Open Source Strategies

A blog about open source software and business models, enterprise software, and the opentaps Open Source ERP + CRM Suite.

Friday, April 15, 2005

The Next Microsoft

Apparently, a popular question asked of hopeful software start-ups is:

How will you become the next Microsoft?

One imagines a young, optimistic entrepreneur, slightly flustered, starting to talk about how he will eventually one day own a dominant technology platform. Ahh, the dreams of youth.

It is a very natural question to ask—Microsoft is without doubt the most successful software company of all time. It owns the core platform for PCs with Windows and Office, dominates access to the Internet with Internet Explorer, has a large presence online with MSN, and commands a vast following in the developer community with Visual Basic, C#, and Visual Studio tools. Why wouldn't someone want to be the next Microsoft?

Imagine, though, if someone had asked the young Bill Gates and Paul Allen:

How will you become the next IBM?

Did two flustered youngsters describe a strategy to build a world-dominating hardware business and bundle software and services along with it?

Strange as it may seem today, this question was just as natural back in those days. IBM had dominated all of computing, with its mainframe computers and hardware, OS/360, business applications, and services. It was so dominant that it too was the subject of lengthy anti-trust litigation. And even in the late 1980's, people spoke of "starting the next IBM."

Indeed, someone must have been asking this question back in the mid-1970's, because most successful startups of that era, including DEC, Wang, Data General, followed the IBM model and offered bundled hardware, operating systems, applications, and services. Microsoft was actually an oddity: not only did it specialize in the then non-existent personal computer sector, it only produced software. The rest, as they say, is history.

In fact, both IBM and Microsoft are products of their times. The IBM model was a product of the 1950's, when computing itself was in its infancy. It bet big on the very concept that businesses would want computers and produced such great hits as the System/360 mainframes, OS/360, JCL, MVS, COBOL, etc.

The Microsoft model was also a product of its time, this time the late 1970's. Microsoft realized that, unlike IBM's big corporate computing customers, the PC user will care a lot more about ease of use and features. It bet big and won big with DOS and then Windows, standardized the nascent personal computer industry, and used that standard to its fullest advantage.

Similarly, today's startup must be a product of our time. So, maybe a better question to ask is: “if Bill Gates and Paul Allen were starting over today, what kind of a business would they start?”

My guess? They would sit around a dinner table and ask themselves:

What do eBay, Yahoo, Google, PayPal, iTunes, and Skype have in common?

What do you think?

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At 2:15 PM, Blogger yoda said...

As a leader of a young startup, I find this post particularly valuable. To answer your question (and feel free to correct me if I'm wrong or miss out on the more valuable points).

eBay, Yahoo, Google, PayPal, iTunes, and Skype have the following in common:

1)They provide services: eBay provides an "auctioning" service, Google provides search, PayPal provides a transaction framework, iTunes provides access to audio-visual entertainment, Skype provides communication.

2)They have built-in community
All the above firms are tools that allow communities to form around them.

eBay allows willing sellers to access a large number of willing buyers without having to filter a given domain for viable buyers in the traditional sense.

Yahoo and Google provide tools e.g groups which communities use to establish an online presence. Their portal also provides users with a means to access a large amount of related online content, a lot of which is created by other users.
(Google does this more directly through search which is so powerful as to fulfill the entire community building functions. User searches provide metadata that allows all other user's to have very refined searches).

Due to their very nature, Skype and Paypal are tools targetted at communities.

Here, I think my theory breaks down because I'm not clear on whether iTunes has built-in community.

3)They are on demand. Even iTunes and Skype which require installation of an application are almost instantly accessible due to the lightweight nature of their applications.

4)They are system agnostic. All the above can be used regardless of the device\operating system the end user has.

5)They focus on and dominate a single space Each of the above does only one thing and they do it better than anyone else. (Yahoo of course doesn't fit the bill in this case).

I'm curious about one thing: If I am right in all the above, then Amazon meets all the above (and additionally leverages metadata and user parametrics to add value). Why did you leave it out of the list?

At 11:03 AM, Blogger yoda said...

Hindsight makes my previous comment seem somewhat naive (I think). This particular post effused such potent knowledge and important questions that I have read it over 10 times.

In search of an answer to your question, I stumbled upon this resource that provides the answer to the question:

"What do eBay, Yahoo, Google, PayPal, iTunes, and Skype have in common?"

I believe I now know the answer and in the spirit of being pithy, I will reduce it to a sentence: All the above companies heavily leverage long tail economics.

Thank you for educating me yet again.


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