With the departure of Bill Gates and Andy Grove, their respective companies have taken very different paths. Image courtesy of REUTERS
Steve Jobs didn't like to hear people say "no." But Intel CEO Paul Otellonen replied to Jobs.
It was 2006, and Intel, the global leader in computer chips, achieved record revenues and profits with its dominance of the most in-demand PC chips and data center chips. Mr. Jobs wanted Intel to produce a different type of chip for a product that didn't come out at the time, which later became the iPhone.
Otellan knew that chips for mobile phones and tablet devices would be the next hot spot, but Intel would have to put a lot of capital and the best talent into the company's existing lucrative business. In addition, he told The Atlantic seven years later: "No one knows what the impact of the iPhone will be. They are interested in a chip and want to pay a specific price for it, but are not willing to pay an extra dollar. This price is lower than our expected cost. I can't accept it. He stepped down as CEO shortly after.
Otellinen died in 2017. In many ways, he was a very successful CEO. But if Intel decides otherwise, it may have become a chip giant in the post-PC generation. It tried to become a major market player, but lost billions of dollars, and in 2016, Intel abandoned its mobile phone chip business. When Altellins left the company, he seemed to be aware of the important implications of his decision: "If we had accepted Apple's demands, the world would have changed dramatically.
The introduction of IBM computers in 1981 brought Intel chips and Microsoft software into homes and businesses around the world. IMAGE CREDIT: SSPL/GETTY IMAGES
Meanwhile, in Seattle, about 800 miles north of Intel, Microsoft is struggling to find its niche in the internet, mobile, social media and search-led tech space. Its efforts did not impress investors. No one could have foreseen that a few years later, Microsoft made several key decisions that turned the company into a giant in the field of artificial intelligence and caused the stock price to skyrocket.
Not so long ago, Microsoft and Intel dominated the tech world. They are neither competitors nor significant customers, but Adam Brandenberg of New York University and Barry Nalebaff of Yale see the two companies as "complementary." Over the years, Microsoft has made a fortune with the Windows operating system running on computers that use Intel chips, while Intel has designed new chips that run Windows (hence the so-called "Wintel"). The alliance of the two companies contributed to the flourishing of personal computers, the leading technology products of the 20th century, in the 90s of the 20th century. Microsoft's Bill Gates became a well-known nerd billionaire, while Intel CEO Andy Grove was named the 1997 Person of the Year by Time magazine.
But then the two companies went in very different directions. In 2000, Microsoft was the most valuable company in the world, and after years of losing that title, Microsoft is now back at the top. In 2000, Intel was the world's sixth-largest semiconductor manufacturer by market capitalization, and now it ranks 69th in terms of market capitalization and second-largest in the semiconductor industry in terms of revenue, far behind TSMC (and in some years, Samsung).
The shares of the two tech giants were in a similar direction at one point, until Microsoft began to make a bold attempt.
A CEO of a Fortune 500 company makes thousands of decisions over the course of his career, some of which have a significant impact. Some things are easy to explain in hindsight, such as Microsoft becoming a pioneer in artificial intelligence, Google becoming a behemoth, and Blockbuster, a video rental company, disappearing, but these things are not arranged by God. Fateful decisions are often determined after the fact. The story of Microsoft and Intel is the best proof of this. The successes and failures of these two giants provide a model of business strategy not only for leading companies such as Google, OpenAI, and Amazon, but also for the leaders of Fortune 500 companies who want to survive and thrive in the next decade.
Origins of Wintel
The two companies were founded only seven years apart. Intel was founded in 1968 by Robert Noyce and Gordon Moore, co-inventors of computer chips. In a seminal article, Moore predicted that the number of transistors on a chip would double every year, later revised to double every two years, in what came to be known as "Moore's Law." Andy Grove is Intel's No. 3 employee. The trio are still regarded as industry giants to this day.
It is known that Bill Gates co-founded Microsoft with his childhood friend Paul Allen after graduating from Harvard University. They were excited about the prospect of developing software for the new concept of personal computers, also known as microcomputers. They created Microsoft in 1975.
