I'm afraid my perspective on Microsoft (NASDAQ:MSFT) differs from that of my dueling partner, Alyce Lomax. I'll acknowledge that I don't believe the company was ever a spectacular first-mover innovator. After all, it bought the license for the original DOS -- the product that launched its computing dominance. Be that as it may, Microsoft's strongest innovations have come in the realm of "search and reapply" -- taking an existing good idea, making it robust and stable, then launching it in a way that's scalable, supportable, and compatible with existing infrastructure.
In following, you also gain the benefit of the leaders' experience, without the costs of blazing a trail. The strategy is so successful that it's being emulated elsewhere. Consider the trend among pharmaceutical giants like Microsoft's fellow Motley Fool Inside Value selection Pfizer (NYSE:PFE). Such firms now buy promising companies for their new products and research pipelines, rather than only accepting internal innovation.
Even "free" software like the OpenOffice project launched by Sun Microsystems (NASDAQ:SUNW) can't find a huge corporate footprint to challenge Microsoft. From a corporate total cost of ownership perspective, it's often cheaper to pay and maintain compatibility than to change and try to force a complete paradigm shift.
As for Microsoft losing money on Xbox, so what? Loss leaders have been a staple of the grocery industry for decades. Kroger (NYSE:KR) regularly puts milk on sale below its total cost. That brings in customers who'll also pick up higher margin products. Why shouldn't Microsoft embrace the same model and make up that loss on the games? Even fellow tech giant IBM (NYSE:IBM) is now embracing open source software in the hopes of picking up lucrative service and consulting contracts.
Microsoft is still doing what it does best, even if its fastest growth is behind it.
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At the time of publication, Fool contributor and Inside Value team member Chuck Saletta owned shares of Microsoft. At the time of publication, his wife owned shares of Kroger. The Fool has a disclosure policy.
