You’ve seen them many times. The software company that starts off like a bullet, racing at the high tech equivalent of 0-60 mph in 4 seconds. These companies come out of nowhere, and are an immediate factor in their market.
There are many examples, in nearly every major market segment. Netscape comes to mind as one of the more famous. Peregrine Systems here in San Diego was another example. I’m sure every reader can think of many more.
So what is the difference between one of these “shooting stars” and the Microsoft’s, Hewlett Packard’s and Dells of the world? After all, in the beginning, they pretty much all look alike on the surface.
I believe if you look under the covers, however, there are real differences. It’s the difference between a fast rising house of cards, and a mansion built to withstand Hurricane Katrina. You start with a solid foundation when you go to build something lasting—which of course a house of cards is lacking completely.
Now most of the time, people don’t intentionally set out to build a house of cards. It usually happens when the stress and strain of the marketplace gets in the way. That’s when management begins taking short cuts. It’s often an incremental thing. Cutting expenses in that key project, so that you can appease Wall Street by making next quarter’s numbers. Accepting just a slightly less than normal quality level, to allow that behind-schedule new product to finally get out the door. Hiring just a few less developers or engineers than was in the plan for this year. Reducing the corporate brand-supporting Ad buy—a ten percent reduction won’t hurt—will it?
It’s all just meant to be temporary—but cutting corners has a way of becoming permanent by default, especially when there is brutal competition, or extreme pressure from Wall Street.
Winners Maintain the Foundation
Every great company has a foundation that it is built on—and the care and maintenance of that foundation is a non-negotiable expense for long-term success. With HP, it was historically the R&D budget and reliability of its products. The R&D monster was always fed, because product innovation was what fueled the company’s growth for over 60 years. And for a long time, reliability was never compromised. The product might end up being a little too costly, a little too big, a little too heavy or late to market—but it was built like a tank, and the products were unquestioned leaders in reliability. Indeed, I would say that the HP brand stood for strong reliability for many years. Now that the company has lost it’s way a bit, I don’t know that the HP brand still has the same reliability cache’ which it had in past years. Still it’s a quality brand mind you, just not quite the same. The maniacal devotion to quality just isn’t quite there anymore. And it’s funny that just about the only thing that has been truly “invented” at HP in recent years is the word “Invent” being placed alongside the logo in advertising during the Carly Fiorina era. Ironically, even with the dearth of HP engineering invention in recent years, R&D expenses remained high relative to competitors—the worst of both worlds.
Microsoft was built on monopoly power and paranoia. And I don’t mean that in a negative sense. Depending upon your perspective, Microsoft either shrewdly created the DOS/Windows software monopoly position it has enjoyed for years—or luckily fell into it. I suspect it was a bit of both, but no matter. Since realizing their position, Microsoft has never lost their aggressiveness, or failed to leverage their monopoly platform. Some believe they’ve overstepped at times, and I have always felt that they left a lot of money on the table rolling things into the Operating System—essentially given it away for free. But they’ve reacted every time there has been a threat—Apple, WordPerfect, Novell, Lotus, Netscape—the list of road-kill is quite long. Some of their moves may have been overkill, as their paranoia seems to present every software company in the world as a potential threat to their dominance. But they never took their eye off the ball, building and protecting their OS and Office franchise with as much firepower as required, for as long as it took. Even though Microsofties are very pleasant to deal with on an individual basis, the company as a whole can seem predatory in its behavior. They believe it’s their birthright to sell every last line of software code in the world. I believe that this aggressive corporate culture is a big part of the foundation that Microsoft is built upon. It has let them survive and thrive since the infancy of the PC until today—alive and well for the fight with the latest pretender to their throne—Google. But more on Google later.
We’ve examined a couple of long time winners—now let’s look at one of those classic shooting stars—Netscape.
Formula for Losing
It looked like the next big thing—the Microsoft if the Internet Age. They were to be the successor to the throne. They were the darlings of High Tech, and Microsoft was shaking in its boots. It was one of those times where Bill, Steve and the Microsoft gang got caught napping a bit. They didn’t see the Tsunami of the Internet coming at them—until it was almost too late. But the boys from Redmond recovered in time, and put all hands on deck until they finally smothered the upstart Netscape. So what happened to Netscape?
Well, in large part, Microsoft happened to Netscape. Microsoft put together a Herculean effort to change their company to compete in the Internet Age. They stumbled a bit a first, giving Netscape some breathing room. Early versions of Internet Explorer, like some much software out of Microsoft, were not very good. They were almost laughable, to be frank. But Microsoft is the Terminator of the software business. It just keeps throwing people and money at the problem, and version after version comes out until they get it right. Unfortunately, Netscape had never built a solid foundation to combat this onslaught, in my opinion. The browser was what they were about. But an early decision to use the browser as the “razor” in that classic razor/blades marketing strategy turned ultimately into a flaw. Intending to make their money on Servers, I feel that they neglected to keep the Navigator Browser as the market leader. It was a tough battle, with Microsoft bundling IE into the OS. But they needed to find a way, through innovation, to keep Navigator in the forefront of the browser wars. It was a tough task—no doubt. But once that browser franchise began to erode, their reason for existence began to fade away. It was really their foundation—which began to crack when it wasn’t built to last. The other mistake, which compounded their plight, was fighting a multi-front war with Microsoft—much like Hitler in WWII. They didn’t have the corporate infrastructure or resources, but chose to compete head to head in nearly every market Microsoft was in. Novell made the same mistake, both companies buying some second-rate competitors to Microsoft, just to get in the game. Instead, they should have focused their resources where they had a lead, and a chance to win—Netscape in Browsers, Novell in Networking. History tells us that the upstart must focus and win decisively in that first battlefield, before they move on. Or they almost certainly will be crushed.
How Will Google Do?
Which brings us back to Google. They are the current technology darling and high flier, next big thing, and the latest threat to Microsoft. Once again, Microsoft treated this threat as real. We’re at that stage where it appears Google is winning, although improvements to BING and the new mobile OS could stem the tide at least a bit. But I remember when Novell and Netscape were in front, too. It didn’t last. And I see some parallels emerging—Google is diversifying rapidly, competing with Microsoft, Apple and others on many fronts. Eric Schmidt, the former CEO of Google, is a veteran of mammoth battles with Microsoft from his time at both Sun and Novell. You wonder what was learned in the past. I’m not suggesting that Google is going away anytime soon. But their main web-based search advertising platform show signs of slowing, and they haven’t really been able to create any other significant revenue streams, despite many acquisitions and much effort.
What do you think—what are the most important elements in the making of a great high tech company? Post a comment with your thoughts.