Companies & Industries

Bill Taylor on The Challenge of Change


What Yahoo! and Microsoft can learn from IBM about staying relevant

Posted on Game Changer: February 11, 2008 10:44 AM

Microsoft’s $45 billion bid for Yahoo has inspired all sorts of analysis and debate about the changing economics of software, the future of Silicon Valley, and the all-encompassing power of Google. But the more I reflect on the deal, the more I think about what it means for business as whole. My conclusion: It is yet another reminder (as if we needed it) about how hard it is to take a company that reached great heights in one era of technology, markets, and economic models—and to sustain it as a force for leadership, innovation, and prosperity in the next era.

Yahoo, after all, was created by Jerry Yang and David Filo back in 1995—less than 15 years ago!—and I remember all the celebratory articles on the occasion of its tenth anniversary. Michael S. Malone, the dean of Silicon Valley scribes, wrote this just a few years back: "Yahoo makes more money and has more patents, services, and users than Google; it even has its own yodel. Given its recent blowout financial results and the expected continued explosion of online advertising, Yahoo may very well be the most valuable business on the Web."

Those words seemed perfectly plausible back in March 2005. Today, Yahoo seems like yesterday's news, at least when it comes to setting the agenda for the Internet Economy. Even Microsoft—or, perhaps, especially Microsoft—feels like old news. Sure, it's got a huge share of well-established markets and billions of dollars of cash. But does anyone fear Microsoft the way they used to, or believe that Microsoft's labs hold the keys to how we will communicate and interact in the future?

Compared to most companies of its size and wealth, Microsoft is still a youngster—it hasn't even celebrated its 35th birthday! But for years now, the software giant has exhibited signs of old age. It has been cautious, conservative, slow to react to new trends, reluctant to part with established ways of doing things.

Robert X. Cringley, the celebrated technology pundit and creator of NerdTV, offered this take on the deal: "What we have here at Microsoft is a generational transition like we've seen in many other industries as leading companies go from robber barons to industry stalwarts. Look at railroads and oil in U.S. business history and you'll see the same thing. And just as in those industries, [Bill] Gates and [Steve] Ballmer know that Microsoft's style has to change with the times, but even more importantly to them Microsoft has to change because they simply lack confidence that any successor can do as well at playing hardball as Gates and Ballmer did."

What's the reward for changing the game in an industry? A few years of outsized growth, profits, and shareholder wealth—until some other upstart comes along and changes the game all over again. This is the defining business narrative of our times. And it's getting more urgent all the time. The half-life of business success keeps getting shorter—and fewer and fewer companies seems capable of "crossing the chasm" from one era of technology and business models to the next.

Which, by the way, makes all the more remarkable what's been going on thousands of miles away from Silicon Valley and Seattle, at the headquarters of IBM. The ongoing transformation of IBM—first under Lou Gerstner, now under Sam Palmisano—may be one of the least-appreciated business stories of the last decade. IBM is three years away from celebrating its 100th birthday; it qualifies as a corporate senior citizen. And yet, despite endless waves of disruptive technology, the company is still growing, generating big profits, and creating shareholder wealth. IBM stock was at $60 per share in July 2002, a few months after CEO Palmisano took over. Five years later, the stock was at $117 per share.

But more to the point, despite the explosion of the Internet, Web services, open-source software, and countless other mind-bending transformations, IBM still feels relevant. Not dominant, by any means, but relevant—a 96-year old company with nearly $100 billion in sales, 350,000 employees, and a track record of resilience and reinvention.

So as we marvel at (or mourn over) Yahoo's fall from grace, and debate Microsoft's grab for Internet share, let's not forget that one company, with remarkably little fanfare, has shown that you can change with the times—time and time again.

In a future post, I'll look more closely at IBM's resilience. In the meantime, ask yourself: Do you have a game plan for continuing to change the game?

Provided by Harvard Business—Where Leaders Get Their Edge

Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus