I follow the structure of your argument. Going with autos, Detroit's move away from low-margin compact cars enabled Toyota to make Lexus. Let's grant this as true. But does it imply that sticking with low-margin compact cars would have protected their market for luxury cars? What if--like Windows 7 so far--they failed to make significant headway with the low-margin compact cars? What if they lost time and management attention trying to do so much?
Or what if someone else--Hyundai or Kia, for example--beat them hollow on low-margin cars while Toyota moved upmarket and beat them on luxury cars anyways?
This is why I'm not sure that Windows 7 is the right move. I can see they are in trouble in mobile, but I can't see that Windows 7 is the right thing to do. It would be nice if they could gain a dominant position, but a lot of things would be nice.
Andy Grove understood this idea very well, I think before Clayton even wrote this book, but they later became very good friends. Andy Grove once that that "if we lose the low-end today, we lose the high-end tomorrow."
That's actually how disruptive innovation works. The disruptor comes from the low-end and it slowly moves into higher levels, up market. That's why ARM is so dangerous to Intel for example, but Paul Otellini doesn't seem to understand this theory as well as Andy Grove.
Grove wrote a book on this called "Only the Paranoid Survive". Terrible title. Good book.
He points out that if you own the low end, you gain huge economies of scale. You pay for your foundries and R&D with cheap low-end parts, but only barely. Nobody can compete, because they don't want your rubbish margins. But then you can put huge margins on your high-end products by using cost-cutting technology and your huge efficient factories to lower your costs.
It doesn't work in all industries. But it's great in technology, as efficiences of scale do exist (what's the maringal cost of 1 more chip, or one more CD-ROM?)
Or what if someone else--Hyundai or Kia, for example--beat them hollow on low-margin cars while Toyota moved upmarket and beat them on luxury cars anyways?
This is why I'm not sure that Windows 7 is the right move. I can see they are in trouble in mobile, but I can't see that Windows 7 is the right thing to do. It would be nice if they could gain a dominant position, but a lot of things would be nice.