Saturday, November 24, 2012

Microsoft and Google Follow Apple, Compete with Partners

When Microsoft and Apple originally started competing to win the operating system battle, Microsoft proved to be the more shrewd competitor. Rather than manufacturing hardware and selling a complete system to consumers, Microsoft made the decision to exclusively distribute its operating system through independent manufacturers of computer hardware. At the same time, Apple famously designed and sold the complete system including both operating system software and hardware.

In an amazing twist of fate, Apple has now created the business model that Microsoft and Google are attempting to emulate. Interestingly, this business model is the same fundamental approach that lead to Apple losing the operating system war for decades. It is this model that Steve Jobs believed in deeply. That the only way to deliver a truly compelling user experience was to control the hardware and the software. The one major addition to the business model originally conceived by Jobs is the availability of apps that are developed by third parties and can be instantly downloaded from the web.

As it turns out, this model results in an incredibly profitable equation.

Although the Android operating system is gaining  far more market share worldwide then Apple's iOS,  in the second quarter of 2012 Apple managed to capture 77% of the mobile device profits with only 6% market share.

Following Apple's lead, Now Google has followed suit by acquiring Motorola Mobility and Microsoft has launched the Surface line of integrated hardware and software devices. This is a shift that nobody would have believed could happen only one year ago.

With the old Microsoft rule that said you should never compete with your partners now out the window, it will be interesting to see how the hardware manufacturers evolve their models to become more differentiated. Although it seems that transitioning from software into hardware can be successful, in my experience it is much more difficult for hardware makers to get into the software business.

Perhaps we gins of former Microsoft loyalists will defect and begin making Android powered hardware. Or maybe Apple will seize the opportunity with Microsoft at its most vulnerable point and align with hardware makers by allowing them to begin distributing its operating system for the first time in company history. Given the lack luster reviews received by the windows 8 operating system my strong suspicion is that many additional changes will soon be sweeping across the operating system and hardware manufacturing markets.

Here is a great post from Computerworld that further in value weights the moves made by Microsoft and Google following Apple's lead.