Understanding competition — the Bill Gates way

I thought that I had analyzed the levels and degrees of competition fairly comprehensively. In fact, I have used that as an organizing framework to understand competitive advantage.

Recently a friend of mine sent me an excerpts of an interview with Bill Gates when he was still the CEO of Microsoft which makes interesting reading.

Flying on the Delta Shuttle with Bill Gates 12 years ago, Richard Karlgaard– the Editor of Forbes asked Bill, “What Microsoft competitor worries you most?”

“Goldman Sachs.” Richard gave Gates a startled look. Was Microsoft about to try the investment banking business? “Software,” he said, “is an IQ business. Microsoft must win the IQ war, or we won’t have a future. I don’t worry about Lotus or IBM, because the smartest guys would rather come to work for Microsoft. Our competitors for IQ are investment banks such as Goldman Sachs and Morgan Stanley.”

Getting the brightest bulbs to work at Microsoft has always been his obsession. It’s paid off. But what about now?

The best and the brightest want to work for companies like Google and Facebook. Microsoft seems to be losing the talent war. And does that explain why Microsoft has not made any ground shifting move in recent years yielding that terrain to Google and others?

Microsoft is caught in a classic dilemma of its own making. Its major revenue and profit streams continue to be Windows and Office which needs to be defended at all costs against young new attackers. Now will the smartest guys want to work for a organization where they would have to defend legacy or want to take a crack at changing the world?

The answer is obvious.

Unless you are a Singapore government scholar who has no choice but to work in the Singapore civil service because of the scholarship bond that you sign when you are 18 years old.