Originally posted on Hal's (Im)Perfect Vision:
Microsoft’s recent move to disband the Expression Studio suite, and discontinue some of its component products, is the latest example of a retrenchment that is returning the Developer Division (DevDiv) to its roots. Understanding that history will help make sense of the last couple of years of DevDiv moves, whether you think they make sense or not.
If you go back to the early 90s DevDiv had a fairly straightforward charter. Its job was to create tools and technologies that attracted developers to the Microsoft platforms. Pretty much Compilers, IDEs, and wrappers to make the underlying platform (i.e., Windows) more accessible. From a business perspective DevDiv was designed as a Cost Recovery business. That is, to keep it from becoming a drain on overall profits it was expected to break even. In the high growth rate 90s, and with overall sales of development tools a relatively small part of Microsoft’s revenue stream, Microsoft could absorb a 0% margin on its development tools without harming its corporate bottom line.
By the mid-90s DevDiv found itself focused on two new areas, Enterprise and Web development. On the Enterprise front DevDiv was (and is) subject to the same economics as other businesses (like SQL Server) in that Enterprise-oriented features are very expensive to develop but yield only marginal increases in unit sales. If you want to continue to break even that means you have to either raise your prices or introduce tiered pricing (or both), or sell the capabilities separately.