Brian Prentice

I was pouring over the transcripts of Steve Ballmer’s interview at the Churchill Club last week when I ran across this answer in relation to Microsoft’s position in the mobile phone market:

“…if you go out five or ten years, this year there are about 125 million smart phones sold. I think if you go out five years, it’s going to be a billion smart phones. Ten years, someplace in there, it will be a billion smart phones sold. If it’s a billion smart phones sold, will it be primarily guys who build proprietary hardware/software stacks, or will it be primarily a world in which you have software and hardware innovation that proceeds separately?”

He goes on to say:

“That means, in a sense, I think, the Linux mobile guys, us, Symbian, maybe Google with Android as they get into the game, we’re kind of battling for the big part of the market. That doesn’t mean Apple and RIM won’t make a lot of money and have great success, but they’re probably restricted in some senses to a certain maximum. Even Nokia, the biggest guy in the phone market, only has, what, 33-34, something like that, percent of the market. And if you want to reach more people than that, you sort of have to separate the hardware and the software issue.”

Now, I’ll leave the commentary on the relative strengths and weaknesses of Windows Mobile vs. Symbian vs. iPhone vs. Android and hardware+software coupling to my colleagues Ken Dulaney, Robin Simpson and Nick Jones. But Ballmer’s comments really got me thinking about the merit of building market share as a focal point for a modern IT business model.

Naturally, from a financial perspective, I’d much rather be getting $10 for 200 items sold then $100 for ten items sold providing I can keep my costs roughly the same. But market share in the IT industry isn’t just about revenue. It’s about ubiquity. And ubiquity has been gold. It creates de-facto standards and attracts 3rd party developers whose solutions further attract users to my technology. If I get the equation right not only do I get a self-perpetuating franchise but I can even get away with charging $15 or $20 without any meaningful loss of market share.

Or so the system has gone.

But nowadays, market share also gets you something else – a big giant open source target on your back. Should my technology hegemony threaten others’ business they can act either in a unilateral or multilateral fashion to target my revenue with an open source alternative. Even better, if those other organizations can make their offerings more attractive by making my offering worthless then open source provides them the means to achieve that objective.

The mobile operating system space is merely the latest example of this trend. Android and Symbian don’t pose a market share challenge to Microsoft – they pose a revenue challenge to everyone in the segment. That $100 for ten items looks a lot better then making $0 for 200!

Commercializing ubiquity has become a very tricky game. As a result the emerging focus has been to move away from an obsession over market share leadership and towards market smarts leadership. Organizations focused on market smarts seem to be asking themselves three consistent questions:

• Have I innovated in a way that matters to my customer and is noticeably different to what’s available through open source options?
• Have I shielded my innovation from the commoditizing pull of open source by obtaining patent protection?
• How do I use open source to benefit from community participation while also perpetuating the core value proposition of my business model?

Getting these questions right may have little impact on overall market share but it sure does wonders to product margins. And in the current market that might just be the smartest move of all.