Can Microsoft avoid the fate of Swiss watchmakers?

Blackhole

Google’s announcement this morning that it is giving away quickoffice for free just reinforced what I wrote in my previous post. Unless Microsoft heeds the lessons from the dark side of innovation, it may face a similar future as the Swiss watch makers did. There aren’t as many Swiss watch makers left as they were in 1970s. The parallels are really scary.

In 1970s, Swiss watch makers accounted for the majority of watches sold in the world. They had a virtual monopoly on watches similar to Microsoft’s monopoly on the productivity suite market. Then the Japanese and American watch makers began unleashing much cheaper quartz watches in the market. At a fraction of Swiss watch’s cost you could buy a good time keeper. Similarly, Google is giving away googledocs and free quickoffice. You can now work on word, excel, and powerpoint files without using Microsoft office on any device. 

What did the Swiss watch makers do? They simply did nothing! Between embracing Quartz and willingly cutting their profits and avoiding the quartz movement entirely, they chose inaction. As the tsunami of quartz watches was unleashed, the Swiss watch makers continued to cede turf. Isn’t this exactly what Microsoft has been doing too? It has refrained from offering office for iOS and Android devices. Its online version of office is too expensive compared to the free offerings of Google. Even Apple announced free iWork on new devices recently.

The end result for Swiss watch makers was horrific. Their exports went down by 90% in less than 10 years while the watch market exploded worldwide. Although Microsoft will not stop selling its office products, its traditional model of upgrade with more features is clearly reaching its limits.
If the Microsoft team is thinking that its future is secure because it owns the file format standards in this segment, they should consider Kodak. The standard for digital camera sensor was developed by Kodak who did not survive while the standard did. Just because Microsoft owns the office standard is no guarantee for anything.

The key lesson from the watch industry for Microsoft is the imagination imperative. Just as Hayek created Swatch and resurrected the Swiss watch industry from the brink of destruction, Microsoft needs to do the same.  Swatch changed what a watch meant. It turned a time keeping device into a fashion accessory. At the same time, it leveraged the Swiss brand to demand a premium in the watch industry where quartz watches were becoming a commodity.

Microsoft needs to do something similar. First, it needs to get out of the mindset that it has to make a choice between embracing the free office initiative and avoiding the free game. It needs to realize that its choices are between losing relevance in the productivity suite segment and designing a novel value proposition from its dominant product.

The methodology I detail in the dark side of innovation is the path to imagination when stuck between a rock and a hard place.   This is how firms have overcome similar problems in the past. This is how Microsoft can avoid repeating the mistakes of Swiss watchmakers.

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