• Jeff Matthews

The Tyranny of a Monopoly


Anybody else out there finding it interesting how people—even really smart people—can be cowed into not asking an obvious question for fear of looking stupid?

Generally speaking, the larger the room and the bigger the crowd, the less inclined people are to ask a question, particularly an obvious question that begs to be asked. (Smaller rooms packed with people tend to avoid this syndrome, probably because by definition there is greater interest in the subject matter, which means there is a controversy that those in attendance want to address; hence, lots of questions on people’s minds and no standing on ceremony to ask them.)

As to the reason why the more obvious the question, the less inclined people are to ask it, I suppose it goes back to First Grade: everybody thinks everybody else in the room already knows the answer, and nobody wants to look stupid in a room full of their peers.

This is a shame because the more obvious the question, the more likely it is everybody else is itching to ask it.

I’ve witnessed this syndrome at “back-to-school night” and at church board meetings, and I’ve seen it in a room full of high-testosterone Wall Street types who are not usually cowed by anybody.

And now I’ve witnessed it in the Wall Street Journal—specifically a recent interview with Microsoft CEO Steve Ballmer.

Here’s the first question of the interview:

WSJ: As more storage and other PC functions are offered on the Web, it raises questions over the value full-blown Windows software will continue to have in the future. How do you factor that in with future Windows development? That’s a pretty good question.

After all, the heart of Microsoft’s dilemma, as I see it, is and always has been that every product Microsoft has ever made, with the single exception of Xbox, has been designed to further the use of the Microsoft operating system.

This is not a criticism, but a statement of fact. Hey, if I had a monopoly like Microsoft has a monopoly, I’d want to push it onto every device possible, too.

Problem is, this kind of product development doesn’t work. It is, I think, no coincidence that Xbox has been Microsoft’s only non-desktop-monopoly related success, for reasons the Wall Street Journal reporter was getting at in that question, which is why it’s a good one.

And this is Mr. Ballmer’s response, which I include from start to finish:

Mr. Ballmer: The best chapter in “Good to Great” by Jim Collins should be reread, and it will help explain a little bit of what I’m about to say. The chapter called “The Tyranny of Or” talks about how in great organizations, things don’t always come down to A or B. People innovate because they see the value in A and B. The innovations that will continue to come forward are the innovations that bring together [PC] client and [online] service as opposed to the sort of people who want to be provocative with a “Tyranny of Or” kind of discussion about it being A or B.

Basically everybody in the industry agrees that you’ve got to have rich clients and rich servers. There’s nobody who actually, by their actions, disagrees with that. How can I say that? Let me give you some evidence. Cell phones are going through a very distinct transformation where you’re getting more and more intelligence built into phones, despite the fact that the phones are backed up by rich services coming off the Internet. That’s an interesting data point because you can deliver a better experience with rich intelligence at the client talking to rich servers and service infrastructure on the backend. How that answered the question is beyond me.

Ballmer’s long-winded response is, however, quite instructive. For one thing, he quotes a book, “Good to Great,” which upon publication in 2001 highlighted a bunch of so-called “Great” companies based on a complicated analysis of many factors, including such vapid notions as the “Tyranny of Or” quoted by Ballmer.

One of those “Greats” so highlighted was a mortgage buyer named Fannie Mae.

Fannie Mae, as we now know, actually achieved greatness not by avoiding the “Tyranny of Or,” but mainly by avoiding the “Tyranny of Reporting Disappointing Earnings” via the “Wonder of Accounting Fraud.”

Those “great” numbers from Fannie Mae have been restated, as has the management team lauded by Collins.

Secondly, I seriously doubt anybody at Google or any of the thousands of companies working on ways to move desktop functions onto the Web—which was the heart of the Wall Street Journal reporter’s question—is wasting time reading hoary old business casebooks.

They are, rather, working on undermining everything Microsoft holds dear, most especially its monopoly on a desktop computing model fast becoming irrelevant. You might say Microsoft is subject to its own kind of tyranny: the Tyranny of a Monopoly.

So if there is a person in the world—including the reporter conducting that interview—who understands a) what Ballmer was saying in his response, b) how it addressed the question that had been asked, and c) how it helps Microsoft deal with the tyranny of a monopoly that keeps them from making truly great, useful, uncomplicated and popular products, I’d like to hear it.

I suspect, however, at least in this case, everybody already really does know the answer.

Jeff Matthews I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

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The content contained in this blog represents only the opinions of Mr. Matthews. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. The content herein is intended solely for the entertainment of the reader, and the author.

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