Why Microsoft competes with its customers

Why Microsoft competes with its customers

Microsoft's recent launch of its HomeAdvisor real estate buyer service in the US raises the same questions that came up when it entered the online travel, magazine and automobile businesses: does it make sense for any company to compete so directly with its customers? Why is Microsoft doing this?

Microsoft has two main motivations. First, the business world has entered a once-in-a-lifetime phase in which industries are being entirely reinvented online. Surely, every company should take a hard look at how it can best get in on the ground floor of these revolutionary developments. That's especially true for Microsoft, which has mountains of cash and needs strong growth to keep its stockholders happy.

Competitive posture

More prosaically, even if Microsoft's Web businesses achieve only modest success, they nevertheless play an important role in pushing the market forward. They generate enormous publicity, they demonstrate concepts, and they force existing players to respond.

Of course, the downside is that competing with your customers can damage your efforts in other areas. When Microsoft sits down to negotiate with the airlines, banks or various media and cable TV companies, its competitive posture on the Web can never be totally out of mind. IBM, and CEO Lou Gerstner in particular, has been pounding away on that issue for a couple of years now, so far without much visible effect.

Fear of jeopardising existing relationships is sufficient to prevent most companies from recklessly stepping on customers' toes. But Microsoft is so dominant in so many software markets that the company apparently believes it can get away with almost anything. After all, will large numbers of enterprises really shift to Apple or ignore Windows NT? No.

But if Microsoft is seen as a competitor of a large corporate customer, that might tip the customer/competitor balance against Exchange, SQL Server or Internet Explorer. That's the main risk Microsoft is taking.

Given the wide range of its Web business initiatives, however, it's obvious Microsoft believes the benefits far outweigh the risks. Thus, the only real issue now is how successful those efforts are likely to be. This boils down to one main, but complex, question: Will Microsoft's unique combination of money, talent, technical capability and marketing power overcome its essentially hostile, nonorganic entry into these markets?

Powerful interests

It'll be a close call. Microsoft brings a great deal to the table, but it will run into fierce and powerful interests. The national organisations for travel, real estate, stock trading, credit cards, television and other sectors are unlikely to roll over as easily as some of Microsoft's software competitors.

Perhaps more importantly, in contrast to the software industry, these Web services businesses aren't winner-take-all competitions. This means that even if Microsoft is successful, it probably won't be able to establish any new online monopolies. With Web services, there's no customer lock-in or proprietary APIs to leverage.

Thus, the net effect of Microsoft's Web business strategy should be to accelerate overall online competition.

When Microsoft enters any new form of electronic business, it serves as a wake-up call for existing players.

It might even generate enough of a backlash to help limit Microsoft's existing software monopolies - or at least diminish future ones. It all sounds pretty good to me.

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