One of a good way to think of businesses that I was first introduced by Ben Thompson (Analyst and Consultant with the website
https://stratechery.com/ he used to work for Apple and Microsoft)
* Identify how you make your money in the product chain
* Identify how your competitors make your money in the product chain
* Identify your value to the customer, how do you make their lives better, do not think features, think how are you useful, what do you do differently. (Think in a feature mindset can cause you to think inside the box and prevent you from thinking outside the box and miss transformative changes)
* Do the same for your competitors
Now focus on how to decrease the cost of the product. If you have a $100 dollar product and its costs are A+B+C+D+E and your revenue only comes from part A figure out how to make B+C+D+E cheaper and that this savings is passed onto the customer. In other words decrease the cost of the product while increase the size of your pie piece of Revenue and Profit derived from each sale.
And if you make profit off of A and your opponent makes profit off of B figure out how to shrink the cost of B
as much as you can for by doing so you shrink your oppoents revenue and profit and this in turn allows you to acquire resources while deriving them from your opponent.
So Microsoft has always had a liscensing model going back to Dos, Windows 95, Office, etc. Microsoft goal from the 80s to today was to decrease the cost of hardware for computers while at the same time keep the licensing fees for each computer as high as possible and due to technology in $1983 Compaq was selling its first computer for $3k with an Intel 8088 chip and IBM selling the PC XT starting at $5k (features were the same except IBM included a 10 MB hard drive and a 12.5" monitor vs 9"). Today it is not uncommon to see complete computers for under $300. Margins for hardware OEMs are less than 5% with them often making pennies to a few dollars on each computer sold while microsoft makes between 20 to 25% of its revenue as profit
(recently Microsoft over the lifetime of the company has done $1 trillion dollars in sales, and kept $265 billion of that $1 trillion as profit)
http://finance.yahoo.com/news/microsoft-hit-1-trillion-time-154723035.html
So what does Google with Android do differently than Microsoft in the smartphone and tablet business? It makes money with another division which is ads and data collection to get higher ad rates and thus they give away their software for free. They are able to build relationships with OEMs that are naturally cooperative for the OEMs are not competing on a $500 dollar device how much goes to microsoft and how much do they keep.
In other words Google way of making moeny alligns with the interest of the OEMs and its also easier to "sell to customers" for free is good. There is no direct antagonism in this relationship.
While Microsoft on the other hand did not innovate, did not change for they liked the business they had and did not want to change it, especially when changing it required tweaking the way they make money and this is so contra to human nature, you want me to make less profit or no profit on the device when I am currently making $25 dollars plus on each phone sold in licensing fees?
And all the while Google slowly gets bigger and bigger like a tortoise, and Microsoft did not adapt, they were asleep at the helm, like the rabbit who slept the race away for he did not see the reason why he should change when he made so much money in the 80s and 90s and the early 2000s doing what he did.
While Vista was a disaster and Vista was released in 2006, Microsoft should have been changing its whole business strategy and how the company was operating several years prior to Vista. Steve Ballmer started running Microsoft as CEO in 2000, and was CEO from 2000 to 2014. He overlearned the market correction / silicon valley crash of the dot com bubble but he just could not fundamentally understand the internet was not going away and that the internet and the data itself was the important thing (the value added to the customer and the improvement in their lives) and the OS itself adds no value to the customer and just because Balmer makes money on the OS does not mean the customer is going to love paying you for something that only "hurts them and does not help them."
There is an exchange that starts in the Season 1 in Silicon Valley and also occurs in Season 3 of Silicon Valley
Season 1 Episode 2 said:
Peter: You turned down ten million dollars to keep Pied Piper.
Peter: What did you give up that money for? What is this company? What did I buy? -
Richard: You bought the algorithm, which...
Peter: (interupting Richard) No.
Peter: The algorithm is the product of the company.
Peter: I know that.
Peter: What I'm asking about is the company itself.
Peter: Who is it? What do they do? Are they essential? Or do you just throw a percentage at them like you did with this This all must be worked out.
Peter Gregory the initial angel investor in silicon valley best understood how markets worked.
But the Steve Balmer mindset is explained by a Season 3 Episode 2 (the one with the horses) mindset by the character Action Jack
Jack: Richard, I don't think you understand what the product is.
Jack: The product isn't the platform, and the product isn't your algorithm, either.
Jack: And it's not even the software.
Jack: (changing the voice to a rhetorical one,)
Jack: Do you know what Pied Piper's product is, Richard?
Richard: Is... Is it me?
Jack: (in Shock) Oh God! No! No.
Jack: How could it possibly be you?
Jack: You got fired.
Jack: Pied Piper's product is its stock.
No no no no no. You mis understood everything Action Jack, the product is not the stock, the products of a company are the actual products you need to sell those things, you can trade a stock but you can't sell a stock. You always need to keep coming out with products that people are willing to buy, or find some other way to generate revenue, and as long as you keep on generate revenue and in the long term make profit the stock will reflect this.
But focusing too much on revenue, or too much on profit, or too much on the stock price misses the forest by hyperfocusing on the trees. You always need to be outside your body and inside the body of the customer you are selling to. Why do they want to buy their product, how can you help them, and how can you help them while making money?
And how can you be two steps ahead of your competitors for they are going to want to find a way to be a better salesperson to those customers in order to steal your business.
And the reason why Microsoft failed in mobile is they did not get this.