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Example

Microsoft used a portfolio of experiments to fight the operating system wars

ExploreIn 1987 it became clear to Microsoft that the future of their DOS Operating System for personal computers was limited. Eric D. Beinhocker describes how Microsoft used a portfolio of strategic experiments to determine its next generation Operating System. Rather than comprehensively analyze the situation and decide on the one best option, Microsoft recognized that the technological context at that time was too fluid to be certain of the best way to go. IBM, AT&T, Xerox, Sun Microsystems, Hewlett-Packard, Digital Equipment Corporation and Apple were all actively developing alternatives either individually or as part of a consortium. At the time, many of these companies had much greater market power and larger R&D budgets than Microsoft.

According to Beinhocker, Microsoft decided to explore six options through strategic experiments:

  • Continue to invest in MS-DOS, its existing operating system.
  • Strike an agreement to joint venture with IBM on IBM’s OS/2 operating system project.
  • Commence discussions with various companies about joint venturing on the development of a Unix based operating system.
  • Fast-track access to a Unix based alternative by acquiring a major share holding in Santa Cruz Operation, the largest seller of personal computer based Unix systems at the time.
  • Continue to invest in the development of applications software, especially for the Apple MacIntosh. This provided a hedge against an Apple operating system becoming dominant.
  • Invest heavily in the development of its own Windows operating system.

As we know now, the Windows experiment was the successful one but its success was by no means assured at the time. As Beinhocker summarizes:

Rather than try to predict the future, Gates created a population of competing Business Plans within Microsoft that mirrored the evolutionary competition going on outside in the marketplace. Microsoft thus was able to evolve its way into the future. Eventually, each of the other initiatives were killed off or scaled down, and Windows was amplified to become the focus of the company’s operating-system efforts. At the time, Gates was heavily criticized for this portfolio approach. Journalists cried that Microsoft had no strategy and was confused and adrift; they wondered when Gates was going to make up his mind. Likewise, it was difficult for those working inside the company to find themselves competing directly with their colleagues down the hall.