Today, Microsoft finally unveiled (with a generous definition of "unveiled") its Office 2010 product, along with the anticipated web 'components'. What do we think? First, at Zoho, we have always considered Microsoft to be the one to beat. To paraphrase Gates himself, we have always viewed both Zoho and Google as stealing Microsoft's customer base. After all, they own 90+% of the office market today, which is why we have always viewed the real competition (for both Zoho and Google) to be Microsoft. Let me make it clear that we do respect Microsoft, and we believe Office 2010 and its web components are going to be really, really good.
Having said that, what we see here is more evidence of Microsoft's strategic muddle: how far do they want to go with their online offerings? They clearly recognize the risk - almost $16 billion in revenue (and almost the same in gross profit) is involved here, one of the largest franchises of software. We do not believe the $16 billion in revenue/profit is defensible, but our guess is that Steve Ballmer does not want to be the CEO who gives that news to shareholders. Not when the other multi-billion franchise, is also looking a bit wobbly.
Therein lies the fundamental dilemma for Microsoft and the fundamental opportunity for players like Zoho. What are considered crown jewels on the desktop today will become features to be integrated into a variety of business applications, and not on fat clients, but on the web. That is how we see the mail & office suite evolving - they become so nicely componentized (and affordable!) that they get integrated into every business application. A lot of what we are working on at Zoho involves such integration effort, both within the Zoho suite as well as with a lot of partners.
One word captures this process: commoditization. Commoditization of their core cash cows is what Microsoft fears most, yet, we believe it is utterly unavoidable. Today's announcement does nothing to address that basic fact.
Sridhar
Office 2010 and Microsoft's Strategic Muddle
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drewhyde - Interesting comment. I did some consulting for Novell in 1995 - showed them how they could (and should) become the gateway to the Internet for business. Back then, the easy Internet connectivity we have today was still a dream. But Novell didn't get it - they were busy arguing why they should keep the Novell stack, rather than go with the Internet standard. They got stuck, and they lost their one-time market dominance.By the time Novell bought WordPerfect, WP had already lost its way. And the merger made absolutely no business sense. But I agree, it was sad to see so many people put out of work because management was inept. Two companies that had commanding market share both went down the tubes. For WP, I think the founders just wanted out - they still had viable products, and could have continued the battle. Novell just didn't have a clue (IMO). And that's why comparing MS to Novell is so frightening. When the IT propeller heads take over, and they forget that the *real* consumer is the person with their fingers on the keyboard, it's too late.I agree, Sridhar seems to be one of the few rational hi-tech managers.
drewhyde - Interesting comment. I did some consulting for Novell in 1995 - showed them how they could (and should) become the gateway to the Internet for business. Back then, the easy Internet connectivity we have today was still a dream. But Novell didn't get it - they were busy arguing why they should keep the Novell stack, rather than go with the Internet standard. They got stuck, and they lost their one-time market dominance.By the time Novell bought WordPerfect, WP had already lost its way. And the merger made absolutely no business sense. But I agree, it was sad to see so many people put out of work because management was inept. Two companies that had commanding market share both went down the tubes. For WP, I think the founders just wanted out - they still had viable products, and could have continued the battle. Novell just didn't have a clue (IMO). And that's why comparing MS to Novell is so frightening. When the IT propeller heads take over, and they forget that the *real* consumer is the person with their fingers on the keyboard, it's too late.I agree, Sridhar seems to be one of the few rational hi-tech managers.
Walter,I worked for both WordPerfect and Novell in international sales and marketing (separately, not when they merged) back in the day, and had front-row seats for their non-responses to commoditization. Like Microsoft has now, they had some very, very good products, but they "drank their own kool-aid" and believed in the Novell and WordPerfect "ways" and lost sight that they were only making tools - not methods of enlightenment and salvation. What was sad to watch were the employees that laid off in the company and the surrounding towns, many spending literally years struggling to regain their livelihoods, while the founders built 50,000 square foot homes nearby. The difference in a "defensible" business model based on recognizing the commodity nature of the product, this displacement may not happen, but the company can enjoy outstanding success and extraordinary profitability. Oh wait, that is Zoho.
Walter,I worked for both WordPerfect and Novell in international sales and marketing (separately, not when they merged) back in the day, and had front-row seats for their non-responses to commoditization. Like Microsoft has now, they had some very, very good products, but they "drank their own kool-aid" and believed in the Novell and WordPerfect "ways" and lost sight that they were only making tools - not methods of enlightenment and salvation. What was sad to watch were the employees that laid off in the company and the surrounding towns, many spending literally years struggling to regain their livelihoods, while the founders built 50,000 square foot homes nearby. The difference in a "defensible" business model based on recognizing the commodity nature of the product, this displacement may not happen, but the company can enjoy outstanding success and extraordinary profitability. Oh wait, that is Zoho.
