Why the Borg’s copycat business model no longer works

So I had brunch with Larry yesterday and he showed up carrying the Sunday Times and we were talking about the huge and incredibly embarrassing photo (above) of Ballmer that they ran on the front of their business cover. It wasn’t quite as bad as the one of Ballmer with his tongue sticking out, but come on — you know from the photo that this isn’t a friendly story. So then we started wondering how the Borg has become such a joke — and Larry had an interesting theory.

The online version also shows that photo, but for the real impact you have to get the print edition. Just imagine — it’s Sunday morning, you just woke up, you’re having your coffee and flipping through the sections, there’s some nice travel piece about bicycling in Vermont and then — bam! Jesus fucking Christ! Suddenly there’s this huge photo of Ballmer looking like a doofus and you think, wait a minute, this guy runs a company? A really big important company? Like, one that does billions of dollars in sales each year? You’ve got to be kidding.

I mean, come on. This shit doesn’t happen by accident. If they sent out a photographer, he had to have shot a few hundred frames. If they just bought stock art, well, they had thousands to choose from. You think they just happened to choose the one where he looks like the dude from Sling Blade? He looks like he’s daydreaming, and not about business — he looks like he’s daydreaming about pie. Or donuts. Or maybe some of them french-fried potaters.

As I wrote Saturday night, it’s clear the Times wanted to do a hatchet job on Fester and that they just didn’t have the balls to come right out and do it. (For more on that, see my next post.) Then Larry was saying how ten years ago the Times wouldn’t have dared write an article like this, and we both started wondering out loud how the Borg had become such a total fucking joke.

How did all these billions of dollars slip through Ballmer’s fingers? How did Microsoft find itself a leader in nothing and playing catch-up on every front — in MP3 players, on the cloud, in search. How did Amazon roll out S3 and not Microsoft? How did Google control the search market? How did Apple take over online music retailing and MP3 hardware? How did Microsoft let that market for smartphones get away from them? How is it that everything about Microsoft’s business is backward looking? This is the real problem they have now. They’re fighting wars that are already over. They’re investing huge energy into defending things they already control, like Windows. As they do this, as they put so much effort into lost causes like search (Bing v. Google) they keep missing out on new things. So their problems just keep getting bigger and bigger, like a snowball rolling down a hill.

Larry’s like, Look, the Borg has never been out ahead on anything. The difference is, they used to be able to catch up. They’ve always been copiers. That’s been their business model from the start. Let others go out and create a market, then copy what they’ve done, sell it for less, and crush them. They got into the OS business by stealing DOS from someone else. They created Windows by stealing Apple’s ideas. They got into desktop apps by copying Lotus and WordPerfect and then having the bright idea to bundle all the stuff into one cheapo suite. They pulled the trick off again with Internet Explorer versus Netscape, in the late 90s — that was the last time they were able to let someone get out ahead of them and then pivot and copy and give it away free and take them over. By the end of the 90s they had broken through 50% market share in browsers, and that was it for Netscape.

But what happened after that? This is what we were wondering. Larry says two things happened. One, the Borg got slower. They got big and fat and bureaucratic. Two, everyone else got faster. Look at Google. They got so big so quickly that there was no way for the Borg to claw them back. Same for all these other Web businesses. Amazon, Ebay, Skype, Facebook, Twitter. They came out of nowhere, and what they were doing was free, so the Borg couldn’t just do a crappy knockoff and sell it for less. They were up against free — the Web companies were using their own strategy against them.

Another difference was the customer set. In the old days you were talking about selling to corporate America, and consumers just followed suit — remember the marketing shit about how you want the same stuff at home that you have at the office? Selling to corporates was easy. You have lots of levers you can pull to make them do what you want and pay what you tell them to. We all had a playbook — we just studied what IBM had been doing for decades, and we copied them. (Larry stopped and chuckled a little bit when he said this, and for a moment just stared out the window with this glazed, happy expression on his face.) The Borg’s other customer set were hardware OEMs. Again, easy to coerce, and no messy dealing with end users. Perfect.

But on the Web things changed — now you were selling to consumers, and the Borg had no way to coerce or control consumers the way they could coerce corporate accounts.

So what happens next? Larry says he’d like to think the Borg might just go away, but they’re way too big and have way too much cash for that. So, they stick around. But the Times is right — they’re now pretty much irrelevant, just like IBM, which is ironic and perhaps fitting since IBM was always the Borg’s ultimate role model. Microsoft has followed the same narrative arc — it’s like a business version of Groundhog Day. Do not be surprised if they find a way to get into services, and build a business around milking their installed base. They’ll call it a cloud business, but really it will mean either building data centers and renting out cycles, or just running customer data centers for them.

The other thing we were wondering is, How the fuck did Microsoft let this story happen to them? How did they not see this coming?

Larry said no way would any reporter from the Times get close to him and then be allowed to do a story like that — they know if they pull that shit they wind up in the trunk of a car someplace. Same for me. The only one at the Times who ever gets within 50 feet of me is Pogue, and that’s only because, as he says, he’s not a reporter, he’s a stenographer a fanboy an entertainer. And even then we throw a shitload of flacks at him up front and find out what questions he’s going to ask, what his story is going to look like, who else he’s talking to, when it will run, who’s his editor, what kind of “fact-checking” will we be allowed to, and so on. And we throw in plenty of hints to make it clear what will happen to him if he steps out of line. Hey, it’s called “media relations.” Have you heard of it?

(Doppelganger art work by FSJ Art Director Jason.)