Although it's easy to attribute much of Microsoft's success over the years to shady business practices, the company wasn't always in a position of power, and its early success was an interesting mix of savvy maneuvering and sheer luck. Throughout Microsoft's history, the company has dodged bullet after bullet as potential competitors have come and gone, never to be heard from again. The company's current legal dispute with the federal government is seemingly the most dangerous threat the company has faced, but I see signs that Microsoft will land on its feet yet again, thanks to good, old-fashioned luck.
First, let's look at the history. As many of you already know, Microsoft's current dominance is due largely to IBM's decision in the early 1980s to include Microsoft's MS-DOS OS with IBM's first PC—and the combination was wildly successful. Many people wonder how IBM could have so easily handed over the "keys to the kingdom"—and basically ceded control of the PC OS market to Microsoft. But that isn't what happened. As is often the case with such legends, the real story of Microsoft's success with MS-DOS is less dramatic. At the time, Microsoft was simply a software development tools company, offering versions of its BASIC, Fortran, Assembly language, and other programming languages to one and all. In its bid to retain IBM's business for the fledgling PC, Microsoft agreed to supply the company with DOS only after a deal between IBM and Digital Research fell through. The decision was just a smart business move.
But IBM didn't cede the market to Microsoft—far from it. Uncertain whether the upstart company would be able to supply a viable PC OS, IBM made sure that two other OS offerings—CPM/86 and a Pascal-based system—were available at launch. Microsoft did what it could to make its OS the software platform of choice, but given the CP/M-oriented nature of the day, it's rather amazing that Microsoft's OS won out. The rest, of course, is history: MS-DOS and its Windows successors are the best-selling software titles of all time, and Microsoft's OS business is now responsible for 45 percent of its revenues. And the success of DOS/Windows as a platform has given the company massive growth in supporting areas as well: Microsoft's Office suite of productivity applications makes even more money for the company than does Windows.
Luck aided Microsoft at other times in its history. In the late 1980s, Apple Computer, with its beautiful and simple Macintosh, was in a position to dominate the PC industry. Third-party hardware developers were waiting in the wings, hoping to license the Mac, and even Microsoft prompted Apple to make a run for it (at the time, Microsoft was making a killing from Mac software and Windows wasn't going anywhere). But bolstered by the insanely great margins on its hardware, John Sculley's Apple surrendered long-term viability for short-term profits and became an also-ran. When Microsoft effectively halted MS-DOS development in the early 1990s, Digital Research released its DR-DOS alternative, which sold amazingly well. DR-DOS's success prompted Microsoft to announce MS-DOS 5.0, which the company couldn't deliver for more than a year. And when Microsoft released MS-DOS 6.0, Stac Electronics sued the company, charging Microsoft with violating its patent for disk compression. Stac won a staggering sum in court, but Microsoft settled with Stac, whose technology then appeared in the final version of Microsoft's command line system, MS-DOS 6.22.
Novell bought WordPerfect Corporation (for a huge sum) and Borland's Quattro Pro—hoping to offer a Microsoft Office alternative. After a year, however, Novell sold WordPerfect, losing millions. Lotus SmartSuite, meanwhile, which essentially invented the Office suite concept, watched its market share erode because of a Microsoft bundle that offered little true integration. Both Lotus and WordPerfect, dominant in the DOS era, lost a technical "bet." As Microsoft put all of its resources into Windows, Lotus and WordPerfect continued to push their DOS products while they worked on OS/2-based successors. As OS/2 floundered in the market, so did third-party developers, and Lotus and WordPerfect never fully recovered. By the time Lotus 1-2-3 and WordPerfect showed up with versions for Windows, Microsoft Excel and Word were entrenched.
In recent times, Netscape's implosion and inability to create elegant software that you could upgrade easily did more to harm Netscape than Microsoft ever did. And threats such as Java and the Network Computer never materialized because of those products' limitations, not because of Microsoft's perceived response. Going forward, Microsoft is vulnerable in two key areas: 1) Linux, and 2) the Department of Justice's (DOJ's) antitrust case against the company. Given these vulnerabilities, Microsoft's future might look dim. But much past evidence suggests that Microsoft could be victorious—more because of competitors' mistakes than Microsoft's actions. In a following article, I'll examine those mistakes and consider how Microsoft might escape unscathed because of them.