Gates and Grove on the cover of Fortune magazine for decades. IMAGE CREDIT: FORTUNE
In 1980, IBM decided to produce a PC, and in order to move forward quickly, decided to use existing chips and existing operating systems developed by other companies, and the development paths of the two companies became intertwined. IBM chose Intel's chips and Microsoft's operating system, which profoundly changed the two companies and their operators. IBM's size and reputation made its designs the industry standard, so in the decades that followed, PCs from every manufacturer used Intel chips and Microsoft's operating systems. As PCs swept the U.S. and the world, Intel and Microsoft became symbols of technological triumph, glamour, success, and the historic bull market from 1982 to 2000.
Later, everything changed.
The "reign" of Gates and Grove is over
In October 2000, Fortune magazine published an article with illustrations depicting Gates and Grove as the immortal Sphinx of Egypt. The title of the article was "Their Reign Is Over".
"Gates and Grove gained supremacy by seizing two key nodes in computer architecture – the operating system and the PC microprocessor," the article explains. But in the new, more diverse IT world, connected by the Common Internet Protocol, there is no such obvious critical node to preempt. ”
As a result, the two companies embarked on a years-long identity crisis. Intel's PC chips and Microsoft's PC operating systems and applications are still lucrative businesses, but both companies and their investors know this isn't the way forward. What is the future and who will lead the new era?
In January 2000, Gates stepped down after 25 years as CEO and was replaced by Steve Ballmer, president of Microsoft and a college friend of Gates' college friend, who remained chairman. Two days later, Microsoft's stock price plummeted. On that day, Microsoft's market capitalization was $619 billion, and it hasn't reached that level again for nearly 18 years.
In 2000, Grove stepped down as Intel's CEO, a position that was taken over in 1998 by longtime company executive Craig Barrett. But as Intel's visionary and most successful CEO, Grove still plays an important role as chairman of the board. His health became problematic, and he was diagnosed with prostate cancer in 1995 and Parkinson's disease in 2000. Intel's stock price soared until August, when the company's market capitalization peaked at $500 billion. Since then, the company's share price has never returned to its peak.
On top of that, the internet in the year 2000 seems to have started to make Wintel irrelevant.
At Intel, Barrett made a series of acquisitions, many of which came from the telecommunications and wireless technology sectors. Conceptually, this is a smart move. Mobile phones are going mainstream and need new types of chips. David Joffe, a professor at Harvard Business School and a member of Intel's board of directors at the time, said: "Craig is trying to diversify Intel's business by acquiring new businesses. But I'd say that's not his specialty, and these acquisitions have all failed. We spent $12 billion and ended up with zero or negative returns. ”
During the depression that followed the dot-com bubble burst, Barrett continued to invest billions of dollars in new chip factories (wafer fabs) and new production technologies so that Intel could be well positioned when demand rebounded. This leads to one of the most important lessons behind Wintel's storied history: even in times of transition, companies almost involuntarily protect existing businesses. Doing so often sounds reasonable, but there is a danger of putting the company's future in jeopardy. As the great management writer Peter Drucker said, "If leaders can't get rid of yesterday and give up yesterday, they can't create tomorrow." ”
"We screwed up"
Ray Oz, a Microsoft executive from 2005 to 2010, said that at Microsoft in the 2000s, "it wasn't clear about the shape and size of PCs, the profit margins of operating systems, and what would happen to applications like Word or Excel in the future." Whether PCs will die out in the future, or whether they will continue to grow and thrive, is hotly debated within Microsoft and across the industry. "Maybe Word, Excel, and other applications that are installed on the hard drive will migrate to the Internet, similar to Google Docs, which was launched in early 2006. In this case, Microsoft needed a new business model. Should Microsoft develop a new business model? But no one knows the exact answer.
