>> Amy Draves: Thanks so much for coming. My name is Amy Draves, and I'm pleased to
welcome Michael Cusumano to the Microsoft Research Visiting Speaker Series. He's here today
to discuss his book, Strategy Rules: Five Timeless Lessons from Bill Gates, Andy Grove, and
Steve Jobs, in which he examines their successes, failures and the practices and strategies they
pioneered while building their firms. Michael Cusumano is the Sloan Management Review
Distinguished Professor of Management at MIT's Sloan School of Management. He specializes
in strategy, product development and entrepreneurship in the computer software industry, as well
as others. He has published 13 books, including Staying Power, and many articles in
publications like the New York Times and the Economist. Please join me in giving him a very
warm welcome.
>> Michael Cusumano: Thank you. Do you want me to stand behind the mic, or is this fine?
No, this is amplified. Okay, so it's great to be back at Microsoft. I was here yesterday too, by
the way. So again, I would like to talk about this book, and I hope you permit me to waltz a little
bit down memory lane. So here is a photo not many of you have ever seen, but this has sat in my
office for more than 20 years. This was taken back in 1992 I think, '92 or '93, and Bill doesn't
look too happy, but we were grilling him on software development methods and strategy and all
sorts of things. You look surprised.
>>: Who are the other people?
>> Michael Cusumano: Who are the other people? Okay, well, this person is me, right? Do I
look at all similar?
>>: You've got the same shirt on.
>> Michael Cusumano: It's the same type of shirt. But I do still have that shirt in my closet,
though. Yes. So this is so old that it faded, actually. You don't see the color. That shirt was
kind of brownish. So to my right is Rick Selby, who was my coauthor for this book we did on
Microsoft, came out in 1995, Microsoft Secrets, which was really the first in-depth look at how
Microsoft worked, particularly the development methods. And at that time, almost all computer
science departments or software engineering departments were teaching traditional waterfallish
kinds of methods, and I was studying the history of software engineering. I'd written a book on
software factories. Then I wanted to see, what do PC makers do, and what does Microsoft do?
So one of my students who worked for IBM got me an entry into Microsoft, and I came and met
the fellow to the left of Bill Gates, who is David Moore. Dave Moore at that time was the
Director of Development at Microsoft. He then left, worked with Paul Allen for a while, and
then came back, so he's back at Microsoft now for quite a few years. Anyway, I was very
impressed with what Microsoft was doing. I figured you guys had a way of kind of organizing
chaos, and we called it the synchronize and stabilize method, kind of an early version of Agile in
a sense, and that was the book Microsoft Secrets, which is up there on the left. It sold about
150,000 copies, 14 languages. A guy named Mike Maples was our executive sponsor at the
time. Anyone heard of Mike Maples before. Okay, you guys. So Mike, Bill had hired him from
IBM, and he came in and started introducing some real process and structure to Microsoft.
Things were getting very chaotic, and it was getting very difficult to ship anything complicated.
This was the late 1980s, and Mike Maples came in, and Microsoft Secrets was part of an attempt
-- part of his attempt -- to get some better understanding of what were the better processes being
used within Microsoft that actually worked. And actually, the most sophisticated group at that
time was the Excel group, which was run by a guy named Chris Peters, who went on to Boeing
fame, and so we got access to Excel, Word group, and then also the Windows NT group, which
at that time was also trying -- your first group of really professionally trained software engineers
and architects. Anyway, that was the Microsoft Secrets story, and then three years later, David
Yoffe, who was a professor at Harvard Business School and a good colleague of mine from my
graduate school days -- he's also the longest-serving member on the Intel Board of Directors,
joined Intel Board around 1988 or so, after writing a case on Intel. He and I teamed up and
wrote a book, competing on Internet time, about the challenge from Netscape to Microsoft, and I
did another book, 2002, Platform Leadership, which was trying to pull together all of the ideas
that I had been seeing for many years about the difference between a pure product company
versus a platform company, which Microsoft really was. Business of Software, 2004, then
Staying Power, 2010, and then the Strategy Rules book. So this particular photo, as I mentioned,
was at this anniversary party, Time Magazine. Andy Grove had just before this been named Man
of the Year, and Bill Gates had been named Man of the Year a bit before that. Interestingly
enough, Steve Jobs was never named Man of the Year for Time Magazine, but anyway, this is a
unique photo. Three guys that were very close to each other and in many ways created let's say
the intellectual foundations of the modern high-technology world that we live in and that you
guys all work in or struggle with. And so David Yoffe and I had some interesting I guess ties
with each of these three guys and their companies, and just after Steve Jobs died -- I guess it was
October 2011, David called me up and said, it's time that we write a book about these three guys,
and you and I are the people to do it. Let's do it. So I said, well, I'm kind of looking forward
rather than backward, but I agreed it was a good thing to do, and it was a lot of fun. So we spent
about a year talking about what we would write, and then we wrote it, and it came out in April.
But I would say in the first or second meeting, we had the whole structure of the book already
laid out. It was pretty much immediately apparent to David and I what the book should be about,
and it was really about the common elements in their thoughts. I'll talk a bit about that. Give
you a flavor of what the book was. So here's the context of the study. These are three very, very
different people, tremendous influence on each other, particularly Andy Grove and Steve Jobs
became very close friends. And Steve Jobs and Bill Gates were actually early partners. You
wouldn't have an applications business without the partnership that they developed in 1983 or so
around the Macintosh. And tremendous rivals, as well as colleagues. They've never been
compared before, the three of them together, so this was kind of a unique opportunity for David
Yoffe and I, and again, very different. Gates' background you all know. Jobs', as you also know,
orphan flower child, both college dropouts. Andy Grove, you might not know the background so
much. He's 20 years older than these two. Gates and Jobs are the same age. They're both a year
younger than me, for what it's worth. But Andy was 20 years older, born in Hungary, escaped
from Nazi Hungary during World War II, made his way to New York City, did a free college
degree in chemistry at City College of New York then, did a PhD at Berkeley in chemical
engineering. And the differences in these three guys, we argue in this book, really explain many
of the differences in the three companies that you see today, so I'm going to get into what I mean
by that. Three extraordinary records, don't have to really go into this in much detail, but it's
interesting that at their peak, each of these companies was the most valuable company in the
world, about $1.5 trillion of value. I was at a talk yesterday that Harry Schum was referring to
the valuation of Microsoft in '99, $6 billion to $12 billion. In today's dollars, that would be $800
billion, so more valuable than even Apple. So they've really had a tremendous ride at their peak,
and again, all these companies ultimately presided over what we now call platform businesses
that have this linear -- exponential growth potential, not a linear growth potential, like
conventional companies. So they were, as we argue in the book, they were in the right place at
the right time with the right kind of technologies to generate this wealth, but there were a lot of
people who tried to do this, as well, and failed. So what did these three guys do? So here's kind
of how we end up coming out at some level, and there's a lot of things in the book, and I'll give
you a quick overview. But we introduced this concept of a personal anchor and really an
organizational anchor, and that each of them started a company or was there on day one of a
company and had a particular lens on both what the future would be and what they could do with
their organization. So Gates, as I'm sure everybody here knows his history, at least as well as I
do, programming in middle school and high school, a software company in high school, access to
a computer. Of course, he was lucky to have that, but an insight when he created Microsoft that
you don't actually have to write software for each application. You can write it once and then
sell it a thousand, million times, so that was really his deep insight in 1975. I'm going to go back
to the motivation a bit more, and essentially, that's the software product model. Really, the first
at least mass-market software company. Jobs basically at the same time, a year later, this insight
in 1976 that he wants to bring complex new technology to the average person, and that sense of
design really distinguished Steve Jobs. And again, it's very important that he was not a geek
programmer like Bill Gates, and again, so his whole thing was how do you make this technology
accessible to someone like me. And if you think about it, these two perspectives have defined
these two companies, even today. Apple is still focused on making complex technology simple,
easy, elegant, easy to use for the average person. Microsoft is still much more driven by the
technology, and again, sells technology to other technologists. That's where Gates started, right?
Programming tools. And Intel was a different story, and in some ways, Intel made all this
possible, because it was their ability to create a microprocessor that provided the opportunity for
Gates and Paul Allen to create a programming language, Basic, for the first PC kit. It would not
have happened without Intel. Apple would not have happened without Intel, either. But Grove
was different, not a programmer, but a PhD in engineering, and he had worked at Fairchild
Semiconductor before Intel. Intel was founded in 1968. And Fairchild spawned all these great
entrepreneurs and all this great technology, but it was a chaotic engineering organization. They
weren't able to really mass produce anything and had trouble manufacturing, and he was
determined that would not happen in Intel, and that, we call it the pursuit of discipline. Making
the art of semiconductor manufacturing into an engineering science was what he tried to do at
Intel. And you put these three together, you have not only personal anchors but organizational
anchors as they hired people and built a culture around them, right? Okay. And of course, even
after they stepped down as CEO, these companies have continued to do well, not quite as well as
they did in their peaks in terms of valuation, but still have done remarkably well. So they've
created platforms or franchises that really have endured but had some trouble adapting to change,
whereas Apple had less trouble adapting to change, and we kind of make the argument there -maybe it's obvious, but building these kind of devices really required a simple user interface, and
that was what Steve Jobs was about, from 1976, and it mattered less in the era of personal
computers, but when it came to these devices, it really mattered, that insight he had and that
design sensibility. And we think other things came into play. The fact that Apple essentially lost
the battle for the personal computer gave Jobs the freedom to try something different, to try
something new, and as a matter of fact, he abandoned the PC or changed or broke with
compatibility in the Macintosh platform three times, and then created a whole new platform,
something that Microsoft never really did, and it turned out that newer, optimized platform for
handheld devices was much more important in the era of these devices. And of course, Intel
didn't do it either, pretty much stayed on the PC. So that early personal orientation was very
important in defining what happened to these companies. Okay, so we talk about these
personalities and how they were infused into the company, this notion of a personal anchor
moving on to becoming really an organizational anchor. Each firm also not only came to
embody the personalities of these three guys but their strengths, as well as their flaws, and we
write about this, as well. Gates, Grove and Jobs were at least as -- I'm going to talk about as
individuals, but as leaders, they were deeply flawed, and not until they recognized those flaws
and really found a way to compensate for them were they really successful. And Gates I will say
kind of recognized it first, and he recognized a lot of things first, and he continued to be flawed,
but he really built a very good management team. And I've already described why we think
Apple was able to thrive in the newer era, whereas Microsoft and Intel had trouble. I'm going to
get back to that. So this is the story we tell. Okay. And you don't have the actual physical
books there, but I'm told you will get them eventually if you sign up for it.
>>: Are they available on the Web?
>> Michael Cusumano: Are they available on the Web? Is there a free version on the Web?
>>: From Amazon.
>> Michael Cusumano: Oh, absolutely. You can buy it from Amazon, Barnes and Noble, of
course. And there's Kindle versions, as well. Kindle might be a bad word here, but it's available.
Of course. Okay. So here is the list, and in some ways, I feel like I'm in the business of making
lists. I do a lot of it as a professor, but I like to organize books around sets of principles that are
easy for managers to understand. Microsoft Secrets is organized around five principles or so. So
is Staying Power. So is Competing on Internet Time. So here, we came up with a set of rules or
high-level principles that we defined how at least eventually Gates, Grove and Jobs came to see
the world and to run their companies. And we think these kind of represent a common approach,
and that's surprising, because they were so different, and the companies they created were so
different. And again, this is not a random sample of high-tech CEOs, so this is not -- there's
clearly some bias here. However, I will say David Yoffe and I have been observing these three
companies for some 30 years, so it's not as if we were just looking at the end of some process at
three successful guys. We were kind of there along the way, and it wasn't always obvious that
they would be successful. Most of the time, Apple was not successful, so it's interesting how all
this comes together at this point. So the first principle that we talked about in the book is this
idea of look forward, reason back, that they were able to get a sense of what the future might be,
but not only did they do that, they identified some very concrete actions as to what they would
do. I'm going to go into this a little bit more detail today, and that may be the only principle I
talk about in any detail because of time. So some people will say that these guys foresaw the
future. We don't really see it that way. We see it as they created this future that we all have
experienced, and they had some ideas or some data in front of them that helped them see that
future, and we talked about extrapolation and interpreting that data, so I'm going to get back to
that. The second one we called make big bets, without betting the company. Be bold and
ambitious to really change the game, change the industry at the time. You maybe don't realize it
today, how revolutionary Microsoft and Apple actually were. But we were quite impressed with
how careful each of them was, even Steve Jobs, who was in many ways the most reckless of the
three, but how they were careful in what they did. They never really put bankruptcy of the
company at risk, and they took some very bold moves, so I can get into a few of those examples.
Build platforms and ecosystems, not just products, because of the interdependence of
technology. And again, I've been writing about this since -- in many ways, since 1987, when I
first wrote a paper on VHS and Betamax and then was surprised at why the better product went
from 100% market share to 0% in a few years. Why was that? It wasn't because of the product.
It was because of some other dynamics, platform dynamics, and we didn't have the word
platform then. We didn't even really have the word network effects then, but we had network
externalities and bandwagon dynamics. These guys eventually came to understand it and
leverage it and make it the center of their strategy, not at the same time, and that's another
interesting story. Exploit leverage and power, master both of what we called judo strategy as
well as sumo strategy. I don't have time to really go into this, and I think you understand all the
power plays that companies like Microsoft and Apple and Intel have done, but particularly in the
early years, they were also very quick and flexible and clever. And even when Apple moved
into new businesses, like iTunes, very quick and flexible, and negotiating from a position of what
seemed like weakness. And then the final point, which I've also given you some inclination of,
shape the company around your personal anchor. And here's a tough one. If you don't have
anything valuable, then you probably shouldn't become an entrepreneur, but if you have some
really strong ideas that other people can share and that seem to be linked to what is happening in
the world, then I think you've got a basis for creating a company or a division of a company.
And these guys all did that. They created a company around these ideas, and again, they figured
out how to compensate for where they had major gapes in their interest or knowledge. So this is
the list that David and I came up with pretty much on day one of talking about this book, but I
think what's really interesting are the details. Okay. So here, let me just give you an example of
what we've done. Strategy rule one, look forward, reason back. This is about how do you
develop a vision of the future? You look back. You have some sense of where you think the
future will go. You kind of set boundaries and priorities for yourself, what are you going to do?
What are you not going to do? You've got to anticipate customers and competitors and also how
the industry might change, inflection points, which Andy Grove used. And, of course, commit to
change but kind of look frequently enough so that you can understand changes and make
periodic course corrections. So in general, we think these three guys did this, but they did
something much more, and again, we are professors looking at a history we know well, so I don't
think in real time they had this framework in their heads. But if we look at what they did, this
kind of describes it. So first, that vision comes from extrapolation, from something that they
know to be true, and interpretation as to what this information means. Okay, and particularly for
them, and that's where the point of view comes in. What does this view of the future mean for
what they as entrepreneurs might do today and also looking out. And out of this kind of
extrapolation, interpretation viewpoint came vision statements that were very simple, clear and
actionable. But then the harder part came of what we call reasoning back, so it's figuring out,
okay, not just some idea of what the future is likely to be, but what can they do today? So
deciding to create a version of Basic for this new microprocessor that's come out for an industry
that didn't yet exist is an example of looking forward and reasoning back. And each of them
were very good at taking an idea and creating essentially a product from it very, very quickly.
And it's kind of counterintuitive. We thought about this, because most of us want to learn from
history, so we tend to kind of look back and reason forward, and this is a natural process, and
these three guys did this, as well. Bill Gates was very familiar with IBM's history in the
mainframe. He knew a clone industry had appeared, and he kind of figured out that when IBM
came out with a PC that a clone industry might also appear, and he kept the rights to DOS, for
example. Grove, very much the obsession that Intel developed with process and manufacturing
came from his experience with Fairchild, as I mentioned before. And Jobs, again, not an
engineer, and that of course greatly shaped how he thought, but growing up in Silicon Valley,
seeing great engineering companies like Hewlett Packard, really shaped the way he thought. So
they were looking back, but they really looked forward for the most part. When they created
their companies, they did that. And again, we think this is a trait that we will see in pretty much
all very successful strategists and entrepreneurs. And if you can't do it yourself, you need to do
it with a team, and they did have teams around them to help them. Okay, all right. So here's
where I think this study really got interesting for us, because we knew all these things, but we
really hadn't sat down and realized it until we wrote the book. So here's what really drove Gates,
Grove and Jobs. It was Moore's Law, and I don't think I have to ask in this audience, do you
guys know what Moore's Law is? I don't have to ask you that. I was with a group of bankers a
couple weeks ago. I had to ask them. And so Gordon Moore, obviously the founder of Intel, he
was Andy Grove's boss, had been asked around 1966 or so to write a paper on the future of the
electronics industry, so he looked back at data and said, you know, density of microprocessors is
kind of doubling every 18 months to two years, and projecting forward, he thought there would
be -- this would create tremendous changes in the industry. By the time Bill Gates was a
freshman or a sophomore in college, 1974, '75, this had become common knowledge. Pretty
much everyone believed that Moore's Law was kind of ruling the high-tech world and was going
to change computers, consumer electronics. I would say pretty much everyone who deeply
understood what was happening in circuit technology, and not your average person on the street.
But it had even reached Steve Jobs. Okay, so here's Gates' vision, 1975. He or Paul Allen sees
the picture of the MIPS personal computer kit in an electronics magazine, brings it to Bill, shows
it to him and says to Bill, we need to make some computer components. We need to be part of
the personal computer revolution. The company filing in 1975 uses the phrase, a computer on
every phrase in every home, the assumption running Microsoft software. Gates, again, with Paul
Allen doing this, but again, most computer companies at that time, and even Apple, founded the
next year, were making hardware or hardware and software. So here's what happened. So Gates
sees Moore's Law, thinks about what that means and says, well, the implication is that computers
are going to be everywhere. They're going to need software. I'm going to create a software
company. Again, his lens is he understands software. He understands programming. Doesn't
really know much about hardware. We asked him later about this, but he had another interview
that was done in 1994 where he talked about this, and this was his thought. I thought we should
do only software. When you have the microprocessor doubling in power every two years and
essentially you can think of computer power as almost free, so you ask, why be in the business of
making something that's almost free? What's the scarce resource? What is it that limits being
able to get power out of that infinite computing power? Software. Okay? And then we have
Microsoft. Steve Jobs, okay, takes Moore's Law, computers are going to be everywhere, but we
have to make them as easy to use as a toaster or a typewriter out of a box. He's not Bill Gates.
He's not Andy Grove. He's not a technologist. That's his insight, 1976. We kind of know this,
but it really goes back to Moore's Law, and it's not just the Macintosh. It starts with the Apple II,
which you pulled out of a box and you put on your desk and used almost like it was a toaster or a
typewriter, and then the Mac, with the graphical user interface. And now his vision evolved, but
it still stayed around making this complex technology as simple to use as any consumer
electronics or consumer appliance. You take it out of a box and use it. And a 2001 quote from
him, we think the PC is evolving. The future of computing lay in finding a way to allow users to
create, share and add value to the explosion of digital devices. The Mac can become the digital
hub of our emerging digital lifestyle. So if you guys remember, in the early days, the Mac was
still the center of everything, even after iPod and iTunes came out. Andy Grove, something
different. Andy Grove, thinking deeply about Moore's Law, Gordon Moore is in the office next
to him saying what this means is that computers are going to be everywhere, but that means
we're going to move to a world of mass production and specialization, and the vertically
integrated guys like IBM and Digital Equipment Corporation, they won't be able to keep up with
the speed of technological change and specialization, so what's going to happen is the vertically
integrated computer integration is going to disintegrate. And at that time, they were supplying
semiconductor memory products to mainframes. So it's going to disintegrate, dominated by PCs.
If we're going to have a place in this, we need to specialize too, and he ultimately decided, we'll
focus just on microprocessors, and actually, his salespeople pushed him in that direction, but
that's what they decided. So most of you I think are familiar with this chart. This really came
out of Andy Grove's head, developed really in the late 1980s, but he published it in a book, only
the paranoid survive, in 1976, but that's where it came from. And David Yoffe remembers
debating this and discussing it in the Intel board meetings. Okay. And actually, this is a later
one, where they had a big discussion in Intel about they could build other whole computers and
software. And when I did Microsoft Secrets in 1995, Intel had more software engineers than
Microsoft did, but they deliberately decided not to compete with their competitors, but to enable
them and let everybody grow the pie together, and they'll take their 85% of the microprocessor
slice, and they would brand their chips to try to keep some differentiator. The reason there was a
compatible chip business was because IBM early on had insisted on a second source to the 8088
and the 8086 chips, so that really enabled the compatible chip industry, AMD, today. And then
they decided not to do that anymore. That's one of the big bets that Andy Grove took. Okay, so
I would say that even though David Yoffe kind of lived through this and saw these companies,
we didn't really put these pieces together until we thought through very specifically what they
did. Here's a quote also from Les Vadasz, who was head of technology strategy at Intel for many
years, talking about Andy Grove. There are many managers who make that five-year plan, and
then around year three, they start to think about the next five-year plan. Not Andy. Grove
understood a basic truth. You can only look so far, and so you better just keep looking
frequently. That's the important element of strategy. You understand the direction you're going,
but you also know what you're going to do in the next six months. Most companies will do a
pretty good job many times about the direction, but then they'd never break it down to shorter
metrics. Intel did a super job on that. Well, here's my kind of pause for reflection, but what is
the next Moore's Law and what is the implication going to be? We've seen a few of these things
already, mobile devices, cloud computing, whatever you want to talk about. What are the
current facts for extrapolation and interpretation? How far can we see? What other resources
might almost free or more scarce? What are the disruptions and new opportunities? These guys
went through this kind of thought process, whether they realized it or not, so I've done this
exercise with a bunch of companies. I did it yesterday with a group of Chinese senior
policymakers, and their view is that in the future, China is going to figure out a way to make
energy very cheap, and that's going to change the world. I did it with bankers a couple of months
ago, five different groups. Four of the five came back saying the world is going to change
because of crypto currencies or digital assets. We won't be able to charge transaction fees
anymore at some point in the future. It's going to completely disrupt their business model.
Anyway, this kind of thinking, and I think it goes at lower levels to your different businesses, but
it's worth doing this kind of exercise. Okay. Just a few quotes, and we've taken quotes from
interviews and past work that we've done with Gates, Grove and readings about Jobs. I was
actually at a talk that Bill gave in 1993, and he made this comment. Microsoft bet the company
on graphical interfaces, but it took much longer than I expected for the interface to move into
mainstream. He didn't actually bet the company, because he had DOS and he had applications,
but the break with IBM was a very big bet he made. Very important quote from Andy Grove.
There's at least one point in the history of any company when you have to change dramatically to
rise to the next level of performance. Miss that moment, and you start to decline. His moment
was 1990. He almost jettisoned the x86 architecture in favor of RISC architecture. His experts
were telling him, RISC is the future. Now, maybe, had he done that, things might have been
different for Intel in many ways, but at the time, it would have been devastating, because again,
the whole platform concept was around that architecture and the connection of Windows and
DOS to it. So at that moment, he decided not to do SISC -- and not to do RISC. To stay with
SISC and integrate some of the better technical concepts from RISC into the Intel architecture.
Steve Jobs, Dylan, Picasso, always risking failure, this Apple thing for me is that way for me. I
don't want to fail, of course. If I try my best and fail, well, I've tried my best. And again, Jobs
was the riskiest of the three, made the biggest bets, but he had the least to lose. He never had the
kind of annuity revenue stream that Intel and Microsoft had created. Okay, there are some
examples here about being bold but not reckless. I don't want to go through all the details. You
guys can kind of read the book. Here's another interesting tidbit, and then I'll kind of end in a
few minutes and let you go to some questions. I can't really give you the whole flavor, but
there's some data on Apple, and people forget that Apple was kind of a fledgling company.
Probably the biggest mistake Bill Gates ever made was to bail Apple out in 1997, investing $350
million into the company. Had he not done that, actually, Microsoft today would probably have
60% of the smartphone business or something like that, or maybe more. What happened in
2003? What changed at Apple? I spent a lot of time on this here. Anybody know? Anybody
want to guess?
>>: [Indiscernible].
>> Michael Cusumano: The iPod and iTunes came out in 2001. It does have something to do
with it.
>>: iPod on Windows.
>> Michael Cusumano: Yes, iPod on Windows. And this was written about in the Jobs
biography. I wrote about it in 2010, in my Staying Power book, but to me, this is the time -- this
is the year where Apple kind of compromised, where Jobs allowed his management team to
overrule him, and he kind of compromised on this complete product control idea, and also
compromised on the goal of making the Macintosh the center of the universe. That was really
the critical idea, because until this time, you could only use an iPod and iTunes if you had a Mac.
So in the fall, big fight in Apple, and the Mac was about 2% of the global PC market share at that
time. Windows was most of the rest, and the team finally overruled him, and he allowed that to
happen, and then he committed. He said, well, ultimately, maybe that's right. We're going to
make iTunes and iPod really a platform to bring music and digital media to the whole world, not
just to the Macintosh users, and that's more of a platform, an open -- more of an open platform
position than a product position. And then he committed that we will make iTunes the best
Windows app ever built. Still doesn't work quite right in my view, but anyway. Whereas
Microsoft had always been much steadier, much wealthier, much more profitable, and things
really changed for Apple after this point, and 2007, the iPhone came out, and then 2010, the
iPad. In 2007, when the iPad came out, it was still kind of a closed system, and I wrote an
article, the puzzle of Apple. Why do they keep introducing these closed products. I got hate
mail. I actually thought my life was in danger from the Apple faithful. I said, Apple is a product
company. They don't understand platforms, but I guess they had the last laugh in some ways, but
the game's not over yet. The game's not over. Apple is still what we call kind of closed but not
closed, whereas Microsoft has always been open, but not completely open, and we think that's
kind of the better position to be. When did the light go on? For Jobs, the difference between a
platform and a product, I don't think it was before 2003, and the Apple people argue with me
over this. The Apple II was kind of a platform. He got software companies to write software,
but it wasn't open. It was not easy to write for. Even the Mac, Gates made his SDK for DOS
essentially free. Jobs charged I've heard as much as $20,000 for the SDK for the Macintosh.
