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This is why Microsoft won. And why they lost.

My favorite kind of histories are those told from an insider's perspective. The story of Richard the Lionheart is full of great battles and dynastic intrigue. The story of one of his soldiers, not so much. Yet the soldiers' story, as someone who has experienced the real consequences of decisions made and actions taken, is more revealing.

We get such a history in Chat Wars, a wonderful article written by David Auerbach, who in 1998 worked at Microsoft on MSN Messenger Service, Microsoft’s instant messaging app (for a related story see The Rise and Fall of AIM, the Breakthrough AOL Never Wanted).

It's as if Herodotus visited Microsoft and wrote down his experiences. It has that same sort of conversational tone, insightful on-the-ground observations, and facts no outsider might ever believe.

Much of the article is a play-by-play account of the cat and mouse game David plays changing Messenger to track AOL's Instant Messenger protocol changes. AOL repeatedly tried to make it so Messenger could not interoperate with AIM and each time Messenger countered with changes of their own. AOL finally won the game with a radical and unexpected play. A great read for programmers. 

For a general audience David's explanation of how and why Microsoft came to dominance and why they lost that dominance is most revealing. It stares directly into the heart of the entropy that brings everything down in the end.

Why Microsoft Won 

Gates and Allen were skilled coders, but the history of software is littered with people just as smart or smarter who did not end up as billionaires. Their strength was on the business side. For years they remained a small company, but you didn’t need to be big to make soft- ware back then. The programs were simple, and they were all that was available, so you could charge a premium for them. The amount of person-hours that goes into a $50 piece of software today dwarfs that of a $50 item of software thirty years ago. In 1983, a word processor so primitive it advised users to put little stickers on their keyboards so they’d know which functions correlated to which keys retailed for $289. For this price it offered a tiny fraction of what most freeware can do today. It was a different world.


In this world, Microsoft stood out. They worked fast, they were aggressive, and they were very cagey. Their strength was never in innovation per se, but in appropriation, improvement, and integration. One slogan that you would hear at the company was that Microsoft made “best-in-class” products. A less charitable way to put this would be to say that upon entering a market, Microsoft would make a product that was better enough than the best out there, and then take over the market. So the quality of Microsoft’s offerings closely tracked the quality of existing offerings.

Lotus’s spreadsheet software 1-2-3 was a good product in the 1980s and early 1990s; consequently Microsoft Excel, which debuted in 1985, became the standout of Microsoft’s nascent Office suite. Word processors like WordPerfect and WordStar were less formidable; as a result, Microsoft Word was considerably less stellar than Excel. And in the absence of any dominant email programs, Microsoft Outlook was buggy and slow, and remained that way well into the early 2000s. Microsoft was far too efficient to waste time improving a project beyond what was needed to defeat their competitors. In the late ’90s I got a chance to tour the legendary Massachusetts computer company Digital Equipment Corporation (DEC, later bought by Compaq), and the difference in culture was remarkable. There were people at DEC who had been working on threading (the manner in which operating systems manage concurrent sets of linear processor instructions) for twenty years. Half the people had PhDs in their areas of specialty. Corners were never cut to release something earlier.

Ah, I thought. This is why Microsoft won.

Why Microsoft Lost

So we gave up. I licked my wounds and proceeded on to far more dreary years on MSN Messenger Service, eventually getting buried so deeply in internal company politics that I was no longer able to do anything resembling useful work. The writing was on the wall when I heard one team manager scream, “I have the worst morale scores in the company and I don’t give a shit, because they can only go up!


Those were the years of Microsoft’s long, slow decline, which continues to this day. The number of things wrong with the company was extraordinary, but they can be summed up by the word bureaucracy. Early on at Microsoft—and even later, when we first started Messenger—you could just do things. You had a good idea, you ran it by your boss, you tried it, and if it worked, in it went. After a while, you had to run everything by a hundred people, and at some point the ball would get dropped—and you’d never hear back. There was the infamous internal review system called “stack rank” that pitted teams against one another and people within each team against one another, too. There was an incredible thirst for “headcount” within a department, so managers would lobby aggressively for independent groups to come under their control. Thus the burgeoning NetDocs, which was intended to be an internet-based document-editing suite, gobbled up a number of small groups in the late ’90s. But NetDocs got eaten by Office, which then proceeded to kill it, thus leaving the door open for Google to debut Google Docs in the mid-2000s. And on it went. Multiyear projects with hundreds of engineers died without the public ever hearing a word. It continues.

The slow decline of empires follows a familiar pattern. The initial creativity and energy of conquest gives way to stagnation and bureaucracy. Familiar as it is, it still makes for a good story. A far better story than you might get from Bill Gates or Steve Ballmer.

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Reader Comments (7)

appropriation, improvement, and integration was also known by a more sinister name: Embrace, Extend, Extinguish.

Embrace a product or standard.

Extend the product MS proprietary technology.

Extinguish the original product.

April 21, 2014 | Unregistered CommenterRT

I think, life and economy cannot be simplified like that. Large companies have their own challenges, but it is not as simple as "win" or "lose". Not even IBM left the arena, and they had and still have ALL of these challenges and many more. Microsoft will not rule the world. That is all. And we are thankful for that. But they will contribute very interesting products on and on.

April 22, 2014 | Unregistered CommenterDietmar Schoder

I worked at Eastman Kodak for 15 years, they went down hill because they could never get a product out the door in a reasonable amount of time!
Kodak is now gone by by!

April 22, 2014 | Unregistered CommenterThe Irishman

I don't see much difference between the accounts of recent history at Microsoft and its early history. The company is phemonenally profitable. They do not support work internally that creates market fragmentation. When Google docs becomes a threat, they will create an alternative.

The case histories provided seem to document something else: the bureaucracy allows unsuccessful projects and presonnel to cling to life far longer than they should. Developers don't get clear messages about their professional prospects: instead, they have to "read the writing on the wall" - in large part because their leaders see their team as an asset in their struggle to secure their professional future. The quote about team morale is indicative: the man is in denial.

In those situations, developers are often encouraged (to their detriment) to continue to focus on the things that brought them past opportunities, rather than shifting to a completely different technology or product.

April 22, 2014 | Unregistered CommenterBrian Balke

"Their strength was never in innovation per se, but in appropriation, improvement, and integration"

Basically: monopoly deal with IBM and lawyers & marketing to keep the monopoly and kill or steal all the innovations, a business model copied directly from IBM.

Huge financial boost from monopoly deal with IBM, (itself totally IBM inside job, nothing to do with MS or Gates). Rumors say it was Gates senior who did the swindle (from IBM point of view: None of the internal IBM procedures were followed so obviously a very high ranking person within IBM was needed: A member of the board or equivalent.)

Ruthless lawyerism and blatant stealing from everyone and then running to behind the back of their lawyer army: That's Microsoft, by definition. Embrace, extend, extinguish and so called "partnerships", where MS gets all the knowledge and partner gets the bills, are also normal processes.

_MS has and had lawyers to win the DOJ in court_: As far as we know no company before or after has been able to do that. It's equivalent of Enron going to court and win: Most people have no idea how big thing it really is.

That tells something about the legal firepower MS is wielding and they use all of it to keep their monopoly in personal computers. Even today and since 1981.

It's painfully obvious that laws don't mean a thing to a company who fights, and wins, DOJ, in court.

April 22, 2014 | Unregistered CommenterThomas

Big companies answer to their shareholders. At the end of the day "killing" a product that makes a 100 million dollars a year for "free" version isn't always supported by a board or share holders that want immediate gain in the form of earnings per share. Microsoft and Google have two totally different models. Google gives crap away to make money on advertising. Can you image what would happen to MS Stock if they changed their model?

Kodak couldn't "give their film or development" away in favor to a "maybe" advertising stream. And thus they died.

Share holders are the death of any company because most of them are always short term dreamers (they dream about rich quick schemes and rarely care about a long term creation or change of company)

Yes big companies get mired down by political decisions with few that lack creativity but are super skilled at navigating internal landscapes to hopefully make a buck on a peers ideas or creativeness.

The CEO of Costco visits everyone of their stores every year (some twice). This gives him the edge to kill politics internally. If more CEO's did this they would connect and realize the political scam artists internally and be able to fire them if they stifle those that truly can create. Always blame the CEO for lack of direction....always.

April 23, 2014 | Unregistered CommenterreturnMicrosoft

That is what I like about Google.. They are willing to TRY something... Occasionally they drop something that was really good... Like 1-800 GOOG-411.. a great 411 service that worked respectably well to find businesses anywhere, and you could call the business through it, meaning it was a toll free call for you! (perhaps that's why it was dropped?) As a consumer I see the stagnation and bureaucracy that appears to be streamlined in Google.

Lets take Hotmail.. for YEARS, the total message storage limit was hamperingly small (2mb?)... Then came Gmail, and they offered 2GB storage, a better interface, and REALLY GOOD spam filters.. finally, I think it was a year or two later Hotmail finally increased it's storage limit, to 200Mb. I have pretty much never deleted anything in my Gmail account, and I joined in it's early days.. I use 46% of my 15GB limit.
I am glad Google has the innovation and clout to create a competition for users in the marketplace or MS would have stopped development entirely, and despite some privacy concerns (I don't trust ANY of them), I will continue to choose Google over MS for a good portion of my software needs.

April 23, 2014 | Unregistered CommenterY2D

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