During this period, Microsoft was no longer a model of enterprise innovation, but was stuck in the situation that often happens when successful companies are disrupted. "When you have abundant resources and multiple existential threats, the most natural way to protect your company is to take a parallel strategy," Oz explains. What is even more difficult is to stick to your own opinions, make choices, and give it your all. Unfortunately, adopting a parallel development strategy can create estrangement and internal conflicts between various departments, which can lead to the failure of the company's operations. ”
With teams vying each other for dominance, Microsoft misses out on two of the most lucrative businesses since the PC era: search and mobile phones. These blunders are not fatal, as Microsoft still has two reliable and highly profitable businesses: the Windows operating system and the Office family of applications. But in Drucker's words, these are outdated businesses. Investors don't see a substantial future business, which is why Microsoft's share price has been depressed for years. Missing out on search and mobile phones doesn't threaten Microsoft's survival, but it does affect Microsoft's relevance and importance in a new era of rapid change, which could ultimately hurt the company's appeal to investors and the world's best employees. The reasons behind these critical missteps are educational.
In 2000, Google was still a little-known internet search startup with no clear business model, but it had a general idea that selling advertising was profitable. The end result is clear: Google's advertising revenue in 2023 is $238 billion. This is a completely foreign model to Microsoft, which relies on developing and selling software at a high price for its revenue. Selling ads to users for free? Microsoft has never run a similar business to Google. By the time Google's model was validated, Microsoft was already far behind. Today, Microsoft's Bing search engine has a market share of just 3 percent across platforms around the world, according to StatCounter, a web traffic analytics firm. Whereas Google's market share is 92%.
谷歌创始人谢尔盖·布林（左）和拉里·佩奇让微软陷入了身份危机。 图片来源：RICHARD KOCI HERNANDEZ—MEDIANEWS GROUP/THE MERCURY NEWS/GETTY IMAGES
Microsoft has suffered a similar failure in the mobile phone space, and by the time Microsoft fully understands the structure of the mobile phone business, it will be too late. Microsoft thinks the mobile phone industry will evolve similarly to the PC industry, just as PC sellers like Dell combine Intel's chips and Microsoft's software into a final product. But Apple's distinctive iPhone business model was a success, with Apple designing its own chips and writing its own software. Another big winner in the mobile phone industry is Google's Android smartphone operating system, which similarly ignores the PC mode.
Google doesn't sell the operating system, but gives it to phone makers like Samsung and Motorola for free. Google's revenue comes from installing its search engine on every phone and charging app developers a fee when users purchase apps.
Bill Gates admits that Microsoft's blunders in the field of mobile phones changed the company's fortunes. Reflecting on his career in 2020, he said: "It was the biggest mistake I made in something that was clearly within our skill set. ”
In a similar way, Intel has missed out on a huge business opportunity in the mobile phone industry. It can't adapt to change. Recognizing an opportunity in the mobile phone industry, Intel supplied chips for the popular BlackBerry phone back in the early 2000s. The problem is that the designers of these chips are not Intel, but the British company Arm. Arm designs chips, but does not make them. A chip architecture designed by Arm that consumes less power than other chips, which is essential for mobile phones. Intel is responsible for producing the chips and paying royalties to Arm.
In 2006, Steve Jobs gave a keynote speech at the Moscone Center and announced the use of Intel's processors in Mac computers. On the right is Intel CEO Paul Otellen. LIZ HAFALIA—THE SAN FRANCISCO CHRONICLE/GETTY IMAGES
Intel understandably prefers to use its own x86 architecture to produce mobile phone chips. Paul Alderning's decision to stop producing Arm chips and develop an x86 chip for mobile phones — which, in hindsight, Joffy said, "was a major strategic mistake". "The plan was that we would develop a competitive product within a year, but ten years later, that plan didn't materialize," he recalls. It's not that we're missing out on the opportunities that mobile phones bring, it's that we're messing up. ”
Explore great trends
The year 2000 was a turning point for Intel and Microsoft, and the year 2013 was no different. Broadly speaking, they are caught in the same predicament: the business that once made them great is still generating revenue for the company, they want to participate in the next big opportunity but it is too late or unsuccessful, and they are trying to find the next big trend that can be dominated. Their share prices have been more or less depressed for at least a decade. In May 2013, Paul Otellenen stepped down as CEO of Intel. In August, Steve Ballmer announced that he would step down as CEO of Microsoft.