I think we need to look at this announcement in the context of the history of this market. The lead Microsoft maintains in office productivity software is not unprecedented. Just to name a few: 1-2-3 had almost 90% of the spreadsheet market, as did VisiCalc before that. WordStar had equal dominance, as did dBASE. And WordPerfect, and MultiMate...In the beginning, software was not a commodity. We spent a LOT of time talking about that and about how it might become commoditized. But it didn't - until Windows shipped (first viable version, anyway).One clear message is that the leadership position is fickle - even for MS, in my opinion. 1-2-3 killed VisiCalc in less than 6 months! It took Google much longer to dominate the search business, which was commoditized before they took it over – and interestingly, with Bing, it may once again hit the commodity stage.
Sridhar - keep 'em coming. MS is not infallible, and with a largely commoditized *user interface*, there is no longer any real pressure from the end users to stick with MS. Plus, MS is making it MUCH easier to switch by changing their interface arbitrarily. This shows a clear disdain for users, since they could easily have had a switchable interface in Office 2007. They made it much easier for the 4,000 people who don't know Word to use it, at the expense of the installed base, which often can't figure out what they use to do with ease.If MS doesn't figure out that they have to bring the unwashed masses with them, they are doomed - at least long-term. (And why am I still fighting with bugs that have been in Office products for over 10 years?)Sridhar, have you also considered widely decentralized processing? Put Zoho apps on customer networks. Less data moving over the Internet that way, but it would still offer a thin client solution.One last thing: I tried some of the MS cloud stuff. I desperately wanted to use OneNote (great product) and have it sync to my laptop. Could never make it work, and I'm far from a novice. So I switched to Evernote, and it was a snap. Share files between computers? MyDropBox.com. Yes MS offers these capabilities, but they are so hard to install and maintain. MS doesn't understand that they can't only make products that IT can install – this makes them susceptible to the same takeover they did on everyone else. Where's the old Novel Netware now - they also had close to 100% market share on a product they kept intentionally obtuse to protect their VARs. MS is doing the same thing, and it is not defensible. Somewhere, there's another Bill Gates waiting to do the same thing to him he did to all the earlier pioneers.
I think we need to look at this announcement in the context of the history of this market. The lead Microsoft maintains in office productivity software is not unprecedented. Just to name a few: 1-2-3 had almost 90% of the spreadsheet market, as did VisiCalc before that. WordStar had equal dominance, as did dBASE. And WordPerfect, and MultiMate...In the beginning, software was not a commodity. We spent a LOT of time talking about that and about how it might become commoditized. But it didn't - until Windows shipped (first viable version, anyway).One clear message is that the leadership position is fickle - even for MS, in my opinion. 1-2-3 killed VisiCalc in less than 6 months! It took Google much longer to dominate the search business, which was commoditized before they took it over – and interestingly, with Bing, it may once again hit the commodity stage.
Sridhar - keep 'em coming. MS is not infallible, and with a largely commoditized *user interface*, there is no longer any real pressure from the end users to stick with MS. Plus, MS is making it MUCH easier to switch by changing their interface arbitrarily. This shows a clear disdain for users, since they could easily have had a switchable interface in Office 2007. They made it much easier for the 4,000 people who don't know Word to use it, at the expense of the installed base, which often can't figure out what they use to do with ease.If MS doesn't figure out that they have to bring the unwashed masses with them, they are doomed - at least long-term. (And why am I still fighting with bugs that have been in Office products for over 10 years?)Sridhar, have you also considered widely decentralized processing? Put Zoho apps on customer networks. Less data moving over the Internet that way, but it would still offer a thin client solution.One last thing: I tried some of the MS cloud stuff. I desperately wanted to use OneNote (great product) and have it sync to my laptop. Could never make it work, and I'm far from a novice. So I switched to Evernote, and it was a snap. Share files between computers? MyDropBox.com. Yes MS offers these capabilities, but they are so hard to install and maintain. MS doesn't understand that they can't only make products that IT can install – this makes them susceptible to the same takeover they did on everyone else. Where's the old Novel Netware now - they also had close to 100% market share on a product they kept intentionally obtuse to protect their VARs. MS is doing the same thing, and it is not defensible. Somewhere, there's another Bill Gates waiting to do the same thing to him he did to all the earlier pioneers.
