The essence of our argument is that the key to Microsoft’s success is the way it manages its intellectual property. By this we don’t just mean patents, but the broad base of knowledge that the company has built over time, which is largely embedded in its software code libraries. This base is critical to internal innovation, as it makes product development more efficient and powerful. Additionally, it spawns external innovation, in Microsoft’s large community of partners, which now numbers almost 40,000 firms.
we see that much of Microsoft’s long-term success can be attributed to investments that have created “dynamic capabilities” for responding to technological change. These investments include: the process of software componentization through which it captures and embeds intellectual property in an accessible form; the component libraries that result from this process, which form a vast repository of knowledge that can be leveraged across its product lines; a programming model that allows developers, both inside and outside the firm, to access these components through well-defined interfaces; and the process through which both its software components and programming model are updated to reflect developments in the broader technological context.