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Most articles on the web attribute the pony trick theory to Ballmer; some also see Gates as the father of the theory. However, the theory has a mother, and her name is Charlene Li. In 2005, the Forrester analyst called Google the one-trick pony.
Ballmer’s pony trick theory
Ever since Li’s deep analysis of Google’s business, Ballmer has used the pony trick picture to downplay the importance of the search giant. In his latest interview (fast-forward to 42:40) at the Oxford Saïd Business School, he attributes 2.5 pony tricks to Microsoft. He probably just quickly added the “foal trick” to give Microsoft more pony power than Apple; Cupertino’s gadget builder only reached 2.0 on Ballmer’s pony scale.
According to Ballmer, Microsoft’s first pony trick was the PC, the second trick was to bring the microprocessor to the datacenter, and the foal trick was the Xbox.
Do you notice something strange about this list? Something is very odd. Only hardware made it into Ballmer’s pony trick list. And we always believed that Microsoft was a software company in their best times. Perhaps Ballmer’s pony trick theory is all wrong?
I believe so. And I also believe that this wrong theory got him fired in the end—fired by Bill Gates, who became the richest man on the planet with a pony trick that is all about software.
Microsoft’s first pony trick
Microsoft’s first pony trick is not about the PC, or Windows, or Office. It all happened before Ballmer joined Microsoft.
In his book, The Road Ahead, Bill Gates writes:
In 1979, Paul and I moved Microsoft to a town near Seattle, Washington. The company was growing. Microsoft was doing so well because we made only software, never computers.
And Paul Allen writes in his book, Idea Man:
That was our philosophy, too; we believed that software was more valuable than hardware.
In the Mainframe era, software was always bundled with hardware; it was a mere byproduct, just like nowadays the iOS is a mere byproduct to a shiny iPhone, and Windows has become a byproduct of the Surface.
Bill Gates and Paul Allen saw very early that software can be decoupled from hardware. This undoubtedly was Microsoft’s first pony trick, a trick that truly changed the world. Only with the help of many hardware manufacturers was it possible “to bring a computer into every home.” If Gates and Allen competed with computer manufacturers, like Apple did, Microsoft would never have become one of the biggest tech companies on the planet. Windows, Office, and microprocessors in datacenters were all just consequences of this fundamental insight that software has its own independent value.
Bill Gates is quite aware of his achievement. He even tried to convince Apple (the company that Ballmer tried to ape by buying Nokia) to use his pony trick.
Walter Isaacson, writes in his book, Steve Jobs:
Bill Gates, who was building a fortune by licensing Microsoft’s operating system, had urged Apple to do the same in 1985, just as Jobs was being eased out. Gates believed that, even if Apple took away some of Microsoft’s operating system customers, Microsoft could make money by creating versions of its applications software, such as Word and Excel, for the users of the Macintosh and its clones. “I was trying to do everything to get them to be a strong licensor,” he recalled. He sent a formal memo to Sculley making the case. “The industry has reached the point where it is now impossible for Apple to create a standard out of their innovative technology without support from, and the resulting credibility of, other personal computer manufacturers,” he argued. “Apple should license Macintosh technology to 3–5 significant manufacturers for the development of ‘Mac Compatibles.’” Gates got no reply…
I think the phone and tablet market has now reached the point that Gates mentioned in his memo with regard to PCs. History repeats itself. Just that this time it is not Microsoft that uses the software pony trick against Apple. It is Google, Ballmer’s favorite rival, that exploits the Gates trick to become as dominant in the phone and tablet market as Microsoft once was in the PC market. Google decoupled iOS from the iPhone and called it Android. This pony trick worked a second time because Google applied it to a new market and because Ballmer's Microsoft was sleeping. Google is definitely no longer a one trick Pony.
Microsoft’s second pony trick
I do believe that Microsoft did a second pony trick, a trick that was no less important to “the universal adoption of the computer.” It was the Graphical User Interface.
In Idea Man, Allen writes:
But soon the mouse felt like an extension of my arm, and it was then that I realized how a GUI interface could make people so much more productive.
And later in the same book:
Once GUIs went commercial, computers would become so natural and organic that anyone’s mother would learn how to use them. At that point, it seemed to me, nothing could stop their universal adoption. They’d be like television sets; they’d be irresistible.
