Microsoft building an ecosystem with Barnes and Noble investment

Microsoft is one of the largest players in the next generation of platforms and operating systems but it’s the only one with out an ecosystem. That is, it’s the only one without revenue generating services that can help power and guide those platforms

In a previous blog post, “Windows 8 will succeed, but Microsoft could still fail“, I talked about Windows 8 and the impact it could have on the antiquated business model Microsoft has for their Windows Division. Specifically, I talk about how their business model is in trouble due to pressures on providing free upgrades like Apple and Google do for the iOS and Android platforms. I further propose that, without additional revenue generating services, Microsoft is going to have a difficult time competing in the platform space moving forward. In order for Windows to succeed in the Post-PC era, Microsoft needs to build an ecosystem that provides their main source or revenue in the consumer space.

Oddly enough, it seems Microsoft understands this and its recent injection of money into Barnes and Noble is proof.

It’s no great secret that Microsoft is years behind Apple, Amazon, and Google in providing online services. In addition, Microsoft will not be able to build these services in a reasonable amount of time and, to be honest, their track record has proven they aren’t necessarily very good at it. They have attempted multiple music services, either through building it themselves or via partnership, and none were very successful. In addition, their implementation had a long lasting impact on users because they took down DRM servers making some music no longer able to be played.  Bing has been somewhat of a bomb and continues to cost Microsoft money.

The “funding” of a new Barnes and Noble digital and educational company is brilliant. This allows Microsoft to complete against all three major e-book players on a fairly level playing field very quickly. Without Barnes and Noble, Microsoft would be in a world of hurt, plus they have added another piece to their ecosystem.  Microsoft is already planning to come out with an App Store for Metro, which will provide some decent revenue opportunities, but having access to the Barnes and Noble customer base and providing their e-reader on all Windows 8 versions is a step in the right direction.

Now the question is, where is Microsoft going to get video?

A friend of mine, Jeff Hardy, sent me an email and suggested, albeit sarcastically, that Microsoft buy Netflix. The funny thing is, I agree 100% with the idea.  Netflix is in trouble. They don’t have enough money to get enough content and they’re stuck.  Companies such as NBC, CBS, FOX, Showtime, HBO, etc. don’t like the Netflix model. Plus, Netflix has another issue: their model works great for older content but you can’t sell customers on older content. New and ever-changing content drives revenue. That’s why CBS, NBC, et. al. have their own apps and websites for customers to consume “new” content.

Microsoft has the perfect opportunity to get into the TV and movie service, immediately and across ALL platforms.  Microsoft could go from zero ecosystem to a complete ecosystem, across every device and platform available, practically overnight. Once Microsoft has their new media service (i.e., post-Netflix), they will have the money and the leverage to bargain with the NBC, CBS, HBO and other media companies. Microsoft will now own the platforms – Windows Mobile and Windows for desktops and tablet – and will have the ability to extend Netflix into a rental service as well, just as Apple has with iTunes and Amazon with their Prime service. The Amazon model is really the one everyone needs to move to. What’s holding Amazon back is that their video can only be played on limited devices and the service is very dependent on Flash.

So that leaves Microsoft with a need for a music service, and it sounds like they’re going to try to develop their own solution again. This time it should be simpler both because they’ve tried it before, and this time there are a few good models to use moving forward.

Investors, and even politicians, are giving Microsoft a lot of heat for sitting on nearly $60 billion in cash. This might have been a very smart decision and will give Microsoft a lot of flexibility in their direction and development of online services as there are some very well established companies that can make Microsoft very relevant very quickly, for the right price.

It would be a pleasant surprise if Microsoft could erase their consumer failures over the last 5 years. Apple’s iOS has had the same look and feel for the last few years and I don’t think Apple has felt pressure from Google and Android from a “user experience” standpoint. Microsoft, especially with there Metro interface, might be the nudge that Apple needs to evolve their very functional, but somewhat boring, mobile platform.

After all is said and done, what do you think of a Microsoft acquisition of Netflix? Does it make sense? Do you think Microsoft has what it takes to build a comparable ecosystem to Apple, Amazon and Google?

2 Responses to Microsoft building an ecosystem with Barnes and Noble investment

  1. Interesting. Wonder how this integration will all look a year from now.

  2. danielcomp says:

    I think it’s an intriguing strategy, and I agree with the ‘take some cash and take a risk’, but then again, I’m an entrepreneur following champions like Richard Branson and Elon Musk, not a corporation.

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