Succession planning is a top priority for the board, more important than all the other tasks of the board combined. There is always a high level of risk. The way the boards of Intel and Microsoft deal with succession issues nine months apart goes a long way to explaining why the two companies have dramatically taken different paths.
Under Otellen's successor, Brian Cozaić, Intel has never been able to deliver new chips on time — ironically, Intel has not even been able to keep up with Moore's Law like its competitors, and the company's market share has shrunk. The company ditched smartphone chips. An investigation found that Mr. Ko had had a consensual relationship with an employee, and Mr. Ko, who had served as CEO for five years, abruptly resigned. CFO Bob Swan took over as CEO, and with production issues continuing into 2021, Intel faced the dilemma of its chips being two generations behind its competitors for the first time in its history. These competitors are Taiwan's Taiwan Semiconductor Manufacturing Company (TSMC) and South Korea's Samsung.
In the midst of the crisis, Intel's board of directors recalled Pat Kissinger, an engineer who had been away from the company for 11 years. Kissinger spent 30 years with the company, serving as an executive at EMC and later as CEO of VMware. As Intel's CEO, Gelsinger announced an ambitious and costly plan to reclaim the company's world leadership in chip technology.
Microsoft's board of directors spent nearly six months searching the globe for Ballmer's successor. There are at least 17 candidates openly discussed. Bookmakers in the UK and Las Vegas are offering odds on the winner, with Satya Nadella, who recently turned a decade as CEO, not favourites at 14 to 1 at the time.
Nadella has arguably been the best choice for a company succession in all walks of life for many years and decades. Under his leadership, Microsoft's stock price eventually broke out of the 14-year trading range and rose sharply, rising by more than 1,000%. Microsoft is once again the world's most valuable company, with a recent market capitalization of $3.1 trillion. Kissinger has just been Intel's CEO for just over three years, so it is impossible to fully evaluate it, and industry experts are speculating about whether he could become Intel's Nadella. But both CEOs offer useful examples of how companies can move beyond the past and into the future.
Nadella looked at the company through an outsider's lens, transformed the company, and made drastic reforms without causing much of a stir. He first made Office applications (Word, Excel) compatible with Apple's iPhone and iPad – heresy in the eyes of Microsoft, which saw Apple as its main enemy. But Nadella realized that there wasn't much competition between the two companies, and why not get more people to rely on Office applications? Now Microsoft is open to interoperability with other companies.
This is a new business model for Microsoft, and there will be more new models in the future. For example, Nadella acquired LinkedIn, which has a presence in the social media space that Microsoft has completely missed. Then, Microsoft acquired GitHub, an open-source codebase that it once disdained. These two deals, as well as several others, were a big hit.
Overall, Nadella brings a whole new style of leadership to the new environment. At a company known for its malicious infighting, infighting may have paralyzed operations, but he settled a long-standing debate over major projects. In 2016, for example, he sold the Nokia mobile phone business that Microsoft had acquired a year before he became CEO, admitting that the company had lost the phone war. A former executive said: "People don't quite understand why Microsoft has been able to thrive under Satya's leadership. His superpower lies in making choices, eliminating conflicts, and allowing the business to flourish. ”
At Intel, Gelsinger also set off a revolution that challenged the company's culture. The company has established a leading position in the industry by designing cutting-edge chips and having industry-leading manufacturing technologies. With this strong sense of pride, creating a separate foundry to produce chips designed by others is seen as a big rebellion. However, under Kissinger's leadership, Intel created a new foundry business while relying more on other foundries to produce its own chips, including TSMC, the world's largest chipmaker — a double shock to the company's culture.