It is true that Apple first stole the GUI from Xerox PARC; however, Microsoft truly changed the world with their GUIs, which is why I feel that we have to attribute this pony trick to Allen and Gates (probably more to Allen because he was the one who first noticed the power of GUIs).
Why Gates fired Ballmer
After reading the Bloomberg article, it became obvious to me why Ballmer had to go. Because of his hardware aversion, Gates was against the Nokia deal right from the beginning. He gave in at first, but he probably stepped in when it became more and more obvious that Ballmer’s strategy was going to fail. Ballmer was about to slaughter Gates’ and Allen’s first-born pony, and the philanthropist could no longer close his eyes at the sight of this cruelty.
Ballmer arrived at his faulty pony trick theory because he is a sales person. For him, a pony trick is just a successful product—that is, a product that earns “a lot of money for shareholders relative to their expectations.” However, in the beginning, pony tricks are never about products; they are just great ideas, ideas that have the power to change the world.
He bought Nokia because he believed that the iPhone is a great pony and he wanted to have one in Microsoft’s stables. He seriously believed that he can buy a pony trick, which, of course, is ridiculous. The trick about tricks is that you have to be the first one to do the trick because, once everyone knows how the trick works, it is no longer a trick.
By the way, I believe Ballmer’s pony trick theory about Apple is wrong as well. Apple did only one pony trick, and that was to transform the computer into a lifestyle product. Without this trick Apple would have disappeared just like all the other early computer manufacturers that had their own operating system (Altair, Commodore, Atari, etc.) and it is the main reason why the iPod, the iPhone, the iPad, and also the Mac were so successful. It is also the reason why Apple has to unite hardware, software, and services into one product. This doesn’t just allow them to optimize the user experience.
Far more important is that buyers can be turned into believers of the magic of the Apple brand only if the entire cult product comes from one creator. However, Microsoft can never become a lifestyle company. That wouldn’t work even if Microsoft bought Apple (when it was still possible). You can’t have a brand that caters to the “office worker class” and at the same time captivates those who are in need of “class and style.”
I think Gates was right to fire Ballmer because the self-declared Google pony hunter betrayed Microsoft’s core value of keeping software and hardware apart. Ballmer might be disappointed that Gates no longer backed him, which led to his outburst in the board meeting mentioned in the Bloomberg article. But what did he expect after he tried to annul the greatest achievement of his friend, the Microsoft founder?
The Gates pony is back
It is interesting to note that Nadella also voted against the Nokia deal at first, and, in his second interview as Microsoft CEO, he stressed the importance of software. You can also notice a change in Nadella language. Whereas Ballmer still talks about “devices and services,” Nadella prefers “mobile and cloud.” Obviously, “mobile” doesn’t necessarily include devices—that is, hardware. “Cloud,” on the other hand, is a broader term than “services.” “Cloud” includes software for the private cloud as well as software for other cloud service providers. This is clearly a fundamental strategy shift. Microsoft again wants to be a software company that builds operating systems and applications for all thinkable devices—devices built by loyal partners, not by hostile competitors.
Of course, Nadella can’t change Microsoft’s course from one day to the next, especially since the Nokia acquisition is not even completed. If he wants to at least save some of Microsoft’s investment, he has to make the best of Ballmer’s bad job. However, I predicted it before and I do it again: Microsoft will dump Nokia in a shorter time than it took for Google to get rid of Motorola.
I mentioned Microsoft’s second pony trick not just for the sake of completeness. It was also under Ballmer’s regime that the emphasis on “natural and organic” interfaces (in Allen’s words) lost its appeal in parts of Microsoft’s top management. Although Ballmer probably didn’t play an active role in this, it happened under his leadership and is most likely the main reason why Microsoft missed the trend for touch.
Only a CEO with a profound understanding of technology is able to see that the engineer’s idea has the power to change the world. To foresee the iPhone was hard, but the iPad was an easy one, especially if you consider that Gates saw the tablet coming long before Steve Jobs did. Ballmer totally messed this up because he is just a sales guy who can only sell a product once it is done. And that is why I believe that it was the right decision to replace Ballmer with an engineer.
Microsoft must continue to ride the ponies it has in the stable and hope that one of the stable lads has an idea for the next pony trick. I strongly believe that both pony tricks are still essential for Microsoft’s future. The focus on easy-to-use interfaces and software, together with a strong partnership with hardware manufacturers, made Microsoft big. I feel that, without those two core values, Microsoft’s future is doomed.
What do you think? Would you have fired Ballmer, too?