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No One Stays King Forever: What Apple Should Learn From Microsoft's Stumble

02/12/2014 06:00 pm ET | Updated Apr 14, 2014
  • Dan Lyons Marketing fellow at HubSpot and creator of 'The Secret Diary of Steve Jobs'

John Gruber published a smart essay about Microsoft on his Daring Fireball blog last week, adding perspective to the appointment of Microsoft's new CEO, Satya Nadella. The gist of Gruber's essay is that Microsoft's redemption, if there is to be one, will involve its ability to become a leading provider of cloud services. That's the next big thing, and that's where Microsoft has advantages, in terms of technology and business experience, over everyone else.

All fair points, but what Gruber overlooks -- and this is ironic given the fact that his blog is mostly devoted to covering Apple -- are the lessons that Apple should learn from Microsoft's stumble.

Lesson One: No one stays king forever.

Lesson Two: Lock-in leads to disaster.

Let's look at Lesson One. It's hard to imagine today, but in the 1990s Microsoft wasn't just a dominant player in tech; it was downright terrifying. Everyone lived in fear. In 1997 I wrote an article for the New York Times Magazine about a little software company in Cambridge, Mass. called Firefly, whose CEO, Max Metral, said something about Microsoft that I will never forget:

"The reality of the software business today is that if you find something that can make you ridiculously rich, then that's something Microsoft is going to want to take from you. All we can do is meet with them and try to see what they're going to do to us when they feel like doing it. If they want to kill you, they'll kill you."

Ten months after that article was published, Firefly was acquired by Micrsosoft, and was never heard from again.

Apple today doesn't dominate mobile devices the way Microsoft did the PC market. Microsoft once controlled 95 percent of PCs. Apple's share in smartphones is around 15 percent, and its share in tablets is around 34 percent.

But market share figures don't really paint the full picture. The fact is that Apple got in early and has done a better job than anyone else in this space, and therefore has staked out a strong position. Apple was even, for a time, the biggest company (by market valuation) in the world.

Though its stock has fallen, Apple's business remains one that any company would envy. Last quarter Apple generated $58 billion in revenue and kept $13 billion as net profit. That's a 23 percent net profit margin, meaning out of every four dollars Apple takes in, one dollar goes to the bottom line. That is incredible.

Nevertheless, history shows: Nobody stays on top. Before Microsoft's reign of terror, IBM held an even stronger choke-hold on tech customers. Sony was once a powerhouse. So were Digital Equipment Corp. and Sun Microsystems. Sun "put the dot in dotcom" back in the first dotcom bubble, and seemed invincible. Does anyone remember DEC or Sun today?

Things change. New technologies come along. Leaders fail to adapt, as Clayton Christensen pointed out 17 years ago in The Innovator's Dilemma.

That's a lesson in that for Apple and its fans. But somehow, in their minds, Apple is different. Apple has some magic that prevents it from being susceptible to the same law of gravity that has pulled every other market leader back down to earth.

Maybe so. We'll see. But let's look at Lesson Two.

As Gruber points out, citing an essay by Brent Simmons, the Microsoft of old was all about creating services that only ran on Microsoft's operating systems and required Microsoft's developer tools. That's changing now, as Microsoft's cloud business, Azure, has a policy of working with everyone and everything.

Nadella is the guy who ran that group. Last summer he shocked the tech world when he used a Mac onstage at a Microsoft event. Now he's running the whole company.

Smart! Gruber thinks it's great. Openness is the way to go! It's important to play well with others in this new post-PC world.

So where is Apple on that front?

Apple is all about creating its own little bubble world where it's all Apple all the time. The advantage to this approach, according to Apple, is that you get a more beautiful, perfect, curated experience. Sure, it's a trade-off. You're living in a walled garden. But it's such a nice garden! Who would want to leave?

As Apple fans see it, Microsoft ran a closed system out of selfishness. But not Apple. Apple is different. Apple locks you in because it cares so much about its customers.

The truth is, companies are open when they're underdogs, because they have no choice. Then when they get on top they're all about lock-in. This happens over and over again. This was the case with IBM. It was the case with Microsoft. It was the case with Sun and EMC during the dotcom boom, when they could (and did) bully their customers. It's the case with Apple today.

Why do companies do this? Because they can't help themselves. Because "Power tends to corrupt, and absolute power corrupts absolutely," as someone, either Jerry Garcia of the Grateful Dead or English historian Lord Acton, once said.

Companies can't resist the urge to squeeze as much money out of customers as they can. To put this in terms of one of the "laws" that the tech industry is so fond of: The openness of any company is inversely proportional to the square of its success. Or something like that.

The problem is that when powerful companies start trying to lock in their customers, they are sowing the seeds of their own destruction.

Microsoft, humbled now, will embrace openness as it tries to claw share away from Amazon and become the dominant provider of cloud services. We'll see a new Microsoft -- a happy, friendly Microsoft. That old bully Microsoft? Oh, he's long gone, replaced by a kinder, gentler, friendlier Microsoft.

Of course, if and when Microsoft becomes king again, watch out. We'll see the old Microsoft back in action. Not because the same cast of characters (Gates, Ballmer, et al) will still be in charge. This will happen no matter who's in charge. Because it's human nature.

As for Apple? My sense is Apple is still rising, and still has big things to come. But Apple should learn from Microsoft what happens when you squeeze your customers too hard. Because someday, history tells us, Apple will be where Microsoft is today -- trying to craft a comeback, and promising to play nice with others.

Dan Lyons is a marketing fellow at HubSpot, a software company in Cambridge, Mass. He was previously the tech editor at Newsweek, a tech columnist at Forbes, and the creator of "The Secret Diary of Steve Jobs," written in the person of "Fake Steve Jobs."

This piece first appeared on HubSpot: blog.hubspot.com/opinion/2-lessons-apple-should-learn-from-microsoft

Visit Dan Lyons' website at www.realdanlyons.com.

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