Ken, the stakes are far from symmetrical here. All of Zoho is less than 350 people. Just do the math on what kind of market opportunity should excite us and what kind strategic flexibility it confers on us.So what's new here? Haven't they faced this kind of situation before? I contend that the emergence of the web as an open platform is what's fundamentally new. Everything from the iPhone to the Tivo (current generation), from the CrunchPad to ChromeOS (things to come) don't need Windows - and they are all very viable, in the sense that their success won't depend on whether or not they bundled Windows. That creates a very new competitive dynamic, which makes extracting monopoly rent very difficult.
Ken, the stakes are far from symmetrical here. All of Zoho is less than 350 people. Just do the math on what kind of market opportunity should excite us and what kind strategic flexibility it confers on us.So what's new here? Haven't they faced this kind of situation before? I contend that the emergence of the web as an open platform is what's fundamentally new. Everything from the iPhone to the Tivo (current generation), from the CrunchPad to ChromeOS (things to come) don't need Windows - and they are all very viable, in the sense that their success won't depend on whether or not they bundled Windows. That creates a very new competitive dynamic, which makes extracting monopoly rent very difficult.
It looks like MS is increasingly getting it. Every business person today knows about disruptive technologies and canibalizing their industry before a competitor does. I think you underestimate the extent to which MS understands this.I think MS is actually looking for something that looks a lot like Google Apps. Let consumers have the product for free. Enterprises will pay $50-$100 per head per year for a desktop AND cloud solution.This is where MS is tough to beat. They can sell the cloud and desktop at rates just slightly more than Google will charge for their suite. In the short-term MS will lose revenue, but they'll lose a lot less than they would if they just gave up the whole market.And I think if you look carefully this is exactly what MS has been planning for the past few years. I spoke with Ray Ozzie just before his going to MS and he pretty much said that this is what MS needed to do. And with him replacing Bill Gates and the company largely focused on cloud computing, I think their following his advice.I think the worst case scenario for MS is a ridiculously bloody battle that goes on for at least a decade -- maybe two, with no clear winners. The worst case for Zoho and Google Apps is that Office 2010 makes you irrelevant in a year.
It looks like MS is increasingly getting it. Every business person today knows about disruptive technologies and canibalizing their industry before a competitor does. I think you underestimate the extent to which MS understands this.I think MS is actually looking for something that looks a lot like Google Apps. Let consumers have the product for free. Enterprises will pay $50-$100 per head per year for a desktop AND cloud solution.This is where MS is tough to beat. They can sell the cloud and desktop at rates just slightly more than Google will charge for their suite. In the short-term MS will lose revenue, but they'll lose a lot less than they would if they just gave up the whole market.And I think if you look carefully this is exactly what MS has been planning for the past few years. I spoke with Ray Ozzie just before his going to MS and he pretty much said that this is what MS needed to do. And with him replacing Bill Gates and the company largely focused on cloud computing, I think their following his advice.I think the worst case scenario for MS is a ridiculously bloody battle that goes on for at least a decade -- maybe two, with no clear winners. The worst case for Zoho and Google Apps is that Office 2010 makes you irrelevant in a year.
Thanks Sridhar,I hoped that would be your response. One of the biggest problems in modern entitlement capitalism, and tech even more so, is the casting of competition in moral terms. It is whiny and unbecoming, speaks of an epic failure of imagination, and is altogether to commonplace and accepted. It is refreshing to hear someone say they respect their competitors, and follow by competing on delivered/perceived value terms - especially in commodities markets.The key difficulty for any industry, and any company, going through the commoditization process is overcoming a deep conceit regarding their place in the world. They are no longer unique, they must actually add value to compete, and whatever competitor adds the most value for the best price wins, regardless of previous momentum. (If other competitors haven't "bribed the judges" or cheated. Even then they usually win in the end - widely known in Zoho circles as Sridhar's Karma.)
Thanks Sridhar,I hoped that would be your response. One of the biggest problems in modern entitlement capitalism, and tech even more so, is the casting of competition in moral terms. It is whiny and unbecoming, speaks of an epic failure of imagination, and is altogether to commonplace and accepted. It is refreshing to hear someone say they respect their competitors, and follow by competing on delivered/perceived value terms - especially in commodities markets.The key difficulty for any industry, and any company, going through the commoditization process is overcoming a deep conceit regarding their place in the world. They are no longer unique, they must actually add value to compete, and whatever competitor adds the most value for the best price wins, regardless of previous momentum. (If other competitors haven't "bribed the judges" or cheated. Even then they usually win in the end - widely known in Zoho circles as Sridhar's Karma.)
Looks pretty feature packed to me, check out some of scobles videos!
Looks pretty feature packed to me, check out some of scobles videos!
