What Microsoft Got Right: The First 30 Years

Microsoft is one of the most successful companies in modern history. It revolutionized the way companies use IT to do business and helped elevate the importance of IT in terms of corporate strategy.

Since its inception 33 years ago, Microsoft has made many mistakes both large and small. But it also got a few big things very, very right. As the post-Gates era takes shape, we look back on five things Microsoft got right and what they teach us.

Software Is King

Microsoft was among the first companies to see software as the business, not just an add-on sale to hardware. It acted on that insight in a big way.

Before the PC, all software tended to be custom, written for and tied to a specific hardware platform. For example, IBM software ran only on IBM machines and Hewlett-Packard (HP) software on HP machines. Bill Gates and Microsoft untethered software from hardware, instead creating software that could run on almost any brand of PC. This simple idea dramatically expanded the market for Microsoft software, enabling it to drive prices down by spreading development cost across millions of potential customers (compared to only thousands for traditional hardware-specific programs). It was a risky idea because it put Microsoft at odds with hardware giants like IBM. But Microsoft bet big and won, helping spark a Big Bang of inexpensive, prepackaged, off-the-shelf software and the modern software industry.

Lesson: Question the rules. Change the game.

Outsource Your Sales Force

How did Microsoft grow so big so fast? In large part it was the company’s partner strategy. Today, more than 90% of Microsoft products are sold by somebody else. OEM partners such as HP sell most copies of Windows and large reseller partners such as CompuCom sell most copies of Microsoft’s enterprise software, including Exchange, SQL Server, and SharePoint. In fact, you’d have a difficult time trying to call Microsoft to order a product directly.

Bill Gates knew that a direct sales force could never scale quickly enough to match his ambitions. Instead, he built an army of partner companies and gave them the right to sell Microsoft software. Because Microsoft didn’t field its own direct sales force, these partners came to trust that Microsoft wouldn’t encroach upon their businesses and steal away their best customers. This partner community, from small mom-and-pop computer shops to the world’s largest systems integrators, enabled the company to achieve unprecedented sales volumes with astounding speed without having to spend huge sums to build a direct sales force and consulting practice.

Lesson: Create win-win partner situations to grow fast.

Technology for the Masses

Microsoft has consistently figured out how to make powerful technologies once exclusive to big business—business intelligence, intranets, systems management—accessible to smaller IT shops at a fraction of the cost. In the process, Microsoft has created and captured new customers en masse.

Microsoft’s formula? Build support for its server technologies into the Windows operating system and market low-cost server applications that leverage that support. In many ways, Microsoft is the Home Depot of IT software: it offers sophisticated server technologies IT departments can customize and deploy themselves at a price point that’s hard to resist.

Lesson: Don’t neglect your customers’ most important need: a better price.

Developers, Developers, Developers!

More than any other software company, Microsoft courts developers, lavishing them with powerful tools, free training, and low-cost support. Visual Basic enabled a whole generation of developers to create custom line-of-business applications on top of Office. Now Visual Studio is the tool of choice for serious corporate developers. Microsoft has been rewarded for this generosity by a torrent of third-party applications and custom solutions that have made Windows indispensable on the corporate desktop. Robust developer support for products such as the Office suite and SQL Server has also helped Microsoft products to flourish where competitors once had the field to themselves.

Lesson: Make it easy for partners to customize your product.

The Long View

Microsoft has always taken the long view. It routinely invests billions of dollars in expansive ventures such as Xbox, MSN, and Dynamics with an eye to far-off opportunities and threats. Once engaged, it very rarely retreats. The company will sustain breathtaking losses to gain a foothold in a market (think of Xbox) and endure hits to its image to change a business model that isn’t working (think of MSN). Microsoft continually looks inward and studies how it can improve itself. But despite some long false starts and outright failures (LAN Manager, Windows Mobile, and WebTV), Microsoft has assembled the industry’s largest portfolio of enterprise and consumer software—the least of which generates revenue in the hundreds of millions of dollars.