That's not an open -- that's not really an open-platform mindset. Grove didn't understand until
1990 the importance of the platform that they had created. He basically treated the
microprocessor as a component. It was a component in the PC, and then he realized that
component was feeding this enormous ecosystem and that if he changed the instruction set,
moved to an incompatible technology, all that would disappear. He was overruled by his team,
1990. Gates got it immediately, when IBM appeared in 1980. He was lucky they appeared, but
they came to him because he was the best at making languages for the personal computers, but
he understood intuitively, immediately, the broader meaning, and I think this represented a
platform position rather than a product position. Okay, I could go on, but I think this is a kind of
a good place to stop, particularly since I'm at Microsoft, and I do think you guys understood
platforms before anyone else, at least in the personal computer business. And some of the other
things we talked about is the platform leader's dilemma. You have this enormous platform and
annuity. What happens when things change? And they will change. It may take 30 years, but
things eventually change, and how do you prepare an organization for a change like that? So we
write about that, as well, and who did these guys choose as their successors is another issue, and
why did they make those choices, and the big differences between Gates, Grove and Jobs on
those decisions. So we write about all that stuff, try to understand the future, not just the past.
Okay. So we have time for Q&A, right? I'm happy to stay, but any thoughts, questions? Yes.
Do you need a microphone, or can he be picked up somehow? Okay.
>>: If you guys can't hear me, I'll raise my voice, please. From what I understand, Steve Jobs,
when the Macintosh was first launched, did not see it as a platform, and in 2003, he decided to
open up iTunes to the world of Windows, and that ultimately allowed success. When the iPhone
or the iOS App Store was launched in 2008, it just came out of the blue somehow. Do you think
that Steve Jobs had the idea of the App Store the way it is now back in 2007?
>> Michael Cusumano: No, it's the exact opposite, and this is pretty well documented. Jobs was
opposed to the idea of an app store, and the same thing with the Mac. So the Mac shipped with
applications, and there were companies making apps, but it was not a platform and ecosystem. It
was done by contracts. So he wrote a contract with Bill Gates to write applications for the Mac,
and he got other companies -- Adobe, for example, to also write some software. So it was not a
platform, an ecosystem kind of dynamic. It was supplier kind of dynamic. And ultimately,
information was released on Mac APIs, and some companies wrote applications. You couldn't
build hardware for it. All of that was controlled. It was licensed very briefly. When it came to
the app store, and here's the thing that Jobs was very consistent. He didn't want the iPod to be an
open platform. He didn't want the iPhone to be an open platform. They came up with the app
store kind of as a compromise, and it wasn't his idea. He was opposed to it. He thought he could
contract for software, and then as he did with the Mac, very tightly control who wrote
applications, who got access to SDKs and that sort of thing. There were some precedents for an
app store. Palm had a little app store, and there were arguments. We heard from the Board of
Directors, there were a number of arguments about this, but the app store, with tight controls
over who got into the store and who didn't, was they thought a brilliant solution of keeping some
control and controlling, again, how apps were written, user interface, user experience, but again,
being closed but not completely closed. Jobs didn't like the idea, but he was overruled. And
again, Jobs did not become successful until he allowed himself to be overruled. In his first
iteration as CEO, he didn't allow himself to be overruled, so he was essentially fired, fired as
head of the Mac project back in 1985, and then he quit the company. Then he failed with
another company, NeXT, then hit a great success at Pixar and really learned about digital media
from Pixar, and when he came back to Apple, he said, I don't want just a computer company. I
want to think about digital media more broadly, and computers are in that role. So he learned
tremendously over time. We have to give him credit for this growth and evolution. But he
fought. He fought things that now define the success of Apple, opening up to Windows users,
app store. Yes.
>>: Do you think that with companies like Apple building their own chips and cloud companies
like us building their own servers, that shift from horizontal to vertical is happening, and that
Andy Grove might put the arrow the other way these days?
>> Michael Cusumano: Well, there is a change going on, although I -- Andy might change the
arrow, but at least for his company, I think it makes sense just to specialize. I don't think we
want consumer products from Intel, and every time they've attempted to do that, they've failed.
It's a different set of skills, so Apple can do it because I think they've always done it, from day
one. They've really always tried to control everything, hardware, software. Now, designing their
own chips is fine. They're working off of an ARM design. They have a perpetual license to it,
so they didn't really invent the basic architecture that they're working with, and they -- so they
can do it, and it's their distinctive edge to control that whole piece. Now, I know Microsoft has
been moving in that direction and companies like Google and Amazon build their whole
services. To me, that's a little bit different than entering the consumer market, where I think it
takes a whole different set of skills, and I still think the idea of you enable an ecosystem and
grow the whole pie with partnerships rather than try to control everything is the better way for
the mass market. Now, remember, Apple quite a while ago, and this was Jobs' decision, decided
they're not going for the mass market. They're going for the high end of the market. Who makes
the most money in all these games? It's at least Apple, and will that last forever, I can
confidently say no, it won't, because nothing lasts forever. But it's lasted a lot longer than I
thought it would, but they're in that high-end segment, and usually, if you're retreating to the high
end, there's nowhere to go after people come after you, but it's worked so far.
