Microsoft on iTunes: "We were smoked"

This is an interesting peak behind the curtain at The Great Oz (Microsoft, circa 2003). Founder Bill Gates and product manager Jim Allchin admitted that Apple caught them unawares- again- and wondered how and why the record companies would let something like that happen.

Even more telling, Gates urges his team to "move quick to both match and do stuff better" than Apple in the music space. Seven years later? The Zune. And Zune Marketplace. Actually, the Zune is a good device, and TZM has certain advantages over iTunes, including a subscription model, for those who prefer it, albeit an expensive one. Yet the Zune has a tiny fraction of a market completely dominated by Apple, in a role-reversal of the desktop OS market, where MS is the 800 lb. gorilla.

It is good that Gates and company recognized a problem. Not so good that, after 7 years, they are nowhere near a leadership position in that market.

This is an apocryphal story akin to Ken Olson, president, chairman and founder of Digital Equipment Corporation (DEC), who, in 1977 declared “There is no reason anyone would want a computer in their home.” MS has sleepwalked through much of the last 2o years, relying on it's massive installed user base and gobs of cash instead of innovation and superb execution. In the lightning-paced world of technology, it may be their undoing.


Full text of the disclosed emails follows here, courtesy of Techcrunch: