This is why Microsoft won. And why they lost.
Monday, April 21, 2014 at 8:56AM
Todd Hoff in Strategy

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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