This article is in collaboration with Microsoft and this blog is hosted on Microsoft Azure.
One of Steve Jobs’ most famous quote was “If you don’t cannibalize yourself, someone else will“. In line with this thought, he released the iPhone knowing full well that it might cannibalize the sales of the iPod or the iPad knowing that it might cannibalize the sales of their Macbooks.
I thought this was a really powerful thought but a thought that is harder to execute than it looks for various reasons. The biggest reason of all though is fear. The fear that we might cannibalize an already profitable revenue stream for a new one that has an unknown outcome.
With this in mind I looked around for other tech giants apart from Apple that have cannibalized themselves and I managed to find it in 3 companies.
- Netflix
Netflix first started in 1997 as a mail order DVD business. It did away with the traditional pay-per-rental model and introduced a monthly subscription concept in 1999 that allowed customers unlimited rentals with no due dates or late fees.
The company had done well and in 2000 offered itself for sale to DVD rental giant Blockbuster for $50 million. An offer that Blockbuster declined.
By 25th February 2007, Netflix had grown to deliver its billionth DVD. With the emergence of the internet, Netflix foresaw the opening of a new horizon for its DVD rental business that came in the form of online video streaming.
The company in 2008 decided to pursue the streaming business model and by 2010 had reached a five-year deal worth almost a billion dollars to stream films from major Hollywood studios Paramount Pictures, Lions Gate Entertainment and MGM,
Today we all know Netflix not as a mail order DVD rental company, but as the largest video streaming service for movies and TV shows.
Netflix today has 75 million subscribers globally. The effect on its DVD rental business can be seen from this one chart from their company report.
In retrospect though, Netflix cannibalized its DVD rental business but is as a whole a much larger business (with a market cap of $40 billion) than it was before. It’s once largest competitor in the DVD rental business Blockbuster is on the other hand closing stores at a fast rate.
2. Tencent
In December 2010, Tencent was already one of the most valuable internet companies in the world. Its QQ messenger had almost 650 million users making it the largest platforms in the world at the time. By 2011, the CEO and founder Pony Ma had launched what might potentially kill its own successful messenger app.
QQ messenger was the equivalent of MSN messenger at the time. It was a staple for all China internet users but there was one problem: It was desktop based in a world that was moving to mobile. Tencent quickly launched WeChat, its mobile focused chat app with so much success that it eventually led to internal struggles between the two apps for resources.
By 2015, WeChat had grown to the number one chat app in China with over 600 million monthly active users. The interesting part about this story is that QQ’s growth didn’t decline. It reported over 829 million active QQ accounts in 2015.
3. Microsoft
It’s amazing to think that Microsoft that was founded in 1975 will be 41 years old this year. The company Bill Gates has founded today has annual revenues of over $95 billion and a market cap of almost $400 billion, making it still one of the largest tech companies in the world.
Microsoft is a software company and for most of its life it sold software the old fashion way. By selling individual licenses tied to a computer or a device. For the first time in its 41 year history though, the world around it is changing to more cloud based software and Microsoft is embracing that change.
Satya Nadella became Microsoft CEO in 2014 and has since led the company to change from top to bottom. Here’s what he has done:
i) Focusing on the consumer
Satya realized that customers use products that they love so in order for people to use Microsoft products, they had to make products people would love. The result of that can be seen in Windows 10 which most tech journalists have reviewed and said it is the best Windows in a long long time. I personally use Windows 10 on my home desktop and it really feels like what you wished Windows always was.
ii) Making peace with rivals
For much of its history, Microsoft was a very competitive company. Competitive to the extent that it often saw competitors as a threat than as potential collaborators. CEO Satya brought in a different view. He believes that today’s business environment favours cooperation with rivals like Apple and Google.
Since then he has released Office for the iPad and Android devices as well as free Outlook for both of these competing platforms. To take it a step further, at a Microsoft hosted developer conference in 2014, Grant Peterson used an iPhone to showcase an iPhone document-signing app that runs on Microsoft’s cloud: Azure. (The cloud service that my blog is also hosted on now).
I love this quote from this Business Insider article on Satya.
Nadella has been making the point that using another company’s technology, even in public, shouldn’t matter. He wants Microsoft to build software, development tools, and cloud services that work with all the popular devices, iOS and Android included.
That’s a big shift in Microsoft’s culture, and a smart one.
iii) Microsoft changed the revenue model of Office 365 from selling licenses per device to selling them per user
Coming back to the point of this article, this is where I believe Microsoft risks cannibalizing itself. Microsoft’s old business model was to sell software licenses tied to devices. Considering that we live in a world where we no longer have just one device but many (our PCs, laptops, tablets and phones) it would be a great opportunity for Microsoft to sell more licenses right?
That’s not what Microsoft has done with Office 365. Focusing again on the user experience, Microsoft knows that users want to pay one fee for software and use it on whatever device they want to. They know that if a user has Office 365 on his laptop but not on his phone, he doesn’t have a full Office 365 experience. He has a very fragmented and limited one that limits productivity.
I’m not sure how this gamble will pay off for Microsoft as a company when it comes to profitability but as a user I love it. I’ve been on Office 365 now for a month and it’s great to be able to use Office on my Windows 10 PC/Surface, my MacBook and even my Huawei Android phone. I am now able to do things I never could do before, like edit a Powerpoint on my phone slide while on the way to a meeting.
I think we’re seeing a whole new Microsoft now and I’m looking forward to the products this new Microsoft will introduce to us in the coming years.
Timothy Tiah – Co-Founder of Colony, Kuala Lumpur Co-Working Space