>>: Do you see the same five lessons apply to companies like Google and Facebook? Google
working on the data, search, and Facebook on the social media?
>> Michael Cusumano: Yeah, so we spend some time at the end of the book talking about some
of the modern generation of entrepreneurs and guys from Google, and certainly Mark
Zuckerberg and even -- my wife is calling me, I think. Oh, no, somebody else, but no, we think
these ideas apply very broadly. Look at the importance of platforms for these companies, this
idea of also looking forward, reasoning back, each of these companies. Bezos at Amazon is kind
of the same way. Again, they had a different -- this was a different generation, the Internet
generation, but it's really very much a similar mindset. And some things will be different and
you might have a more detailed or a different list to describe other things that other entrepreneurs
do, but I think as a fundamental set of ideas, these are pretty important. And each of these
companies, Google, Amazon, Facebook, have a very distinctive edge that comes from the
founder. Again, that kind of personal anchor, but it's no longer personal. It's become
organizational, and they've figured out a way to do that, and they've only been successful after
they built the team, a management team. So they've made big bets, each of these companies, and
they've used power, as well as cleverness. They've done it.
>>: Was there a big company that came without having an individual with a specific anchor?
>> Michael Cusumano: Well, entrepreneurial companies generally have someone at that point.
When you look over multiple generations, it gets harder to see, but if you look at the founder or a
transformative executive, I think you almost always find it. I've studied other companies in
detail. Toyota is one, for example, and the Japanese we tend not to associate with strong
individuals, but there were a couple very, very strong people that defined that company going
back to the 1930s and then the '40s, 1940s and '50s, and it's still distinctive today, and that was
centered around manufacturing and learning how to do things yourself, kind of reinventing
process for what you needed to do. So I do think that's where great companies come from. They
have an edge. Otherwise, you have companies that are formed around committees and the
lowest-common denominator thinking. There was a question over here, too.
>>: Okay, so strategy is also contextual, so your thoughts on Microsoft's move into hardware
and into cloud computing, do you think that's a refinement of the strategy or a deviation from the
strategy.
>> Michael Cusumano: Well, cloud computing is certainly a deviation from the business model,
but we've seen this for 10 or 12 years now. You don't have a choice, so it's another kind of a
platform, but it's an evolution of the software product business model, and I've been writing
about services now for 10 years, and I remember a conversation here with Microsoft, that the
future is really going to be services in one form or another, and people saying, no, no, no, we're
not going into services, over our dead bodies, and then figuring out, well, if they're automated
services, then yes, maybe. An automated digital service is not that much different from a
software product. That they can understand. So that I see. Going into hardware products, it
doesn't make any sense to me. Well, I can understand the logic for it, but it kind of destroys the
margins, and obviously, the motivation is from Apple. Apple did it by controlling all the
components. The ecosystem isn't responding fast enough or creatively enough, and so Microsoft
is trying to marshal some resources there and kind of stimulate the market around new designs,
and if the market doesn't -- the ecosystem doesn't respond, maybe you need to do something.
The Intel approach would have been to designate some companies as rabbits and kind of get
them moving, rather than do the investment themselves. Now, at least Microsoft is not building
billion-dollar factories -- at least I don't think. Are you? You're not, right? I just came from
Boeing. I'm here because of a Boeing engagement. Those factories are expensive, right? You
don't want to build factories where you're bending metal or building plastic, that kind of thing.
>>: Eight-figure factories.
>> Michael Cusumano: Eight-figure factories, okay. So if you can make the design and contract
it out, maybe it's okay, but personally, I would not have done that. I do think it's a real serious
deviation from the business model that has made Microsoft so successful, and even Google
found it doesn't make much sense. Now, the Google guys are a little bit undisciplined in what
they invest in, but even they couldn't make the hardware business work very well, at least up to
this point. They haven't given up completely.
>>: Do you have any thoughts on the rate of destruction or change now versus let's say 25 years
ago. Do you think it has kind of ->> Michael Cusumano: I don't know. If I had a good answer to that -- I think the kneejerk
response is to say things seem to be faster today. And actually, at one time, I created a chart. I
was looking at product release cycles in software products, servers and other products, and it
definitely get faster in the late '90s with Internet software releasing over the Web. You don't
have to put software on CDs and in boxes and then on trucks and stores and all that kind of thing.
But then things slowed down again, so I don't know. I don't know that disruption -- we've seen
software as a service since 1999, cloud computing, whatever you want to call it. MSN in the
Internet iteration goes back to 1995, '96, and so this stuff has taken a long time to germinate. It's
not that fast, and that's why I think that you can kind of see -- you need to extrapolate from these
things happening around you and kind of interpret what they can really mean if you built a
company or a product around it. So I don't think things are changing all that fast, and having
looked at it for 30 years. I don't know if you guys disagree, but certainly some cycles are much,
much faster than they used to be. IBM used to work on five to 10-year timeframes, and Boeing
still works on long timeframes, but they've cut it down. PCs, smartphones, software companies,
definitely work on faster timeframes than they used to, but it's been fast for a while. I don't know
that it's getting faster.
>>: I think it's getting daily.
>> Michael Cusumano: You think it's getting daily. Releases.
