The return of Steve Jobs and the rise of Apple

With the news this week that the market cap of Apple is now greater than Microsoft, along with a case of writers block I decided it is wise to re-issue my most popular blog to date.

When I first started at Microsoft back in 1991 Apple was more or less a relic of what it used to be. Keep in mind it was still a cash cow for Microsoft as we owned the core application set for Apple, Microsoft Office for the Mac. However it was a company seriously lost in what it wanted to be and where it was going. the one thing Apple did have going for it was a fiercely loyal user base. Even though Microsoft was 90% of the market, Apple had 10% and it was going nowhere.

At the time the original founders of Apple, Steve Jobs and Steve Wozniak were not to be found. Jobs had been forced out by then CEO John Scully and was off trying to do the next big thing at NeXT computer. In addition he bought a small company from Lucas that became Pixar (it did pretty well). On the other hand Wozniak nearly was killed in a plane crash and not too long after would walk away from Apple (though he still is on the Apple payroll). In a lot of ways you can parallel Woz with Microsoft Co-founder, Paul Allen. John Scully grew Apple significantly after the release of the Mac, however, he was never able to generate the buzz and excitement around Apple that it deserved. Scully came from a successful career at Pepsi and was no doubt a talented marketer. However after 18 years in technology one thing I firmly believe in is if you are going to be a cutting edge technology company you need someone from the industry to guide you and set the vision for the future, to generate buzz, to generate excitement. I have always said the tech sector is more Hollywood than Wall Street. Technology leaders who cater too much to Wall Street, will ultimately doom the company.

For the next 5 years at Microsoft I watched as Apple went through various CEO’s and considered licensing the Mac OS similar to what Microsoft was doing with its OEM channel. I watched as they launched a Windows Virtual Machine so they could run Windows Applications. It always seemed like Apple was throwing darts at the board trying to find someway that something would stick. At one point Microsoft even made an investment in Apple, just to show we were good guys. Things would start to change in 1996 when Apple purchased NeXT Computer, bringing back Steve Jobs to the company he helped found. It ushered in one of the great comeback stories in the history of high-tech.

It used to be said in the industry that you can have a PC any color you want as long as it is beige. It was sadly very true. In addition to the giant CRT screens we had in the day it made for a very ugly desktop. One of the first things that was noticable when Steve came back to Apple was the launch of Mac’s in color. The orange and lime green seemed to be favorites. Some of the best ideas in the tech industry are the simplest. In 1999 I remember Bill Gates showing off some new Dell PC’s that had some color to them and he mockingly said “We can do color to”. It is and will always be a challenge for Bill to understand the “hollywood” side of technology. Color was important because the beige was so ugly.

For those who remember around this time in the late 90′s a company called Napster became very popular. Napster did some things that Microsoft liked a whole lot. Mainly it allowed end-users to share music files over the internet. Thus promoting the power of the PC and leveraging the value of the internet. Now at this point I can only guess, but my feeling is that someone at Apple could see the real value here – which was that these PC’s had large hard drives that enabled you to store a lot of music, would it not be cool if it was mobile? You could put a hard drive in a little plastic case with ear phones and carry it with you. In October 2001 Apple launched something called the iPod and later a music service called iTunes. As we all know these have gone on to be gigantic success. Microsoft has partners doing their own MP3 players and I remember going into the Best Buy looking at some of them, then I picked up a iPod. At first I was not impressed with its DOS like interface than I started touching and trying to click the wheel, at first it did not seem that responsive. Then I took my thumb and made a semi-circular motion..cool! After that those other MP3 players were dust. The iPod was huge for Apple in the sense they were no longer the niche player the Mac, they were now the darlings of the every day end-user. As momentum continues Microsoft finally scrapped the partner model and came out with the Zune (I have had several). These devices work well, are cool and have the “wheel” like feel (apparently Apple forgot about the patent process). The challenge for any company is once a competitor has established a huge market lead, can you ever catch up? Not to mention on the advertising front I see Apple iPod ads everywhere, on TV, on Billboards. I cannot recall seeing one Zune ad. Another area that always has concerned me is what our response at Microsoft, while I was there, was to Apple. the typical, it is very proprietary. They really don’t work that well. As Steve B would say, “blah, blah, blah..” I would say, “who cares?” If end users like the experience and are happy with the $.99 price tag, they will continue to download songs from iTunes. As of this writing more than 10 billion songs have been downloaded from iTunes.

