Microsoft’s Monopoly Hangover – Stratechery by Ben Thompson

Excerpt from a timely Microsoft reality check

"IBM’s mainframe business was being hammered on two fronts: Unix-based alternatives offered modular lower-cost alternatives for back-end operations, while PCs were taking over many of the jobs mainframes used to do — and, in the long run, threatening to take over the data center itself. IBM was not only stuck with a product that was too expensive for a market that was simultaneously shrinking in size, but also an entire organization predicated on that product’s dominance.

This was Microsoft a few decades later: the company loved to brag about its stable of billion dollar businesses, but in truth they were all components of one business — Windows. Everything Microsoft built from servers to productivity applications was premised on the assumption that the vast majority of computing devices were running Windows, leaving the company completely out of sorts when the iPhone and Android created and captured the smartphone market.

The truth is that both companies were victims of their own monopolistic success: Windows, like the System/360 before it, was a platform that enabled Microsoft to make money in all directions. Both companies made money on the device itself and by selling many of the most important apps (and in the case of Microsoft, back-room services) that ran on it. There was no need to distinguish between a vertical strategy, in which apps and services served to differentiate the device, or a horizontal one, in which the device served to provide access to apps and services. When you are a monopoly, the answer to strategic choices can always be “Yes.”"

Microsoft’s Monopoly Hangover – Stratechery by Ben Thompson