For Microsoft MSFT +0.54% chief Steve Ballmer, on the other hand, the answer isn’t as clear.
The iPhone has been out for about half a decade, and the iPad is going on its fifth generation. Yet Microsoft has refrained from building a flagship version of its Office software for those devices, as well as for the other big mobile platform, Android.
Instead, Microsoft is keeping its biggest profit engine tied to its own platforms, Windows 8 and Windows Phone. The company has an incentive to do this: The exclusivity ensures that it’s able to keep selling licenses of Windows 8 and Windows Phone devices.
The problem is that the PC market is starting to shrink in favor of tablets and smartphones, and both of those segments are currently dominated by Apple and Google GOOG +0.28%. Microsoft is doing its best to get in with both Windows Phones and the Surface tablet, but if that doesn’t work it’s running the risk of sacrificing the growth of Office by keeping the umbilical cord with Windows intact.
This isn’t too different from a situation Apple found itself in just a half-decade ago. It had the iPod and the Mac, but found itself cannibalizing both of those as sales of the iPhone and the iPad increased. Cook’s stance on the matter is clear: If we don’t do it, someone else will. He reiterated it during his keynote at the Goldman Sachs Technology and Internet Conference yesterday:
The first time I got asked about cannibalization was when Apple came out with the iBook. Portables went on to be three quarters or more percentage of the Mac and Mac did an all-time record last year. If you look at when we came out with iPad, what did people worry about: they worried, oh my God you’re going to kill the Mac. The cannibalization question raises its head a lot. The truth is, we really don’t think about it that much. Our basic belief is, if we don’t cannibalize, someone else will. In the case of iPad particularly, I would argue that the Windows PC market is huge and there’s a lot more there to cannibalize then there is of Mac, or of iPad. I think if a company ever begins to use cannibalization as a primary or even a major factor of what products to go to, it’s the beginning of the end.
Making matters worse for Microsoft, the competition with Office isn’t far behind. Some of the best workplace software coming out today is cross-platform: Box Salesforce.com CRM -0.03% and YouSendIt find themselves on just about every device. (Even Box is on the newest BlackBerrys, regardless of whether that’s going to work out.)
We don’t know yet if the Surface, Microsoft’s shot at a tablet, will reach iPad-level critical mass. Early reviews for the Surface and the Surface Pro don’t suggest that’ll happen any time soon.
Strip away everything else Microsoft has aside from Office and Windows, and you’ll see two different needs — the need to keep PCs selling to issue more Windows 8 licenses, and the need to get Office into the hands of every business professional. Those goals might not be mutually exclusive, but there’s a good chance one will come at the cost of the other.
To be fair, Microsoft does seem more open to cannibalization in its other business lines. For example, it has server software, but it also has Azure, a cloud computing platform that could easily chew up market share when it comes to data centers and servers.
But look at Apple and Microsoft: Apple overtook Microsoft to become the largest technology company in the world, while Microsoft is still trying to find its way to getting back on top. Cannibalization worked out for Cook.
Microsoft has been dragging its feet for quite a while when it comes to bringing Office to mobile. Will cannibalization work for Ballmer? We won’t know if they don’t actually try.
