In the latest episode of his excellent podcast, Hypercritical, John Siracusa discusses what ails Microsoft. His central thesis is that Microsoft has invested too much effort catering to the highly profitable enterprise market at the expense of the consumer market. In particular, enterprise customers value backwards compatibility, but focusing on backwards compatibility retards innovation and prevents clean breaks from legacy products.
I completely agree with this thesis, but I disagree with John’s contention that the 1990s Microsoft could have ignored enterprise customers’ demands at minimal cost. The argument is that Microsoft had no viable competitors in the enterprise space – IT managers simply were not going to replace all their Windows machines with Macs or Linux boxes except under extreme conditions. Thus Microsoft had no need to focus on pleasing enterprise customers. In a sense, enterprise customers are akin to political extremists in the median voter theorem; they’re a captive audience that can be taken for granted by their preferred vendor.
While all of this is true, it glosses over one critical point: Microsoft’s biggest competitor in the OS market is not Apple or Linux but previous versions of Windows. Microsoft have said this historically and they continue to say it today (“our biggest competitor for new user acquisition is previous versions of Office and Windows…”). Microsoft doesn’t make money unless a business upgrades its software, and the entire Vista debacle demonstrated that businesses are perfectly willing to skip an entire OS version if it offers diminished backwards compatibility (one exception is businesses that are on subscription plans, but I believe these were less common in the 1990s). I suspect that if Microsoft prioritized consumers over enterprise, they would see significant reductions in Business Division (Office) and Windows revenues, as enterprise customers lengthened their upgrade cycles. Focusing on consumers over enterprise might still have been the correct strategy, but it would not have come at a low cost.