Eleven Key Challenges for CEOs in 2014
The core strategy that made Microsoft into an early power in the late ‘80s and early ‘90s was one that we later called Embrace, Extend and Extinguish. Microsoft effectively executed it twice, once to conclusion against Lotus 1-2-3, and once against Apple, with less rigor. Apple survived until Microsoft moved on. Now it looks like Google, both accidentally with Android, and on purpose with the Chrome OS, has started to execute the same strategy against Microsoft at a time when Microsoft appears to have forgotten, or believes it can’t legally execute, this strategy itself.
This will be fascinating to watch, particularly given that Microsoft’s departing CEO was really the only major player during those earlier times and thus the best equipped to counter it. There is some real irony here.
Embrace, Extend, Extinguish
The way this strategy worked with Lotus was that Microsoft effectively created a clone of Lotus 1-2-3 in a clean room. There was no common code but most of the 1-2-3 macros would work in Microsoft Excel. This meant migrating from Lotus 1-2-3 was effortless and Microsoft provided enhancements that made its product more attractive, priced it aggressively, and then wrapped it with products it had acquired from other firms to create Office. You could buy Lotus 1-2-3 or you could get Microsoft Office. Lotus tried to counter with Symphony, which was actually better integrated than Microsoft Office, but it was too little and too late. Lotus shifted to collaboration, IBM bought it, and Microsoft out-fought it with Exchange.
This was the classic implementation: Microsoft first created a product that looked very close to what it wanted to replace and then assured that work (the macros) could be easily migrated to execute “Embrace.” Then it rapidly increased function and bundled the other parts of Office: “Extend.” And finally, it priced aggressively and marketed the advantages until Lotus’ customer base was taken: “Extinguish.”
Office remains to this day and Lotus is gone, along with the 1-2-3 alternative.
Android and PC+
PC+ actually started out being used by Microsoft in its battle against Apple but was recently hijacked by the PC OEMs to mean Android on Windows 8. The PC+ part of the execution seems accidental and driven by the Windows OEMs, who are frustrated by the lack of compelling Windows 8 apps. They are bringing forth systems that are running Android in a virtual machine on top of Windows 8. This would constitute the embrace part of the strategy, because if people are eventually mostly running Android apps, they can more easily move to Android with, ironically, only Office to anchor them. And Office is due for a massive change this year. Massive changes provide the greatest opportunities for competitive migration.
This is interesting because it is being driven by Microsoft partners and because it gets around the concerns about lawsuits for IP infringement that likely have prevented this strategy from being executed recently. Instead of emulating Windows functionality, they are getting Windows to emulate Android, but with the emulation layer in Google’s control, not Microsoft, so Microsoft shouldn’t be able to easily flip this switch back. However, in an open source world, that may not necessarily be true.
I’ll get to this in a minute.
Also working for Microsoft is the fact that the Android effort is being run by the guy who created Chrome OS and has dropped to Cinderella status. In other words, while it is the more successful of the two OSes, it isn’t the one that is favored for this effort in Google at the moment. In effect, PC+ is running against both Microsoft and Google and should fail as a result.
Chrome OS
This jumped out at me while reading an article in ZDNet on the new Chrome browser features, one of which allows it to take over the user interface. That is another variant of embrace because if I control the user interface, I don’t have to copy my competitor to move the customer, and it’s my interface so my competitor can’t copy it to get them back. Currently, the biggest problem with Windows 8 is that people who haven’t even tried the product or have only touched it believe they hate the interface (I actually think the interface is better but people operate on how they, not how I, perceive the world).
Google tends to provide its code for “free” (well, in exchange for user information, which we don’t currently value), which should help it with the extinguish phase greatly. It also has a wide variety of offerings that can replace mail, collaboration, entertainment and even Office functions, though this last remains very light, in my opinion. And Google continues to aggressively acquire new companies that could be used to expand its offerings.
I think it is fascinating to note that Office, the product that Microsoft most successfully drove to dominance using Embrace, Extend, and Extinguish, is now its strongest protection against that strategy, but with a major change coming, that particular protection will be significantly weakened this year. And putting off the move would only delay, not eliminate, the problem; the delay could actually make things worse.
Wrapping Up: Open Source, the Final Irony
Google was initially a huge advocate of open source, which tends to favor the little guy in a fight against a dominant proprietary company. However, it got far less excited when Amazon effectively copied and then forked its Android OS to create Kindle, showcasing the power of this concept, and shifted to a more proprietary strategy itself. Microsoft went the other way: It started by going to war against open source, then realized how to use it to advantage, and now knows how to use this tool as well as anyone else.
Microsoft could do what BlackBerry is attempting: Emulate the Android APIs and allow Android apps to run native on Windows. It is more profit focused than Google and should be able to provide more incentives and then extend the Android experience on Windows, thus effectively turning the tables and making Google wonder where the customers went. With open source, the sword swings both ways and favors the underdog which, it this case, would be Microsoft.
It is too early to say whether this will play out this way, but no doubt history will be made, and it will be dripping in irony.
