Several news outlets have been reporting on the new Microsoft Office, which is due to be released in two versions. One is the traditional form of software that is on the disk of a PC and run from there (Office 2003). The other is a cloud version of Microsoft Office (Office 365), which means that it will be downloaded from the web and run through a web browser. There is no need to keep a local copy on the PC, and no need to wait for those annoying upgrades (the downloaded version is always the latest). In fact, there is no need for a PC because cloud software can be run on any device with a compatible web browser, though the performance may differ depending on how well it is programmed to take into account that it might be run from a tablet or a phone, for example.
Why is this change notable? Microsoft has long been successful using the traditional format of software, and Office still accounts for a sizable portion of their profits. They have also long voiced doubts about the various new computing devices based on the web, such as netbooks (light and inexpensive laptops that primarily get their software from the web). The argument has always been that there is so little to save from having lower-grade specifications that users are unlikely to settle for anything except full-featured computers that can be run both with and without web access.
The change to delivering Office over the cloud is significant because buyers will now be able to choose between the highly profitable normal Office and a subscription-based cloud Office. Although there are clear opportunities in having subscriptions instead of users who buy once and maybe never pay again, it is not clear that the pricing can be done so that this consumer choice can be turned into a benefit for Microsoft. This is especially true because Microsoft is behind competitors such as Google and Zoho in providing cloud-based computing.
Microsoft is a good example of a major firm facing uncertainty because of technological changes. This situation often results in a failure to launch innovations in response, even though the major firms often have greater capabilities to make innovations than their smaller competitors do. What holds them up is the will to do so. In my research, what keeps coming up is that the current success is a deterrent against making necessary changes, but past success can help because it sets the aspirations for future performance high. That looks like a good description of Microsoft now, because its performance is not quite what is used to be, which is exactly the situation that can drive innovations forward. So, I think we can expect Microsoft to launch more innovations that are adapted to the cloud, and perhaps also to the new generation of computing devices. Whether it is soon enough to maintain their competitive strength remains to be seen.
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Greve, H. R. 2003. A behavioral theory of R&D expenditures and innovation: Evidence from shipbuilding. Academy of Management Journal, 46(6): 685-702.