For the past week or so I’ve been devouring — and hugely enjoying — Daniel Yergin’s comprehensive survey of the energy business, from the first oil strike in Pennsylvania, through the energy crises of the ’70’s and ’90’s up to the present era of fracking and (once again) abundant fossil fuels (natural gas this time around).
There’s much to learn about the complex relationships among technology, capitalism, state governments and consumer demand in the book, but one parallel to the tech industry jumped out at me immediately: the paradox of “Dutch Disease” (also known as the “resource curse“); here’s Wikipedia’s definition of the latter:
“[T]he paradox that countries and regions with an abundance of natural resources, specifically point-source non-renewable resources like mineral and fuels, tend to have less economic growth and worse development outcomes than countries with fewer natural resources.”
I can’t read that sentence without thinking about the sharply divergent cultures and strategic arcs of two remarkable companies: Microsoft and Amazon.
Microsoft could be the tech industry poster child for the resource curse — a company seemingly blessed with a massively profitable and “sticky” core franchise (Windows + Office), but that has failed for over a decade to deploy that wealth productively in support of new initiatives.
Even the way the company prosecutes innovation — dumping billions into late-mover attempts to imitate industry leaders (Apple and Google most notably), or grossly overpaying for “strategic” acquisitions that somehow fail to thrive post-deal (e.g., Avenue A / Aquantive, Skype, Yammer) — seems to reflect a misplaced faith in overwhelming force over persistent excellence as the decisive factor in any given strategic battle.
Amazon, by contrast, is the company Wall Street analysts love to hate, because it keeps eroding its own operating margins with price cuts and reinvesting every spare nickel of free cash flow in new ideas instead of sensibly parking profits in offshore tax havens. A casual observer might accuse Jeff Bezos of deliberately starving the organization of resources, paying his people too little and working them too hard to attract and retain great talent.
And yet… seen through the lens of the resource curse, Amazon’s thin margins and culture of permanent scarcity look like pure management genius.
How do you run a $60 Billion business where every employee still treats company money like it was their own, works like a dog and holds themselves and their peers to insanely high standards of excellence and output? Apparently, you never rest on your laurels, constantly harvest profitable lines of business to feed ever-faster cycles of innovation in new ones, and keep placing bets on the future without regard to competitors, Wall Street or anyone else.
This is — of course — a grossly unfair and ill-informed oversimplification of a much more complex and dynamic strategic situation facing two very different companies which grew up in two very different eras in tech. And there’s nothing I’d rather see — for the good of Seattle’s ecosystem as much as for the company and its people — than for Microsoft to re-emerge as a leader and innovator. But it may require a sharp and scary erosion of Microsoft’s core revenue franchises — triggering a real fight for survival — for the company to shake off the torpor of abundance and regain its fighting form.
P.S. — Google is the next in line to suffer from the resource curse — their core search advertising franchise is the magic cash machine that feeds their culture of abundance — but so far they’ve done a better job of deploying that cash against genuine innovation that matters (Gmail, Google Maps, Android, Google Docs) than Microsoft. Only time will tell, but the realist in me thinks that the resource curse will eventually erode that culture’s competence from the inside out no matter how well the leaders play their cards.
Steve Jobs was right when he said “stay hungry, stay foolish” — too much of a good thing never turns out well.