I find your comment interesting, however I do not agree that "Pushing a business model that commoditizes hardware, rather than software" is compelling. Google is already doing that, so Microsoft doesn't need to sell Windows 7 to achieve this goal.
I also wonder if your statement that "If Microsoft doesn't compete, fiercely, in both mobile and web fate will end up being very similar to both General Motors' and DEC." I agree that it is in danger of irrelevance, but I am not convinced that Windows 7 is the right way to compete in mobile. I can't think of anything better, but that doesn't mean that Windows 7 is the right thing to do.
I am reminded of the politician's fallacy:
"We must do something. This is something. Therefore we must do it." But doing the wrong thing is worse than doing nothing at all.
The best thing to do would be for them to disrupt themselves. Apple does that. Historically Microsoft has shied away from "canabalizing its existing businesses". Netdocs is a famous example. It's much better to own the disruptions rather than allow your competitors to do it. If someone at Microsoft can invent disruptive technology then someone outside Microsoft can do the same thing. It's better for Microsoft to get that money then Apple or Google.
Accomplishing that, however, would require a cultural revolution within the company. I would argue that they should have groups inside Microsoft dedicated to continuously disrupting their existing businesses. That's the only way they can stay in front of people like Apple or Google. That would effectively convert "disruptive innovation" into "sustaining innovation".
Sustaining innovation favors the incumbent. You could also look at it as a form of "meta-disruption", as it would disrupt the act of disruption.
Is "Windows Mobile 7" the best response? Perhaps not. The ideal response would be to disrupt the smartphone market all together. You could see the purchase of Skype providing potential for this (whether or not that's their intention is a separate question). Producing a "carrier free smartphone" would be a good example. That's not easy to do. It requires ubiquitous access to free internet services. It would take a long time. There are high fixed costs. There may be better options.
I think Windows Mobile 7 makes sense as an interim step. It provides a battle ground to impeded progress while they gear up for the real fight. Think of it like the Allied North African campaign during WWII.
The best thing to do would be for them to disrupt themselves. Apple does that.
When has Apple done that? Apple has never had a market until the iPod that was large enough to be cannibalized. But they've never actually cannibalized the iPod/iPhone/iPad market.
Now pushing webapps over their appstore would be cannibalizing iOS. But simply shipping improved products isn't cannibalizing.
The iPhone doesn't disrupt the iPod. It's a more expensive, more powerful item with broader reach. It would be like saying the PS3 disrupts the PS2.
One might argue that the iPad disrupts the Mac business, but to be disrupted you must command a market. The Mac doesn't. The iPad in its second quarter outsold the Mac (while the Mac sales grew). The iPad may disrupt the Windows or PC market, but not the Mac market.
In general what you're describing is not how disruptive products work. Disruptive products cannibalize profits in the medium-term with cheaper alternatives, but in the long-term win out. The iPhone and iPad don't qualify.
But the iPad is disruptive.
You don't have to dominate a market to be disrupted. You only need to be upset by a "not as good, but more convenient" low margin alternative. That is the iPad.
No,the market share is important. Why? Because what's key in a disruptive technology is that it creates a situation where you have a hard decision to make. The reason it is the innovator's DILEMMA is that the company realizes that if this disruptive product suceeds they probably, in the medium-term, lose a lot of money. But its necessary for long-term survival, but doesn't guarantee it.
The iPad is a no-brainer. If it does well then Apple does really well. There's no dilemma. It has good margins and out the gate better sales than the Mac. No one at Apple stomped their fist on a table and said, "If the iPad does well, that may spell the end of this company! We can't afford to do this ipad Steve, it's not in our best interest." No one can make that argument.
With disruptive technologies you can make that argument. In fact the argument is typically so compelling that it wins.
1) The iPad is not a no-brainer. Far from it. Apple is a public company, with billions of dollars of revenue and many short-term focused investors it needs to satisfy. The same pressures of "profit maximizing resource allocation" apply to Apple that apply to Microsoft. If apple sells iPads entirely at the expense of Macs, it could go out of business. Someone very well could have made the argument that it would destroy the company.
2) Disruption is about building "more convenient" but "not as good" innovations that target low margin segments of the market. It's not about the % of the market that the largest incumbent holds. You can disrupt an industry with 9 players with 10% of the market just as easily as you can disrupt an industry with 1 player with 90% of the market. For Google to sell netbooks is a no-brainer (they don't disrupt any of Google's existing businesses). For Apple to sell iPads is gutsy.
Your point (1) is wrong. From 2010, before the iPad:
"A report in the Wall Street Journal notes that in the 2010 Apple fiscal first quarter, which ended Dec. 26, iPhone and related product revenues came to $5.6 billion, 36 percent of Apple’s revenue total. That compares with $4.45 billion for total computers and $3.39 billion for iPods. The iPhone, clearly, is largely responsible for doubling Apple’s sales over the past three years. Even though computer sales are up sharply at Apple, iPod sales have been roughly flat over the same period.
The associated increase in gross profit margin is even more impressive. The iPhone carries higher margins than do other Apple products, so the gross revenue of the company has increased from 31 percent to 48 percent over that same three-year period. "
Apple only made 33% of their revenue from their computers. And even moreso, as noted in that article, the iPhone carried much higher margins than their other products. I don't think its any stretch to believe that margins on the iPad are similarly large.
IOW, even if the iPad cannibalized all of their Mac sales, they were on solid ground, because its clear their revenue and margin growth was not the Mac, but the iPhone and eventually the iPad. It was obvious that iOS was their key platform, not OSX. Nothing is a sure shot in business, but this was about as easy a call as it gets.
On (2) we were explicitly not talking about disrupting an industry. We were talking about Apple disrupting itself.
I don't think it was at all gutsy for Apple to sell iPads. The market math just made too much sense. WebApps are gutsy for Apple now, since it undermines their huge app ecosystem. New devices that build on their iOS platform are not gutsy nor disruptive (unless they do something like give iOS away for free and make money just from the appstore).
Disrupt Office with what? A cheaper, but significantly higher margin version of Office that has broader appeal? That's not disruptive. That's a smart business move.
Or is it a free web version of Office that has no current revenue model? Also, what is the trajectory of Office revenue? Is it a growth area or stable? In the case of OSX it is a MUCH lower percentage of revenue as compared to 3 years earlier.
Disruption requires the cannibalizing product to impact the bottom line negatively. The iPad has had the complete opposite effect from the first day.
If MS shipped a product that on day 1 resulted in higher earnings than Office, that's not disruptive.
But I think we can agree to disagree about if the iPad was a bold gutsy move. I think it was a natural progression from the iPhone and cannibalizing a product that couldn't really grow even during the Vista years wasn't really a concern. You think otherwise.
According to Clayton Christensen's model of disruptive innovation, once disruptors push all incumbents out of a low margin market segment, the prices in the lower market segment plummet, and margins drop toward zero. The only way for the disruptor to continue profiting is to follow the incumbent up the market, applying their disruptive invocation to more profitable market segments. The cycle continues until the incumbent is pushed out of the market entirely.
Detroit's moves away from low-margin compact cars is what enabled Toyota to make Lexus.
Microsoft moving away from mobile phones would have a similar effect. It's essential for their survival.
Also, Google's business model doesn't commoditize hardware, it commoditizes software. Google's business model is to monetize data, not software. They are trying to do to Microsoft and Apple what Microsoft did to hardware manufactures.
I follow the structure of your argument. Going with autos, Detroit's move away from low-margin compact cars enabled Toyota to make Lexus. Let's grant this as true. But does it imply that sticking with low-margin compact cars would have protected their market for luxury cars? What if--like Windows 7 so far--they failed to make significant headway with the low-margin compact cars? What if they lost time and management attention trying to do so much?
Or what if someone else--Hyundai or Kia, for example--beat them hollow on low-margin cars while Toyota moved upmarket and beat them on luxury cars anyways?
This is why I'm not sure that Windows 7 is the right move. I can see they are in trouble in mobile, but I can't see that Windows 7 is the right thing to do. It would be nice if they could gain a dominant position, but a lot of things would be nice.
Andy Grove understood this idea very well, I think before Clayton even wrote this book, but they later became very good friends. Andy Grove once that that "if we lose the low-end today, we lose the high-end tomorrow."
That's actually how disruptive innovation works. The disruptor comes from the low-end and it slowly moves into higher levels, up market. That's why ARM is so dangerous to Intel for example, but Paul Otellini doesn't seem to understand this theory as well as Andy Grove.
Grove wrote a book on this called "Only the Paranoid Survive". Terrible title. Good book.
He points out that if you own the low end, you gain huge economies of scale. You pay for your foundries and R&D with cheap low-end parts, but only barely. Nobody can compete, because they don't want your rubbish margins. But then you can put huge margins on your high-end products by using cost-cutting technology and your huge efficient factories to lower your costs.
It doesn't work in all industries. But it's great in technology, as efficiences of scale do exist (what's the maringal cost of 1 more chip, or one more CD-ROM?)
> I am not convinced that Windows 7 is the right way to compete in mobile. I can't think of anything better, but that doesn't mean that Windows 7 is the right thing to do.
How about paying a dividend in excess of earnings, so that the investors can take the money earned at Microsoft over the years and invest it in Google or HTC instead?
I also wonder if your statement that "If Microsoft doesn't compete, fiercely, in both mobile and web fate will end up being very similar to both General Motors' and DEC." I agree that it is in danger of irrelevance, but I am not convinced that Windows 7 is the right way to compete in mobile. I can't think of anything better, but that doesn't mean that Windows 7 is the right thing to do.
I am reminded of the politician's fallacy:
"We must do something. This is something. Therefore we must do it." But doing the wrong thing is worse than doing nothing at all.