This Matters: How Microsoft grew into a giant

The tech giant was a no-name startup when it launched its MSDOS operating system in the 1980s. But the open environment it created with developers fueled its explosive growth.

By John Hagel and John Seely Brown, contributors

Microsoft chairman Bill Gates in 1986

FORTUNE -- Microsoft was still a no-name startup based in Redmond, Wash. when it launched its operating system, MSDOS in the early 1980s. From the beginning, however, the company believed that this was not your average product launch. MSDOS's design allowed it to adapt easily to different hardware, reducing entry costs for potential users. And Microsoft encouraged participants to tailor MSDOS for particular environments, meaning that the product could actually improve over time.

Like any good platform, however, MSDOS was only as valuable as its network. While it did not have a large user base in its early years, Microsoft (MSFT) soon negotiated relationships with tech giants like IBM (IBM) and Intel (INTC), fueling growth expectations and motivating more early adopters to sign on. In this way, the platform was able to quickly gain critical mass and achieve network effects -- that wonderful position when the value of the network increases for all participants as more members join. This growing value helped to attract even more participants. By relying on growing economic incentives to attract and engage participants, Microsoft significantly reduced the overhead costs that often slow, or even limit, the growth of more conventional business networks.

Perhaps even more important than its network size was how individuals interacted with and tailored the MSDOS platform. In some respects, the common platform leveled the playing field among participants, creating incentives for them to "protect their turf" by improving their own performance. As the number of participants continued to expand, both competitive pressures as well as the spoils of success increased, perpetuating a cycle of continuous innovation around the standard platform.

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In many cases, different participants teamed up to make the network better, while others chose to work on their own. Without any intervention from Microsoft, these interactions among participants evolved into complex webs of collaboration, where the interactions were not just one-to-one, but among groups of different players. This resulted in an explosion of experimentation.  Many of these promising ideas were quickly adopted by other participants, and those that failed served as collective learning material.  In this way, each participant, and the ecosystem as a whole, learned much faster than they would have on their own. 

The first release of the Microsoft platform may seem like ancient history, but it illustrates the powerful potential of what we call "web ecosystems." In nature, the webs we discover can inspire awe and defy explanations. A well-constructed cobweb, for instance, can span a seemingly impossible distance from its central point and remain intact even in heavy rains and wind that send neighboring leaves and branches to the ground. It is no wonder, therefore, that this image of strength and subtlety has become an oft-referenced metaphor in so many other domains (yes, we're speaking of the World Wide Web, among others).

As we researched ecosystems (gatherings of business participants engaged in some form of collaboration), we found that the well-worn term perfectly characterized the nuances of MSDOS and other webs.  These ecosystems are particularly interesting because of their scalability -- webs have the potential to mobilize hundreds of thousands, even millions, of participants.  More than just scalability in numbers, webs also support a much broader range of innovation than other kinds of collaborative ecosystems. Just as intricate patterns emerge on the edges of spiders' webs, so too can distinct and exciting innovations emerge from different pockets of a given ecosystem.

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Web ecosystems often rely primarily on economic incentives to mobilize its participants. Platforms of some sort are usually involved in catalyzing and growing web ecosystems, but the platform developer often tries to expand participants' abilities to work with each other rather than tightly specifying what they can and cannot do.

Consider the differences between Apple's (AAPL) iOS app store to Google's (GOOG) Android marketplace. Apple's app platform, though highly profitable, does not constitute a web ecosystem. Apple's structured development regulations and rigorous screening process limit the scope for experimentation and require a significant level of interaction between the platform developer (Apple) and the participants. It offers the benefit of more reliability for its users and an adherence to certain quality standards.

By contrast, the largely open Android platform does represent a web ecosystem. Android offers more freedom for developers to experiment and test potential applications. The relaxed and flexible structure means that a greater number of "amateur" applications are available, but it also creates many opportunities for collaboration and innovation.

