime disaster.  Microsoft is a different company today. Sure it still has many of its legacy ways and legacy products.  Transformation is risky.  And there is a risk that all of what I’ve mentioned is not a coherent strategy but a series of uncoordinated “life boats” thrown overboard in a panic of impending doom. Or its execution may wind up flawed.

Perhaps.  But If Microsoft continues on its path to elasticity, everyone should take note. As we have seen with Apple, Amazon and Google, no industry is safe.

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