Microsoft's Ad Campaign: Not Just for End-Customers but for the Ecosystem

The Fall seasons opens with a new advertising campaign.

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At a first blush, one may think this is just about getting end-consumers to not give up on Windows, That is partly true. It is equally about keeping its business network (ecosystem) excited and committed to the Windows platform.  We have come a long way from the tight network of Wintel (Windows and Intel) architecture embraced by companies such as Dell, HP, Sony, Adobe and others.  Intel chips power Macintosh computers. Sony competes against Microsoft. Dell and HP are looking for ways to add their own flavor to their branded machines. 

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Business Week ran an interesting story recently about the activities within HP. 

HP's "customer experience group"—formed nine months ago and headed by vice-president Susie Wee, a former director in the company's research labs—is developing software that can complement Microsoft's Windows operating system to make it accessible to more users. Wee's team is tackling touchscreen technology and software that lets users circumvent Vista to watch movies or view photos, as well as transferring ideas from HP's Halo videoconferencing system to mass-market products. "Our customers are looking for insanely simple technology where they don't have to fight with the technology to get the task done," says Phil McKinney, chief technology officer in HP's personal systems group. "For us, it's about innovating on top of Vista."

 It went on to say that:

Others in HP's PC division are exploring the possibility of building an HP operating system for mainstream desktop and notebook computers based on the open-source Linux system, which competes with Windows, say people familiar with the company's plans. The goals may be to make HP less dependent on new releases of Windows, and to strengthen HP's hand against Apple, which has gained market share with computers that boast innovative features and inspire a loyal following of users. 

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This points to the inevitable tension about the roles of different entities in an ecosystem over time. During 1995-2005, Microsoft and Intel orchestrated the ecosystem and others played supporting complementary roles.  Dell and HP were happy to ride the wave of network effects enjoyed by the Windows platform--acting as 'branded resellers' of Wintel machines (assembled through Asian contract manufacturers).  Now, that Vista has received rather lukewarm support, they are examining ways to create differentiation on top of Vista.  If that differentiation sticks, then they can run Linux or any other variant. If that differentiation is marginal, they are consigned to be branded resellers within the Windows ecosystem. 

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Networks are dynamic and roles continually shift and evolve. Examining alternative trajectories of network evolution is key to crafting winning strategies for the network era.

HP + EDS = A Leading Global IT Services Player?

Now that Microsoft has withdrawn the $40 plus billion offer to buy Yahoo, we hear about another acquisition in the tech space. HP is supposedly in talks to buy EDS for about $13 billion. EDS shares jumped 28% to give it a market capitalization of over $12 billion today. On the face of it (and assuming that HP actually consummates the deal without much prolonged proxy battle), this is a great coup for HP and its chief, Mark Hurd. HP has been slowly gaining on IBM but has been lagging in the services segment. In fact, HP's services was mostly wrapping services around its products--far different from global IT services companies such as IBM, Accenture, Tata Consulting Services, Infosys and Wipro.
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How should we think about this corporate combination? If it is purely gaining scale on the established model of outsourcing, this may not do much for HP. The domestic, local outsourcing model (i.e., shifting employees to service providers to reap benefits of specialization and economies of scale) is giving way to delivering services on a global footprint. Local outsourcing model is too expensive and the corporate buyers know it too well.

So, this is more than gaining high-margin customers that EDS currently service. What Mark Hurd needs to do is to use this acquisition such that HP + EDS becomes a leading global IT services player. I was half-expecting EDS to be acquired by TCS, Infosys or Wipro to expand their traditional Indian roots. But they do not have the same level of market capitalization as HP. Infosys and Wipro are capitalized at around $25 B and @20 B respectively. Now that HP (capitalized around $115 B) seems to be closing in on the deal, it will be interesting to see if the combined entity simply continues the old outsourcing model or whether Hurd is able to innovate a new form of global services that combines different types of skills and competencies on a global basis. Given Hurd's penchant for ruthless efficiency, I expect this to be driving HP's globalization plans.


Hurd seems to be remaking HP the way Lou Gerstner transformed IBM in the 1990s.