Will mobile innovation be the undoing of Microsoft, perhaps Intel? (Part 1 of 2)

by mcampbell on July 25, 2012

“Microsoft Corp reported its first quarterly loss as a public company on Thursday as it took a previously announced hit for writing down the value of its ailing online unit, but held up better than expected in the face of stagnant computer sales.” (Rigby, 2012)


The Innovator’s Dilemma is a theory that the markets of large established firms are vulnerable to being overtaken by emergent firms offering radical solutions (called disruptive innovations). Once these disruptive innovations are introduced, it is exceedingly difficult for the established firm to be able to adapt to the change, and the firm may find itself relegated to high end niche markets or obliterated. Microsoft may be the next victim.

Microsoft has already demonstrated their weakness to innovations outside their normal business space, from its competition with Palm for the PDAs (it failed), to its smart phone attempts (it failed), to its tablets (it failed). These markets have grown and Microsoft has been unable to make any true headway. What’s more, it is always a late entry. If the best indicator of future performance is past performance, the new phone offering (Windows 8 and Metro) will fail, and possibly irritate their existing customers with the new interface (or at least condition them to mobile interfaces such as iOS or Android).

Mobile devices can already perform many of the functions that formerly required a PC (or equivalent). This includes email, web browsing, and running software applications. As these devices increase in capability, and with the expansion of cloud computing, the most complex PC tasks will start to become available to mobile users.  Mobile devices also have more future possibilities than the PC because of their inherent flexibility; the technology is cheaper, smaller, more portable, more convenient, and when an external power sources is not available, it has less drain on batteries.

Microsoft has been dependent on PC for their core business, and they have been extremely successful … maintaining near monopolistic dominance; however, the profit margins in mobile technology are smaller and the value chain is different. The intrusion of this upstart technology will not only reduce their revenue, but their influence. Their corporate culture will not allow them to share space with equals or superiors, so they will begin to fail in their PCs business while they fail to be adopted in the mobile market.

As the eruption of mobile technology is a dominant force driving cloud computing, the demand for servers should increase, especially in emerging super economies like China. Because these higher end markets have higher profitability, and Microsoft is well established in enterprise management systems, it is likely that the business model will force an emphasis away from personal computers and into servers. As predicted by the Innovator’s Dilemma, Microsoft will be driven into higher and higher end niches while mobile technology erodes their traditional consumer business from underneath.

There is a mutual dependence between Intel and Microsoft, and as Intel experiences pressure from mobile chips it will be forced into servers along with Microsoft.


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