Dave Winer made the following insightful observation in a recent blog post

Jeremy Zawodny, who works at Yahoo, says that Google is Yahoo 2.0. Very clever, and there's a lot of truth to it, but watch out, that's not a very good place to be. That's how Microsoft came to dominate the PC software industry. By shipping (following the analogy) WordPerfect 2.0 (and WordStar, MacWrite and Multimate) and dBASE 2.0 (by acquiring FoxBase) and Lotus 2.0 (also known as Excel). It's better to produce your own 2.0s, as Microsoft's vanquished competitors would likely tell you.

Microsoft's corporate culture is very much about looking at an established market leader then building a competing product which is (i) integrated with a family of Microsoft products and (ii) fixes some of the weakneses in the competitors offerings. The company even came up with the buzzword Integrated Innovation to describe some of these aspects of its corporate strategy. 

Going further, one could argue that when Microsoft does try to push disruptive new ideas the lack of a competitor to focus on leads to floundering by the product teams involved. Projects such as WinFS, Netdocs and even Hailstorm can be cited as examples of projects that floundered due to the lack of a competitive focus.

New employees to Microsoft are sometimes frustrated by this aspect of Microsoft's culture. For some it's hard to acknowledge that working at Microsoft isn't about building cool, new stuff but about building cooler versions of products offered by our competitors which integrate well with other Microsoft products. This ethos not only brought us Microsoft Office which Dave mentions in his post but also newer examples including XBox (a better Playstation), C# (a better Java) and MSN Spaces (a better TypePad/Blogger/LiveJournal). 

The main reason I'm writing this is so I don't have to keep explaining it to people, I can just give them a link to this blog post next time it comes up.