The Magical Formula for a Successful Tech Company and How to Lose It

Rob Enderle

When you've been at this as long as I have, there are a series of questions that seem to resonate year after year that you ponder. Or, at least I ponder them. One of the biggest is: How can companies that have been so successful suddenly lose their way and slide or fail, not because of market changes, but because they seem to have forgotten what made them successful in the first place?


I'll walk you through some examples and then give you my working theory as to why this is a common problem.


Microsoft: Hating and Emulating IBM


I've probably followed Microsoft more closely than any other company short of IBM, where I once worked. It became massively successful on what was a basic idea: Make a few bucks from every computer user in the world and focus like a laser on bringing technology to those users. This was a consumer, not a corporate, strategy, and through the mid-'90s Microsoft remained a largely consumer-focused company. Windows 95, which many of us think was when Microsoft peaked, was a consumer-focused product.


Initially, Microsoft focused on consumers, and IBM, its enterprise partner, focused on businesses. Microsoft took this formula and spread it to Compaq, HP and an emerging Dell with massive success. The delineation was clear, Microsoft would focus on consumers and software developers and the other folks would focus on businesses, hardware bundles and the enterprise.


Then someone at Microsoft felt the need to go further and Microsoft started going after the enterprise and its consumer focus faltered. Microsoft's influence fell and products increasingly did better on the enterprise side and increasingly failed on the consumer side. It went from nearly 90 percent share on browsers to a fraction of that number, is bleeding share to tablets on the PC side and all but got kicked out of smartphones.


Apple, which retained a consumer focus, is now largely where Microsoft was in terms of influence and power. IBM got out of the PC business, Dell is shifting focus away from it and HP has started to displace Microsoft with its WebOS platform.


Microsoft had one of the most successful formulas and tossed it right out the window to be more like IBM, a company both Bill and Steve thought was clueless in the 1980s. As it is discovering, enterprise companies are nowhere near as valuable as consumer companies.


Netscape's Mad Microsoft Chase


Now here was a tear jerker. Netscape was massively successful, but had one product - the browser - driving that success. The company was unstoppable, focusing sharply on the Web and it knew more about the Web, since it helped create it, than any other company. Netscape recognized that the browser needed to be free and then never really figured out how it would successfully subsidize it. Actually, that isn't fair. It did figure it out and moved to create a super portal, but the effort was too little and too late and it failed.


Netscape looked over at Microsoft and said, "Hey, we want to go to war with them and jump from consumer products to the enterprise," and proceeded to bring out an amazing array of enterprise products it couldn't sell, or when it did sell them, make work. The company had this great consumer-focused strategy and Microsoft couldn't even initially spell "Web" in a market it knew better than anyone else. Netscape tossed it out the window for a market it didn't know and had a massive disadvantage in. It was like it figured it was playing a game in beginner mode and suddenly jumped to expert mode without thinking through the implications. It could have partnered with Microsoft. Heck, Microsoft even wanted to partner (by the way, a really interesting link), but instead Netscape decided to fight the most powerful company in the world from a position of weakness: enterprise applications.


Netscape died.


Sun's Mad Microsoft Chase


Watching Sun was just painful. Here was a company built around the concept of hardware and client server computing and it focused like a laser on business. It scared the hell out of HP and IBM, and was thought to be unstoppable until it decided to go to war with Microsoft, a software-only company and not a natural competitor.


Scott McNealy was so focused on Microsoft that almost every talk was about criticizing Microsoft, even when it didn't make sense, more than it was about pitching Sun products. Much of this was at a time when Microsoft's Windows NT product wasn't even that competitive to UNIX. In fact, Windows Server didn't even really mature until Sun started to fail dramatically as part of a failed bid to become Microsoft.


Sun had this incredibly successful formula and it tossed it right out the window in order to use Microsoft's formula. But here is the kicker: It didn't take the successful consumer-focused formula, it copied the comparatively less-successful enterprise formula that Microsoft had moved to.


Sun died.


Wrapping Up: My Theory


What we are seeing is something that is wired into humans and that is the fight for status. Microsoft looked up at IBM, saw the massive status IBM had and then worked to emulate IBM even though it was contrary to its strengths. It became more powerful than IBM on its own and, ironically, it was through emulating IBM that it lost its massive advantage.


Netscape and Sun did the same thing with Microsoft: Seeing Microsoft's status as being greater than their own, they sought to emulate Microsoft in order to get that status, not realizing that Microsoft itself was also no longer on the path that made it successful. Out of all of this, companies that did well - such as IBM, EMC and Apple - did so not by trying to be someone else, but by being the best they could be on their own merits.


Currently, Oracle is trying to copy IBM, and Google is trying to copy Microsoft. I think both companies would be far better served if they focused on being a better Oracle and Google, respectively, given history. But I bet they don't. That's because their leaders are hardwired to chase the status of the larger player and they can't help themselves even if it means crippling or destroying their respective firms. I should point out that Oracle's biggest historic advantage (I did competitive analysis for IBM) was their ability to move across hardware vendors. Oracle's recent Sun move takes away that massive advantage.


IBM has been around for 100 years because the firm knows what it is and works at being a better IBM. EMC and Apple exemplify this as well and they don't let competitors define them. Or, to connect back to my title, the way to destroy that magical formula that makes a company hugely successful is to toss it out in order to copy someone else's.


We must be hardwired to make this mistake because it happens over and over again.

Add Comment      Leave a comment on this blog post
Jun 27, 2011 10:36 AM a. asdf a. asdf  says:

I have to agree. Especially Microsoft. The lack of innovative or even working consumer products by Microsoft has been appalling. Maybe the issue is Balmer. When you listen to Gates, you get a feeling he is a true geek and has a tech vision. I don't get that with Balmer.


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