Though many of today's examples come from technology companies, the applicability of web ecosystems extends further than this domain. Consider the story of Malcolm McLean, a truck driver in the 1950s. After seeing the need for greater coordination between different groups working in shipping, McLean developed a standardized shipping container and made the standards available industry-wide.  By encouraging port authorities, shippers, and crane companies to invest in new equipment and practices to support this standard, McLean, much like Microsoft, was able to speed up adoption and quickly reshape the global industry.

We expect these web ecosystems to become more prevalent in the future. Big Data, for example, may become fertile ground for new web ecosystems. As certain companies accumulate richer and more detailed profiles of customer behavior, these bits of data can be used to create a "platform" that participants can use to develop innovative products and services. Government 2.0 projects, which make available data accumulated by various government agencies, represent another promising web ecosystem.

Web ecosystems have meaningful implications for many industries today. For starters, we would single out health care, financial services, media, and the energy industries ripe for disruption. But let's not stop there. Is your industry ripe for change at this scale? What would a web ecosystem need to look like in your field? Like stumbling across an ornate and resilient spider web, the results might surprise you.

Posted in: Company growth, Ecosystems, Hagel and Brown, Microsoft, Strategy

via management.fortune.cnn.com

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Innovation Tip: Domino’s Tells Customers They’re Not Always Right

 

                                        (Image Credit: Graham Barclay/Bloomberg via Getty Images)

Domino’s is saying “no,” literally, when it comes to the whims of picky pizza eaters.

The popular pizza delivery company says it will no longer make changes to its line of artisan pizzas for individual customers and is announcing it in a bold new TV ad campaign that says “No!” to customers.

The national ad campaign will launch Thursday and aim to send the message that after 50 years in the pizza business, its chefs got this recipe right, the company said.

“It comes from confidence in our artisan pizza recipe,” Domino’s spokesman Chris Brandon told ABCNews.com.  “What makes this unique is that these pizzas are created to a specific recipe.  Our chefs created the artisan recipes so they’re preset and that’s what this whole campaign is all about.”

At the center of the “No” campaign is the Ann Arbor, Mich.-based chain’s new Chicken & Bacon Carbonara Artisan pizza, the latest in the artisan pie line they debuted in the fall, part of an effort to expand its offerings and upgrade its image as a maker of high-quality pizza.  More than 80 percent of the items on the Domino’s menu are new since 2008, Brandon said.

The company completed a redesign in 201o of its 50-year-old pizza with a new crust, new cheese and new sauce based on customer feedback that the product could be better. “We completely invented it from the crust up,” Brandon said of the 2010 effort.  “After the new pizza launch, we looked at the whole menu and how it could be improved and added to and that’s what we’ve done since.”

Customers in the chain’s 9,541 franchised and company-owned stores throughout the United States will still be able to order their regular pizzas any way they want, but the artisan will come prepared. A voiceover in the new ad, created by ad agency Crispin Porter + Bogusky, notes that the company spent years “perfecting the balance on our artisan crust toppings.”

“There’s more than 30 million ways to make a single Domino’s pizza,” Brandon said.  “We’ve always said yes to those but our artisan pizza, what makes it unique, is that it was designed to be a recipe in itself.”

The whole payoff of the campaign is that ‘no’ is the new “yes,’” he said.   “What we’re trying to get across is that what we want our consumers to get the best experience possibly by either trying something new,” he added.

Brandon acknowledged the company will make exceptions and remove toppings for people with food allergies, but said that is it.

“If somebody is allergic or really needs or wants a product removed, we’ll remove it,” he said.  “We’ll accommodate that for sure but we won’t be adding anything.”

Upending the long-held customer service mantra that the customer is always right is a bold move for the company that has had success with the “Oh Yes We Did” tagline it introduced with the 2010 pizza reinvention.

In its last fiscal year, Domino’s Pizza Inc. reported its full-year earnings rose 20 percent to $105.4 million, and its annual revenue increased 5 percent to $1.65 billion from the last fiscal year.

“We’ll see,” Brandon said the potential for customer backlash from the “No!” ads.  “It’s definitely a unique campaign but one that people who have been following Domino’s have seen that we’ve had a very honest and transparent way of talking with customers so I think they’ll understand what we mean with this campaign.”

The Associated Press contributed to this report.

via abcnews.go.com