It seemed like a joke at the time.
Musk’s poke at an entrenched monopoly in enterprise productivity software like Microsoft back in 2021 was pretty funny.
A simple play on words…. MacroHard is greater than MicroSoft.
But it appears there was a whole lot more meaning in that simple post.
Earlier this month, on August 1, a trademark application was filed for “MACROHARD” by none other than Musk’s artificial intelligence company, xAI.
Macrohard Trademark Application | Source: U.S. Patent and Trademark Office
Clearly, something was afoot. And by Friday last week, Musk’s intentions were clear… to build a direct competitor to Microsoft’s productivity software business entirely using AI.
Given the incredible work on artificial intelligence (AI) by Musk and his team at xAI over the last two years, does this mean that Microsoft (MSFT) is done for? Is this the beginning of the end?
Yes and no…
I remember a decade ago when Google launched its G Suite productivity software offering, now known as Google Workspace, which directly targeted Microsoft’s enterprise productivity software products.
Everyone was predicting that Google’s new push spelled trouble for Microsoft. The thinking was along the lines of: Google’s products were free to use, and enterprises that wanted storage and additional functionality could subscribe at a fraction of the cost of Microsoft. Companies would dump Microsoft and migrate to Google Workspace in droves…
What’s not to like? Microsoft was doomed, wasn’t it?
No so fast…
10-Year Chart of Microsoft’s Productivity Software Segment | Source: Bloomberg
Above is a 10-year chart of Microsoft’s Productivity and Business Processes business segment – the part responsible for all productivity software like Office 365. With a chart like that, I wouldn’t fault anyone for thinking that there has been no competition at all.
Microsoft’s enterprise productivity revenues have skyrocketed since Google’s competitive “attack” from $25.8 billion in fiscal year 2016 and are forecast at $132.8 billion this fiscal year (ending June 30, 2026), more than a 5X increase in revenues over the decade.
What’s surprising is that this occurred while Google Workspace has now achieved about 44% market share of global office productivity software compared to Microsoft’s 30%.
The rub, however, is that Microsoft has maintained 80%+ market share in enterprise global office productivity software, which is where all the money is…
Google succeeded greatly in beating Microsoft in the least valuable segments in the market and accomplished very little in the enterprise segment.
That, coupled with Microsoft’s aggressive acquisitions and investments in its Azure cloud computing segment, has resulted in Microsoft climbing more than 1,000% over the last 10 years.
10-year Chart of Microsoft (MSFT) | Source: Bloomberg
It’s a perfect example of how “free” or “cheap,” regardless of competitive functionality, doesn’t guarantee disrupting an incumbent.
Muscle memory for software used on a daily basis is very strong, which means switching costs are very high. The primary reason for failed adoption of new software or digital processes tends to be people-related issues, not technical ones.
There are also compliance issues related to regulations like HIPAA and GDPR that protect Microsoft’s entrenched positions. It’s like the old saying, nobody ever gets fired for choosing IBM, or Cisco, or Microsoft.
And Microsoft excels at making it extremely difficult to unseat by bundling in other software applications and services, making switching feel nearly impossible.
So why would xAI bother with Macrohard? After all, Microsoft dominates the enterprise segment, and Google has just about everything else. If Google couldn’t do it, xAI probably can’t either…
But this assumption would be a mistake. And assuming that xAI would just do the same thing as Google did would be missing the potential implications here.
What Musk is planning is a software company that is entirely built and operated by AI.
xAI’s Grok AI, soon to be artificial general intelligence (AGI), will be used to develop a suite of productivity software products that will mimic and ultimately outperform both Microsoft and Google.
The important distinction is that Google and Microsoft augment their existing software products with AI. xAI plans to have its AI design, build, operate, and support its customers. The only role of humans will be to shepherd the project/company.
We really have to step back to see the whole picture. We’ve heard of “digital first” companies before. No analog processes, no fax machines, no need for paper… everything is software-driven and stored in the cloud.
Well, this is an “AI first” – perhaps “AI only” – company where:
And when we pair a general intelligence frontier model like Grok with a self-evolving software company like Macrohard, we have technology that will radically change our workflow processes.
We’ll be able to simply speak with Grok and tell it what we need it to do with Macrohard with as much, or as little, detail as we like.
We can feed it any relevant data that we want it to work with, but we won’t need to peck away at our keyboards to create a Word document, a spreadsheet, or a presentation.
Google didn’t have a chance of disrupting Microsoft. Its Workspace offering was simply a cheaper, cloud-based duplicate of Microsoft’s product offering.
Microsoft was able to shift quickly to cloud-based services with Microsoft 365 to address the one weakness that it had compared to Google’s offering.
Macrohard, however, is a paradigm shift, which is what is required to disrupt a monopoly incumbent. It has to be a software offering that changes the way that we work – that’s what’s at stake here.
Yes, it will take years for the disruption to unfold. That muscle memory is very powerful.
But Microsoft’s exclusive deal with OpenAI is only for pre-AGI software. This is an incredible weakness of Microsoft, as it has no competitive solution of its own or agreement to compete against a competitor with an AGI.
This was a very clever move by the team at OpenAI… to carve out AGI from their agreement with Microsoft. Back when the deal was done, most in the industry were thinking that AGI was still a decade away. Not any longer.
Microsoft recognizes this now.
It will be forced to try to acquire or partner with another AI company to compete. But it is in a tough spot, as any attempts to acquire a leader in AI will almost certainly be met with antitrust concerns.
One thing is certain… Microsoft will continue to invest heavily to grow its cloud services division, both for growth and to protect against the once-in-a-generation shift that will happen in enterprise productivity.
We’re in for radical change.
It may be hard to grok the significance of what’s coming, but it will happen quickly. And it’s clear that xAI has the technology, the capital, and the unlimited amount of computational resources to make it happen.
We’re in a stage of hyper-acceleration right now, and if we want to stay competitive and productive, we’ll need to lean into these intelligent tools and use them to our advantage.
Jeff
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