Jonathan, if you notice, we already *assume* that Microsoft will have a strong online offering, to complement their desktop version. My real point is that the battle is not just technology here, but in retaining their out-of-this-world operating margin, which comes directly from businesses world-wide. We get the impression that those businesses, whose own margins are squeezed, aren't too happy to feed Microsoft's margin.Retaining market control is the way Microsoft has tackled this problem, but the web fundamentally erodes that control.Drew,
My point is a combination of the first two (unmaintainable margins, and definitely not worth so much). I will reserve moral terms for real moral issues - I often post about economics in moral terms. This is about competition and value proposition, not morality. Microsoft is a competitor we respect, not a moral enemy.Jack, our entire strategy is to offer a full-fledged business applications suite that gives the business customer the comfort level that we are here to stay.Sridhar
Jonathan, if you notice, we already *assume* that Microsoft will have a strong online offering, to complement their desktop version. My real point is that the battle is not just technology here, but in retaining their out-of-this-world operating margin, which comes directly from businesses world-wide. We get the impression that those businesses, whose own margins are squeezed, aren't too happy to feed Microsoft's margin.Retaining market control is the way Microsoft has tackled this problem, but the web fundamentally erodes that control.Drew,
My point is a combination of the first two (unmaintainable margins, and definitely not worth so much). I will reserve moral terms for real moral issues - I often post about economics in moral terms. This is about competition and value proposition, not morality. Microsoft is a competitor we respect, not a moral enemy.Jack, our entire strategy is to offer a full-fledged business applications suite that gives the business customer the comfort level that we are here to stay.Sridhar
Sridhar my take belowhttp://tinyurl.com/lhgyqxBTW - you should take out a full page WSJ ad which says"They say Microsoft 2010 will legitimize SaaS on the desktop. The bastards say welcome!"
Sridhar my take belowhttp://tinyurl.com/lhgyqxBTW - you should take out a full page WSJ ad which says"They say Microsoft 2010 will legitimize SaaS on the desktop. The bastards say welcome!"
I think Microsoft's announcement today was quite clear. MS is not ceding the office web-apps to Google without a good fight. MS recognizes this and from the demos, they look better than what Google or Zoho has to offer. The cash cow you speak of are mainly coming from enterprises, an area that Google is trying to make inroads into.You underestimate the power of inertia for Office apps. People stick to what they are familiar with and what 90% of the world uses, esp. when it's not fundamentally broken. I like to root for Zoho, but for word, excel, powerpoint functionality, there's really no competition with Microsoft. It's also good that Zoho has been branching out from those big 3 Office apps and getting into things like Creator, etc.
I think Microsoft's announcement today was quite clear. MS is not ceding the office web-apps to Google without a good fight. MS recognizes this and from the demos, they look better than what Google or Zoho has to offer. The cash cow you speak of are mainly coming from enterprises, an area that Google is trying to make inroads into.You underestimate the power of inertia for Office apps. People stick to what they are familiar with and what 90% of the world uses, esp. when it's not fundamentally broken. I like to root for Zoho, but for word, excel, powerpoint functionality, there's really no competition with Microsoft. It's also good that Zoho has been branching out from those big 3 Office apps and getting into things like Creator, etc.
You hit the nail on the head, commoditzation is the fear that our competitors have also. It has made them completely irrational, and ultimately will make them beatable.The other thing you mention is that the revenue/profit level Microsoft enjoys is not defensible. I would be very interested in hearing whether this is a business case - unmaintainable - , a value case - not worth that much - , or a moral case - theft. All three can be effectively made, but which are you making?Thanks for your always stimulating ideas,Drew
You hit the nail on the head, commoditzation is the fear that our competitors have also. It has made them completely irrational, and ultimately will make them beatable.The other thing you mention is that the revenue/profit level Microsoft enjoys is not defensible. I would be very interested in hearing whether this is a business case - unmaintainable - , a value case - not worth that much - , or a moral case - theft. All three can be effectively made, but which are you making?Thanks for your always stimulating ideas,Drew
Loud words for sure... but it smells of insecurity to me.An integrated office suite experience between desktop and web, on-premise and cloud, all backed up by a great user experience and a brand that is synonymous with office productivity - I would guess this is all becoming a nightmare for Zoho.Not sure why the author thinks this is a "strategic muddle" for Zoho, when this is a brilliant move by Microsoft. Microsoft can start easing its users to the web if that's what they want, but it will be Microsoft's web, and not Zoho or Google's web...
Loud words for sure... but it smells of insecurity to me.An integrated office suite experience between desktop and web, on-premise and cloud, all backed up by a great user experience and a brand that is synonymous with office productivity - I would guess this is all becoming a nightmare for Zoho.Not sure why the author thinks this is a "strategic muddle" for Zoho, when this is a brilliant move by Microsoft. Microsoft can start easing its users to the web if that's what they want, but it will be Microsoft's web, and not Zoho or Google's web...