In not so many words, John Battelle tells us that Microsoft is experiencing the innovator's dilemma.

Microsoft is a middle aged company struggling to figure out how to dance with the teenagers, and its body simply can't keep up with its intentions, no matter how correct they may be. I'm not claiming "Microsoft doesn't get it" - in fact, I very much think it does. I'm saying that structurally, the company is not capable of executing on what it knows it must do. Major projects like Live, Search, and MSN need to compete in the same market ecosystem as Google, Yahoo, and the startups. As it stands now, they can't. [emphasis mine]

That bolded sentence can be defined by two words: innovator's dilemma. The company doesn't have the internal resources to succeed on the web; it's not built to be a platform, like Google is, but rather a product seller, like Apple is. (Side note: Here's a good post from Nick Carr noting that Microsoft is using an Apple-esque strategy).

So what should Microsoft do? Enter markets where they can dominate by selling superior products, which is what the company is built to do. And being the smart company that they are, that's exactly what they're doing. Business 2.0 explains:

Microsoft is launching a $500 million marketing campaign for its upcoming Windows Vista and Office 2007 products. The campaign is directed straight at IBM, as it is trying to win over corporate IT buyers.

Ultimately as the cost of technology continues to drop Microsoft is going to have to realize how to become a platform rather than a product seller, but this strategy should buy them some time and allow them to acquire some very valuable clients in a market that is still quite lucrative.

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