Getting an established company with a long cultural tradition to accept a seemingly unfamiliar business model, like Nadella and Kissinger, can be a painfully difficult process. Often, only a new CEO can bring an open mind to make this transition. The same problem arises when a company needs to update its corporate strategy. Microsoft has been looking and discussing the next hot area for years, but Nadella doesn't see the need for the company to look for a new business that could be a big potential and future-proof. It already has one such business: Azure, a cloud computing service. Amazon Web Services has been and is leading the industry, but Azure has emerged as the second most powerful player because Nadella has poured ample capital into the business and some of the company's brightest employees. He also made an extraordinary investment in OpenAI, the developer of ChatGPT, pledging $13 billion in the company long before it became famous. Now Azure offers OpenAI's technology to its customers. According to Drucker, this is a thriving business of the future.
Kissinger's reform of Intel's strategy was even more radical. He boldly exploited billions of dollars from the U.S. government and with great success. Through the CHIPS and Science Act, Intel could receive up to $44 billion in aid to build new chip factories in the United States in the coming years. He told Fortune: "I like to joke that no one has put more effort into pushing the CHIPS Act into pushing the CHIPS Act. I've seen a lot of senators, representatives, and state political groups. I put a lot of effort into it. ”
A key point is that for large companies like Microsoft and Intel that have had a proven track record of success, it is difficult, and sometimes impossible, to move away from outdated strategies and fully embrace new ones. For years, the two companies have been trying and not working. There is also a related point: it is easier for Nadella and Kissinger to do so because they have the advantage of being a "inside and outside" leader who has a deep understanding of the company, but is not deeply involved in the company's strategy. Nadella worked for Azure for a long time before becoming CEO, not Windows operating systems or Office applications, and Kissinger's 11-year absence from Intel gave him the opportunity to rethink everything.
An even more important lesson is that succession planning is the most important factor in the development of these two great companies. Over the past 24 years, Microsoft has outperformed Intel overall, during which time Microsoft had only two CEOs, while Intel has experienced as many as five. Most people look at the CEO when explaining a company's performance, but the first thing they should look at is the person who chooses the CEO, which is the company's board of directors.
Looking back on these stories, we can't help but ask, "What if...... What will happen". What if Paul Otellenos agreed to Steve Jobs' request? What if either Intel or Microsoft CEO had someone else? If, under the leadership of another CEO, Intel developed a successful GPU, the chip that powers the AI engine today (which it tried) — would you still have heard of Nvidia? Bill Gates said in 2019: "We almost became the mainstream mobile operating system." "What if this little bit shifts a little bit? Which brand of phone would you use today?"
These are fascinating questions that will not be answered. The value of looking back at history and pondering these hypothetical questions is to remind us that leaders are creating the future every day, and that it would be a remiss if they failed to learn from history.
Five takeaways from the Wintel case study
1. Success can be a company's worst enemy.
The great management writer Peter Drucker once said that every company must "leave yesterday behind" in order to "create tomorrow". But in a successful company, leaders can't help but protect "yesterday". Intel and Microsoft have been working for years to create tomorrow.
2. Leaders must be willing to accept seemingly strange business models.
Whether it's providing software for free or making chips designed by others a stand-alone business, Microsoft and Intel are changing their business strategies to deal with competitors.
3. Unify your mind.
The debate was healthy to a certain extent, but at Microsoft, it went on for far too long and didn't end until Nadella became CEO and made his priorities clear. At Intel, successive CEOs have supported different solutions to deal with the decline in their business, which has led to a long period of strategic confusion for the company.
4. Succession planning is a top priority for the Board, more than all other tasks on the Board combined.
Everybody knows that, but some boards still don't get the job done. If they make a mistake, all the other lessons don't matter. Over the past 24 years, Microsoft has outperformed Intel overall, during which time Microsoft had only two CEOs, while Intel has experienced as many as five.
5. Failure is not fatal.
Wintel's story reminds us that all companies, including the best, fail and fall into crisis. No company is immune. The leader of any company, even the most prominent, must always be ready to apply organizational rescue skills and know that this is part of a great company as well. (Fortune Chinese Network)
Translator: Liu Jinlong
Reviewer: Wang Hao
The 2024 Fortune China 500 list will be launched, using the same method as the Fortune Global 500, including both listed and unlisted companies. Based on this list and its data, one can get an idea of the latest trends in China's largest companies.
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