This weekend I was thinking about multi-sided markets and how Microsoft has used it to their advantage. Upon further thinking, I feel that it is the same concept that is hurting them today. It was once their core-competency now it is a competency trap.

In the earlier era, MSFT served it two main constituents -- developers and end-user -- very well. Today, they have to worry about the talent market as well. However, this is not their main cause for worry -- although they are losing their allure here. In these multi-sided markets, companies have to first recognize these markets, provide deep value to each market and understand the interactions between them. I think MSFT has done a good job recognizing these markets. I also believe that they understand the interactions between the markets. However, I think they have failed in providing the deep value component. Let me explain. When MSFT dominated in the PC era, interactions with customers and developers were basically around product releases and major upgrades to the product. While they maintained contact in between releases, a major part of the education and learning were centered around the product life-cycle and release dates or on a yearly basis. As a result, they have big events each year that recognize users and developers. They designed their organization structures and process around this. Recent postings about the high level of bureaucracy and low level of innovation and response to market conditions, support this view. Compare this to what Google does. Google interacts with its users on a daily basis with beta product releases and search results. They are learning about customer preferences daily. In addition, they allow users to innovate on their platform. Also, their unique team structures and 70/20/10 principle supports a faster pace of innovation.

Let us turn our attention to the other side and focus on developers. Here again Google is on a different rhythm. It allows developers to interact with their application programs via APIs and track interactions on a call-by-call basis. This interaction allows them to respond to developer needs and modify the platform constantly. Furthermore, with mash-ups being created on a daily basis, this network is growing fast.

While MSFT is using its network effects to sense and respond to market needs, Google is able to anticipate and lead using its high frequency, granular data collection..