>>: Correct. Part of Microsoft's DevOps vision, so certain parts of our business where we're
delivering software as a service or just connected services, those are on a daily.
>> Michael Cusumano: So you might be late coming to that, but if you look at Google or
Amazon, they'll change their website daily multiple times a day, and they've been doing that for
a long time. Years, right?
>>: So it sounds like you're saying that strategy itself is affected by the methods that are in
vogue. So right now, we have adaptive agile methods being adopted all over the place, and that
has advantages and disadvantages, just like more predictive methods have advantages and
disadvantages. I think that's what you're saying. So I'm just curious, do you see strategy -you've talked about technology changing, but is the act of strategizing changing over time? And
what would it have been like for those guys if they were using more agile approaches back then?
Would they have suffered for it, or would they have somehow been better off for it?
>> Michael Cusumano: Well, strategy and strategy or strategic planning processes clearly has
become more agile, to use that word. And we actually wrote about that in the Competing on
Internet Time book in 1998, because at that time, Microsoft worked on essentially a three-year
planning horizon, and they'd have one big annual meeting, and then Netscape appeared, and their
ability to respond to Netscape was very weak. Now, they did respond, and I was actually here
watching some of those responses, and heard about them afterwards. But they had to change the
planning cycle, so actually, they put in a six-month review period. Now, I think they probably
have the ability to respond to something in the environment is probably on a weekly basis within
Microsoft. There's probably serious executive team meetings every week, right? Google moved
to weekly meetings. I remember looking at Netscape in the 1990s. Their budgets were sixmonth chunks. They couldn't see farther than six months into the future. Microsoft was annual
to three years. IBM was three to five years. That's what it took to build a new mainframe. So
those kind of planning iterations did become more agile, and it has to do with the heartbeat -- we
called it the heartbeat of the industry. Certain industries are much faster, and you can respond to
that by your planning cycles. Now, you can't change your strategy every week, because that's
like I remember using the analogy that came from another professor. It's like reevaluating your
marriage every week. You can't do anything long term. No house, no kids, nothing. I've been in
that situation, by the way. Right.
>>: That's a chosen path in life, right? Younger people, like 30-ish?
>> Michael Cusumano: Maybe, so you need to have ->>: No, in their relationships, that's how they operate.
>> Michael Cusumano: But to operate a company that way is kind of destructive, because you
can't do anything complicated and language term that way, so you need to balance. You need to
be doing both. You need to be responsive in certain ways, but if you look at what Google does,
they have a lot of long-term projects. Some may take 30 years to realize. I think they're building
a spaceship to land on Mars, too, right, probably?
>>: Sony supposedly has a 50-year business plan. Arie de Geus talks about companies in
Europe that are working on a 100-year business plan. Clearly, they're not doing incremental for
that big vision, long term.
>> Michael Cusumano: It's kind of silly, I think, actually. Nobody knows what's going to
happen 100 years from now, but you want to think, particularly in R&D.
>>: It's a lighthouse on the horizon. You don't have to always ->> Michael Cusumano: But certain things, you can respond. You can do changes in features,
for example, very quickly. You can make an acquisition or a hiring opportunity. Or you can
start evaluating some big issues, and then have some information to make that decision when you
have that monthly review point or six-month review point, but that is agile planning, and it's
being aware. So I've also studied IBM on this. IBM again is a dinosaur, and then in many ways,
that's an overused term. Again, these long cycles, and they realize that problem, and then after
Lou Gerstner came in, by the late '90s and around 2000, they had put in different mechanisms for
planning and responding, like teams had met monthly in addition to the annual planning cycle,
and budgets that could be allocated with executive authority on this kind of monthly basis and
ability to respond to acquisitions or experimental investments. So you can put in those kinds of
mechanisms, and it is a form of agility. And this world you're in is fast enough that it requires
that kind of agility, as well as some longer-term objectives. Okay, I think Amy's going to throw
us out.
>> Amy Draves: Not quite. I just have one online question for you, which is what are your
visions for technology in the next five to 10 years?
>> Michael Cusumano: What are my visions as far as technology? Well, I guess so I'm more a
historian than I am a visionary. I am not a visionary, and I kind of tend to look back and reason
forward, but one of the things that I really am struck with is autonomous vehicles and
autonomous piloting. I was spending time at Boeing this week, and just the use of software in
more and more contexts to automate more and more critical functions is clearly going to become
a much bigger part of our lives, and that is one thread. The other thread that I've been doing little
projects around is Internet of things or Internet of everything. As so many physical devices get
sensors and can start generating data and we have analytics to deal with that, these are
opportunities to create new kinds of platforms and applications, and we've been talking about
that for a while, but many people believe it's very important. I see no reason to think that it's not
going to be important, and it'll be connected to other things, like ubiquitous Internet and Wi-Fi
accessibility, cheaper power or different sources of power to power all these devices around the
world, Third World. But again, I think we have a reasonably good idea of what the future could
be like in five to 10 years, and a lot of people are acting on that now, so I think it's not quite a
Moore's Law situation, but I think the pieces are there that we can do that extrapolation and
interpretation. It's just I don't think it's that unclear, particularly for people like you guys. It's
what you do today and tomorrow is the critical thing. I just write books about what you guys do.
>> Amy Draves: That's a great place to stop. Thank you so much.
>> Michael Cusumano: Okay, well thank you all for coming.