Microsoft has been facing a profit destroying innovation for several years and has been avoiding it. Since Google applications arrived on the scene, Microsoft has been slow to react to it. Clearly, it made no sense to put all of its office applications online and give it away free. However, the downside was clear – if Google’s online productivity apps became a norm, Microsoft may not be left with much of productivity software business.
Finally, Microsoft embraced this rogue innovation by putting a version of office online. But Microsoft has been slow to respond to this threat. I have written about how firms facing a rogue innovation face significant challenges that make them drag their feet. Microsoft’s reaction so far has been in line with what others facing rogue innovations have demonstrated.
I also mentioned how firms that win against a rogue innovation do so by creating a compelling third option. Microsoft hasn’t shown that third option yet but it is betting that businesses will not use its online offering and instead continue to buy its future versions of desktop based office. This bet is also in line with the fact that firms facing rogue innovations often underestimate the probability of the success of a rogue innovation due to cognitive blinders.
By avoiding this rogue innovation until its release of Office 2010, it is still betting on the fact that new features in office 2010 will persuade users to upgrade rather than use its free office online. This is not very different from how Kodak believed that chemical science will continue to be an important part of business success in future.
Microsoft needs a compelling third option that is better than either embracing online office suite or avoiding going online. In absence of that third option, it may be making a significant mistake.
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