How To Compete Against Microsoft

Microsoft has a reputation for being invulnerable, but in fact it's possible to compete against Redmond and win. The key to success is to remember that Microsoft is not a monolithic unit, but rather is made up of many business units. Some of those business units are highly effective, others are more vulnerable.

Two examples of companies that successfully compete against Microsoft are Logitech, which competes by focusing on technology that Microsoft doesn't consider strategic; and Hewlett-Packard, which both competes against Microsoft and partners with it.

I wrote last month about why companies fail when they compete against Microsoft. Now I'll tell you how competitors manage to go up against Microsoft--and thrive.

Logitech: Staying Focused Microsoft is a software and tools company, but it used to also dominate the mouse and keyboard market. Microsoft then started producing gaming equipment, such as joysticks, and steering wheels. The company pioneered force feedback. It even sold speakers.

Microsoft has retreated back into mice and keyboards, while Logitech continues to offer the broader range of products. While Microsoft continues to build quality products, Logitech dominates this segment with a broad line of accessories including mice, keyboards, cameras, and speakers. Logitech even has one of the most cost effective competitors to the Tablet PC, the Anoto Pen.

Logitech wins because, first, they don't go around pointing out that they are beating the crap out of Microsoft. Executives often want to brag about beating the crap out of Microsoft, but it only motivates Microsoft to want to squash the competition.

Logitech also stays focused. Microsoft has to watch markets that are much more strategic than peripheral hardware, but Logitech can be expert in this one segment.

This is the best way to go after a dominant company: find areas where the giant isn't focused, and quietly slip in and take market share. Inside the dominant company, the business unit you compete with will see declining revenues. People won't want to take jobs in that business unit--and, once there, they'll either be treading water or looking to get out. Budgets will get cut, particularly market budgets.

You can compete with the larger company without getting into expensive pricing wars, or massive FUD campaigns against the other firm. It happens quietly and subtly.

If you play your cards right, the larger company will choose to exit the market segment, like Microsoft did with gaming and speaker products.

You are also free to partner with other business units of the larger company. For instance, Logitech generally openly supports Microsoft's new operating systems releases and advancements, when they enhance Logitech's own offerings.

In short, Logitech wins by avoiding the war, by quietly using Microsoft's own dynamics against it. The entire approach almost feels like business martial arts.

And Logitech seems to follow these strategies naturally--it was baked into their model as the company evolved, and not injected by overt design.

Microsoft vs. HP: Balance and Diplomacy Hewlett-Packard is one of Microsoft's strongest partners. But it also does two and a half times the Linux business that IBM does.

IBM takes the in-your-face route to competing with Microsoft. HP tries to find as many ways to cooperate as it can.

You can almost see the testosterone when IBM and Microsoft executives get together, but the HP and Microsoft meetings are love fests.

Hewlett-Packard is a hardware company, and a hardware company can't compete with a focused software company on software--as Sun Microsystems and Apple Computer found out, and IBM still doesn't get. HP does get it, and chooses every opportunity not to go head to head with Microsoft. When HP does, as they do with Linux, they position their efforts as preserving their Unix business, rather than competing with Microsoft. While there is no doubt HP's competition upsets Microsoft, it don't break the relationship.

HP backs virtually every major initiative Microsoft has--except Microsoft's initiatives against Linux. HP is acting in its own best interests, because it can then leverage the same resources Dell has available. And the Microsoft partnership puts HP in a preferred position to IBM, which is HP's natural enemy.

HP uses diplomacy. It mirrors how countries can compete without going to war. The benefits of the relationship overwhelm the objections that either party has about undesirable activities by the other party.

Microsoft sees HP as a must-have partner and HP sees Microsoft in much the same way.

Microsoft Weaknesses One pillar where Microsoft is exposed is in the consumer segment. They have made a lot of stumbles here: USB speakers, the Microsoft Phone, Microsoft Bob, gaming accessories, informational CDs about dogs and wine, AutoPC, and the first version of MSN. This is largely the result of a lack of focus. Also, Microsoft staff appeared to believe that they were experts on games, and creating reference works about dogs and wine, simply because they consumed those products (and had dogs).

Microsoft was successful with the XBox, and with delivering embedded products. In these cases, they hired people who knew what they were doing, and the results were vastly better.

Microsoft has two big weaknesses: It has an image problem, which it refuses to even acknowledge. Many people choose Linux just to avoid doing business with Microsoft; that's a problem that Microsoft may not be capable of dealing with.

Microsoft also tosses people into jobs without aggressively matching skills and position. Like many big companies, they have executives leading core units who took the job without formal training. People get the title of boss, and they act as if that instantly makes them an expert, when in fact they simply didn't know what they are doing. This can be a real problem for a business unit.

Microsoft is very vulnerable to competition from a smart company that goes about the job right. Strategies for successful competition against Microsoft include finding a market that Microsoft considers non-strategic, and partnering with Microsoft in areas where the companies don't compete. You can play against the giant without getting crushed.

Rob Enderle is an emerging personal technology analyst and heads the Enderle Group. He has been an external IT analyst since 1994 and spends his free time building computers and playing with personal technology prototypes. He can be reached at [email protected]. Contact the editor of Linux Pipeline at [email protected].