The year was 2004. Two software giants were duking it out for supremacy in the microcomputer market. Well, that’s not really true. They were not equally gigantic, at least in relative terms. The giant was Microsoft and in 2004, it had a revenue of $36 billion. Its “competitor” was Apple and in 2004, it had a revenue of $8.8 billion. So, while nearly $9 billion of revenue can not be labeled a “small” company, they were significantly behind Microsoft in the race for control of the end user’s desktop.
Why choose 2004 as the date? Well, as it turned out, that was a pivotal year for Apple. Steve Jobs had returned as its CEO and directed the company with a new vision of taking already existing technology (ie: the mobile phone, music players, tablets, laptops, etc.) and creating a consistent user experience that was based on simplicity of design and usability.
The result was a series of iPods, iPhones, iPads and MacBooks that have literally changed the way we think about personal and business computing. They also created a robust online support structure that had never been conceived from a consumer electronics company.
In short, they created new, exciting versions of existing products and with great marketing, iconic advertising and superior support, they started growing a fanbase. Not customers, but fans. Stark raving fans.
Steve Ballmer, then Microsoft’s CEO, was asked in 2007 about Steve Jobs showcasing an iPhone at MacWorld and what he thought of what Apple was creating. Ballmer heartily laughed, ridiculed the ridiculous $500 “fully subsidized with a plan” price for the phone. He also opined that, “it doesn’t appeal to business users, because it doesn’t have a keyboard …” He further stated that Microsoft’s strategy was working with partners like Motorola, that offered phones that would play music and access the internet.
He closed with “I really like our strategy.” You can check out the video of this interview here. (hyperlink)
Fast forward to 2015 and look at the revenue numbers for both companies. Microsoft grew from $35 billion to $93 billion, a 9% CAGR. Not shabby by any reckoning, but consider Apple, who grew from that $8.8 billion to $234 billion. They figuratively sucked out Microsoft’s headlights as they blew by them, with an astonishing 34.75% CAGR.
So, is the story that true innovation and the creation of stark raving fans is the key to overall success? Perhaps so. But, my point here is that Microsoft had the advantage. They had more resources and commanded a much larger footprint of operating systems on microcomputers. They had a strategy and didn’t consider Apple more than a niche company that focused on artists and computer aided design applications.
Maybe Apple just happened to be in the right place at the right time. Maybe Steve Jobs was a once in a lifetime genius. But maybe, just maybe, Microsoft could have become the true giant that Apple has become.
To do so might have required a couple of elements. First, CEOs, regardless of the size of the company need to be grounded. It is my personal belief that Ballmer was overconfident and showed a lack of respect for what was at the time, an upstart company that he felt was no threat to the prowess of Microsoft. Even if Apple wasn’t a threat, what is to be gained by openly ridiculing them? From an overall corporate standpoint, did Microsoft take Apple seriously in their strategic planning sessions or when discussing competition at the most senior levels of the company? I am not privy to any inside information about Microsoft’s strategic planning so I can not know. But, it stands to reason that if a company as powerful as Microsoft was in 2004, had taken Apple seriously as a competitor, they would not now be dwarfed by them 2.5 times over.
Now, reality check #1. Ballmer has a net worth of $25 billion and owns the L.A. Clippers and I own a 23’ Proline fishing boat. His overall track record is good and he clearly is a success by nearly all measures (except, perhaps in comparison to Apple …). This is not an anti-Steve Ballmer rant. Regardless of whether you are the next Microsoft or run a lawn care business in your local town, there is always a competitor. Someone is trying to create a better mousetrap. Someone is figuring out how to swap out customers for raving fans. And if that company is your competitor, regardless of how small they are relative to your company, you should treat them seriously. Evaluate what they are doing, gather what information you can about their plans (in any possible, but legal way) and have some strategic discussions about whether you should be looking at something new, something radical, as a pivot your company should make.
Reality check #2. Steve Jobs also made numerous statements about Microsoft and others (like IBM) that can only be described as very ungrounded. Only a fool laughs off competitors as not worth the time to consider. Here is a couple of the tamer ones, “There are lots of examples where not the best product wins. Windows would be one of those, but there are examples where the best product wins. And the iPod is a great example of that.” And, “Our friends up north spend over five billion dollars on research and development and all they seem to do is copy Google and Apple.”
So, he is no better than Ballmer relative to groundedness. But, he recognized that creating a better product and supporting it better than anyone else had, was ultimately the winning strategy. He said this in 2009, “Funny enough, 20 years after we started Apple, there was nobody building computers for people again. You know? They were trying to sell consumers last year’s corporate computers. We said, ‘Well, these are our roots. This is why we’re here. The world doesn’t need another Dell or Compaq. They need an Apple.”
Ignoring your competition, large and small is foolish and mouthing off about how strong you are or how weak your competitors are is ego-driven bravado. Neither being foolish nor chest pounding will ultimately allow you to achieve your full success.
Before you jump me about what a success that Microsoft and Apple became, consider that with similarly talented management that was more grounded, could they have actually achieved more?