By Dave Chase, Altus Alliance
Fred Wilson once commented on whether technical innovation or business model innovation was more powerful for a startup. He cites examples of both being drivers.
I’d argue that business model innovation is more durable. Mark Leslie (a rare CEO who took a tech company from $0 to over $1B in sales) has commented on the fact that execution risk for most startups has shifted from technology to go-to-market as development tools have gotten so much better. Consequently, technical innovation has become much easier to replicate. One only has to look at a couple of the most sustained successes in tech over the last few decades to see how busines model innovation has been very durable — IBM and Microsoft. Having competitive (though not always the best) products was clearly important but not sufficient to drive their long-term success. For IBM, it has been their world class sales & marketing machine that allowed them to weather their darkest days yet still have over $60B in revenue. With Microsoft, they’ve had two monster successes that boiled down to 6 letters encapsulating their business models that each changed the rules of the game in their market space and proved to be very durable.
Windows — The 6 critical letters were O-E-M and I-S-V. There’s little doubt that OEM’ing Windows to hardware companies rather than taking the path to maximize short-term profits as Apple did in the 80’s and 90’s by controlling both the OS and the hardware was instrumental in their success. Secondly, their investment in and success with ISV relations dwarfed any of their competitors. The byproduct was many customers had no choice but to go with Windows as that was the only platform that their applications ran on top of. While Microsoft certainly has taken a beating for the issues that come along with a platform that has infinite combinations of software and hardware vs. a limited set with the Mac, they have happily taking that beating as they ran to the bank with trainloads of cash.
Office — It boils down to 6 letters again — b-u-n-d-l-e. Initially they just did “marketecture” (initially there was no integration between Word, Excel & Powerpoint) by slapping three products in the same box for a combined much lower price than buying WordPerfect, Lotus 123 and Harvard Graphics. Over time, the products became more integrated but they changed the discussion within I.T. shops from individual productivity apps to having an Office suite. Their competitors were slow to move and then got severe indigestion while acquiring companies to compete with office. There were 6 other letters that were also critical in Office’s success — S-e-l-e-c-t (another business model innovation). Select was the name of their volume licensing program with enterprises that made Office very difficult to unseat.
Each of those 6 letters for Windows and Office have probably generated more combined profits than any other product over their lifespan in the computer industry. [24×7]
Dave Chase is a frequent contributor to Seattle24x7. Since the 80’s, he has spent his career launching various new businesses initially with “BigCos” (Accenture & Microsoft) & then with startups. Whether working with clients, chasing after his children, or careening down slopes/trails on mountains, Dave loves velocity as much in his personal life as in his professional life.
