Microsoft's Oxygen Supply Problem

Zoho and Google both have offered free office suite for years, and today, Apple announced that their office suite will also be free across all Apple devices.

Given that Microsoft Office has long been the de-facto monopoly, none of our three companies have anything to lose in commoditizing the office suite market. That is the nice thing about facing a monopoly in an adjacent market – every player other than the monopoly would win if they get a non-zero share of a massively shrunk market. If the $20 billion market shrinks to $2 billion, we at Zoho would celebrate it, as long as we can hope to get a share of that shrunken market. In fact, competitors would win even if they don’t get any share of the shrunken market, because it denies the monopoly the ability to use its cash cow to dominate adjacent markets they do have an interest in.

That very same dynamic has played out in the operating system market already. The near-zero revenue share that competitors to Windows had meant that Google and Apple could give away their operating systems (which Apple also announced today!) and not have anything to lose. What Google achieves with the $0 ChromeOS license it charges OEMs (which costs Google exactly $0 in foregone operating system revenue) is that the OEM will now turn around and ask Microsoft for a $0 Windows license.

What OS X, iOS, Android and ChromeOS have collectively achieved is to drive Windows market share to under 25% of all client devices and yet, these alternative operating systems derive near zero revenue in and of themselves.

There is really not much Microsoft can do to fight back to stop the erosion of these core franchises. Their traditional weapons – closing the document format; tying the Office suite closer to Windows – none of these weapons work anymore. Today, for the first time in a couple of decades, Microsoft faces serious competition in Office, from competitors who, for their own reasons, all want to tear down the monopoly. Why do Apple or Google or Zoho all want to commoditize Microsoft Office? Each company has its own reason: Apple wants to add value to its world-class devices, Google wants to extend the reach of its web services, and for Zoho, the Office suite is one part of our broader work-oriented application suite. As I have argued above, underlying these different strategies is a more fundamental reason: why not tear down a market where we face a monopoly? Apple would want to stop Microsoft from being able to leverage the Office franchise and money into tablets and smart phones, Google would want to stop Microsoft from being able to pour money on Bing indefinitely and so on. Bill Gates would know what it means to “cut off the oxygen supply” – after all it was a phrase he invented while finishing off Netscape. Apple and Google recognize, just as we do at Zoho, that the $12+ billion in oxygen (aka operating income) that Microsoft Office contributes to the mothership is now extremely vulnerable.

The Windows and Office monopolies have massively incentivized the broader ecosystem to come up with business models that drive down the value of those core Microsoft franchises to near zero. This is the price Microsoft has paid with its profoundly anti-competitive tactics of the 90s – every single player in the ecosystem, from their once-slavishly-loyal OEMs to would-be competitors all want to see their market shrunk to zero. Microsoft has punished itself more than the Justice Department could ever have done.


10 Replies to Microsoft's Oxygen Supply Problem

  1. This article is funny, considering Microsoft still dominates the enterprise markets, is still the standard when it comes to productivity with Office. You, Google, and Apple aren't even hitting a lick at a snake in the enterprise markets, especially when compared to Microsoft. They dominate you.

  2. They are not two separate issues. In your example of HTML not having a private, for profit, company behind it that's all fine except HTML unto itself is useless. There is a need for a profit motivated company to go out there and use the HTML to create something people want to buy.

  3. Even HTML is a standard without any company behind it....standards and a companies tactics to keep things proprietary for private gain are 2 separate issues!

  4. Open Source has one big problem, source of income. So no where in near future Open Source OS or Office suites are going to be a mainstream competition to Microsoft. If that's the case then Linux should have took over Microsoft long time back, but it's not the case, Still Microsoft has dominance over the OS for past 3 decades. So I would say other way around time to "Cut off oxygen Supply" to all those who come up with an idea that Open Source is best way to be in Consumer/Enterprise Market.

  5. I bet, you would have posted this from a Windows laptop. And I even bet that in your company all of them are using Windows desktops/laptops. Stop being cynical.

  6. We get a corporate discount on the whole Office Suite for $15, only reason I've ever had Office software installed on my home computer - I laugh when I see it for $200 elsewhere.MS pricing is getting more out of control as time goes on. If you look at Visual Studio, the main tool to develop anything for any MS operating system, MS should be encouraging developers to use their dev tools but they divide that into a free Express version and a $300 a year to upgrade full version. The express one has a major disadvantage that you can't use any 'addons' with the software. So to get serious work done, one needs to pay $300 a year for upgrades (with an initial $500 cost to purchase the software). All other major IDEs for Androi, OSX and iOS are absolutely free and get updated often. Imagine if Apple continued to charge for XCode, you wouldn't have nearly as many apps on their phone/OS as they do now.The core difference is that Microsoft is a software company, that's how they make their money. If anything, they should learn from Red Hat or other Linux distro providers that make money off of support vs. software sales. Get your product out there as quickly and as much as you can and then make your money off of supporting that product or for specific custom features of those products.

  7. It's funny that you charge $ for your products and bash MSFT in the same breath for doing the same....
    You and your company ZOHO lose credibility and respect instantly with double standards.

  8. I can see where you are coming from, but I must warn you that you are biting the hand that feeds you.Microsoft created the market that you now can build upon. If there was no standard (monopoly as you call it), you would have a very, very tough time getting customers to use Zoho products.I remember what it was like before Microsoft gave away Excel. Lotus 1-2-3 cost $400. Ouch. Now, you can get a whole office suite of world class products for that - in a standard that businesses need.Personally, I've NEVER had MS Office installed (Excel as a freebie back in the early 1990's). Always used Lotus Smartsuite (still do, on a Windows 8 machine and runs like a champ). Yes, I also have installed Open Office and Libreoffice, now maybe Zoho. But I could not do this if Microsoft did not offer a standard for sharing documents.

  9. Strange to hear geeks from India talk about Microsoft in any way other than total worship.
    Keep up the good fight - Zoho is an excellent product worthy of the highest respect.

  10. A very insightful post. The funny thing is, Microsoft still thinks it is the biggest player in these markets and that it can shift market directions. In attempting to do so, it is alienating its current PC/Server customers. I mean, honestly, who the hell could possibly think that it is a good idea to shift Windows Server to the Metro interface?!

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