As the story goes Randall Stephenson, CEO of ATT Wireless (then Cingular Wireless I was in a meeting with Steve Jobs. Steve had just shown him a new mobile phone Apple had been developing. Randall just kept playing with the phone, fixated on its beautiful and responsive touch screen user interface. Steve Jobs is known as one of the toughest negotiators in the business. Randall was a long time telco guy who had net and negotiated withe th best. He also knew that what he was holding represented something bit, something that could turn the tables against some of ATT’s biggest competitors Verizon, Sprint and T-Mobile. Unlike most phones carried in a store which are in many cases subsidized by the manufacturer, Steve wanted it sold and all the revenue. ATT could get the voice and date plan revenue, but Steve wanted everything else. In the end the device was too good to pass up. Steve Jobs had just got an unprecedented deal in the wireless industry. This launched the march towards the delivery of one of the most “revolutionary” hand-held devices in the mobile phone industry, the Apple iPhone. I had a friend contracting at ATT at the time working on getting the online payment for mobility set up and all he would say was everything being done in Atlanta was geared towards the launch of the iPhone. This was a device with a serious amount of weight being thrown behind it.

The iPhone launched on June 29, 2007. As Bill Gates would say later on, “Microsoft did not set the bar high enough”. The iPhone was a huge success and that is an under statement. It did a number of things better than had ever done before. First was the touch screen. It was responsive. Very responsive. You could be up and doing something within seconds. Second the mobile browser experience was easy and the content you got back was readable. Every device I have ever had the mobile browse experience has been different with each device and very painful. Third it created a market for mobile applications. Prior to the iPhone making money on mobile applications was a dream more than a reality. Competitors will argue, again, Apple is a closed environment (for you non-technical folks – it’s Apple’s way or the highway). I will say again and again, that is the argument of technical people, if end users like the experience they support with their wallets and do not care about open environments versus closed. The iPhone will go down in history as a major technology milestone and another big hit for Apple and Steve Jobs.

Today Apple is getting ready to launch another new device, the iPad. The orders are building and maybe Apple can do it again. Now the iPad is yet another attempt at the Tablet. Does anyone remember the Apple Newton? Microsoft Pen for Windows? The Microsoft TabletPC? Will this time the idea of a usable tablet finally become reality? My view initially is that Apple is riding its wave of success to create yet another big sea change in the industry. Early views of the iPad are it is just an enlarged version of the iPhone. In the latest issue of Wired Magazine they do raise the question of interaction with computers. If you think about how we as people interact with our technology it has not changed on over 20 years. We have a monitor, keyboard and mouse. I will say having been at Microsoft 18 years there were many efforts from the top down to drive the success of tablets. To change the interaction of user and technology. If Apple succeeds with the iPad it will be a huge psychological blow to Microsoft. Apples first attempt in over 15 years after the many attempts by Microsoft and it is a huge success? In my view this goes back to what I wrote earlier, software, computing technology has become pervasive. A generation of youth do not know of life without a PC or the internet. It has become an extension of the individual. It is now part of our fashion culture. If it makes us more productive, great but let’s have fun doing it.

Bill Gates has left Microsoft. Today Steve Jobs is the poster child of the technology industry. He is the rock star pumping out hit after hit. The movie star who cannot make a bad film. He is in the zone. From when I started to when I was let go at Microsoft the journey of Apple has been an interesting and amazing story to watch unfold. All tech stars rise and fall. The list is long WordPerfect, Lotus, Borland, Netscape, AOL, etc Apple certainly did this, but then to rise again bigger then what they were before has been a spectacle to behold. What they are doing now is not so much about how they are influencing technical innovation, but how they are impacting the global culture.

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The rise and fall of SUN Microsystems

As I am traveling abroad right now I thought I would edit and re-issue one of my more popular earlier blogs and one I enjoyed writing.  The edits are of the George Lucas type in nature but since it was one of my early blogs it was in need of some updating.  Enjoy and stay tuned for next weeks topic.

The competitive landscape was always changing and dynamic and with Microsoft always looking to move up the food chain and getting very focused on trying to crack the enterprise.   It was inevitable we would start encroaching on existing companies territories. It was also likely that some of these companies might be young companies like Microsoft who could be innovative. One of the brightest and certainly most vocal competitors Microsoft faced was SUN Microsystems. They were led by the ever vocal and brash Scott McNeely.  Scott never ever missed a chance on stage or in the press to bash Microsoft.  It made for great entertainment.

The history of SUN was a interesting one. The name stood for Stanford University Network. Originally the building complex they were in, housed two other companies Silicon Graphics (SGI) and a company called Cisco. All three companies can lay claim today as Silicon Valley legends. Scott was with a group of techies and when they chose roles he became President because he was a business guy and frankly did not know a whole lot about technology. I actually admired this as it reminds me of myself when I started in the  industry.  Check the archives of “60 Minutes” if you want to verify. It was an interesting interview. Coincidently he was a Detroit guy like Steve Ballmer.  The love ended there.

I was always impressed with SUN as they made hardware, but beyond hardware, they designed the chip (SUN Sparc), the Operating System (SUN Solaris) and then manufactured the boxes. This was in contrast to Microsoft which had a philosophy – you either made hardware or software, but you did not do both. They also had some very smart people who qualify as Tech Legends. Bill Joy was the CTO and a software guy at a hardware company. At Berkley he had written a OS called BSD. A forerunner to Linux and I believe something Linus Torvalds and company learned from, in particular what not to do. James Gosling a key player in architecting Java and Eric Schmidt, who went on help some start up called Google.

For some of you reading this post who are not as technical you may ask what is Java? To put it basically it’s a programming language. So people who wrote applications for a living had the option to choose Java as the language they want to write in. But why? Well this is where it gets interesting. For this of you have followed my blog, if you remember my blog on Novell I discussed their failed effort to unify Unix. Novell had the right idea, just the wrong approach. SUN had a different approach. I probably heard this summarized best at a Microsoft technology event by Corporate VP Paul Flessner. SUN was following what Microsoft was doing with Windows NT Server and realized that with the marriage of File and Print services and application services Microsoft had a winning formula for developers. At the time Unix developers chose whether they wanted to write apps for IBM AIX, SUN Solaris, HP UX, to name just a few. So SUN came up with the Java Virtual Machine (JVM) and said write to the JVM and then it will support and take care of the underlying OS. So whether you were running Windows, HP UX, AIX Solaris etc..if you wrote to the JVM your app would be supported (in theory). As Paul said, it was the smart thing to do. In the dev world the marriage of Java and the JVM is what we refer to as managed code. You do not have to worry about the underlying OS as much since the JVM handles everything (in theory).

As SUN gained popularity and Java really went crazy in the enterprise another thing took place, the dotcom boom. Two things really happened in the dotcom bubble for SUN. The first being that a pivotal player in dotcom was the Telecommunications carriers. Anyone who followed the stock market at this point realized that the stock valuations globally of Telco’s really went through the roof at this time. To shed a little light on history here, AT&T Bell Labs created the UNIX operating Systems. The OS that runs the phone system we are all on today is predominantly UNIX based. As these carriers built out their networks – the developer problem they had was solved by what SUN was providing with Java. They also wanted the lowest cost UNIX system, which at the time SUN was lower priced then what other vendors like HP or IBM had to offer. The second thing that happened was this Telco evolution that was going on extended to all the Dotcom start ups. I spent a lot of time traveling to Silicon Valley in those days and all over the place were the SUN billboards, “Sun Microsystems the . in Dotcom”. During this period SUN was blowing away it’s quarterly earning’s every quarter.

During this rise to glory it was the first time Microsoft was starting to hear that we were evil. It was hard to take. It was not new, but in the past these types of evil jabs were from people in the industry. These new attacks seemed to resonate out to the general public. It became common at Microsoft to walk into an office and see a picture of Scott McNeely on the wall being used as a dart board. As I move forward on my blog I will come back to this area of perception, but these attacks really made a lot of Microsoft employees angry and they hurt.

Microsoft did respond and we came out with our own Java tool called J++ and started showing up at conferences. I had an opportunity at a Microsoft class once to hear then VP , now President of the Server & Tools Division, Bob Muglia talk about this. Bob was a short stout man with a high-pitched and squeaky voice. Bob said that Microsoft went to a conference for Java developers and not only showed up with our own IDE (Integrated Development Environment), but it was the best one at the event. SUN was quick to recognize what was going on. If we built our own empire of Java Developers we could start defining and taking ownership of the JVM. If we were leading the developers on how to write the JVM, well then Sun would be minimize.. Sun Microsystems did what all smart companies do, they filed a lawsuit.

During all this SUN had what they perceived as a big problem with Java. Make no mistake Java was huge in the industry. However SUN was not making any money on Java. They refused to hand it over to the standards bodies (which in my view would have been the smart thing to do). They also were more clueless about Open Source then Microsoft. I think they missed the point on this one. They did conferences for Java, but they really should have built a strong program around the developer community – once you have developers they can write applications to your platform (and others). They could have created a strong developer brand around Java. They would have owned the direction of the community. In the end SUN was so afraid of seeding any control of Java, that they did nothing. They were also a hardware company and they had a huge hit with software. Hardware is great for revenue, you can get really big numbers, because it is expensive to buy, but your margins are not that great. On the other side software is cheaper and you really need economies of scale to drive big revenue numbers. However software margins are huge, usually around 90% so Net Profits are great. The one thing I will say having sold developer tools for a number of years is as developer technologies progress prices usually fall. Making money on developer tools is not like Windows or Office, average growth is around 11.5%. SUN really needed to build a home run software application that ran on the JVM that they then could have market to the Enterprise masses, sadly that was just not in their DNA at the time.

As the dotcom boom died so did SUN Microsystems. The problem SUN had was that so much revenue was being generated by the dotcom boom that when it went bust all of SUN’s eggs were in one basket. It was surprising to see how much revenue was being generated for SUN by the telecommunications industry. Having called on the French based telecom equipment maker Alcatel, I knew that these accounts were large (if memory serves me correctly Alcatel was a $40 million a year account for SUN). A second thing that occurred was the rise of Linux. What was interesting was for all the Open Source Community talk of anything but Microsoft, Linux did not impact Windows, but it killed all the high-end high-priced UNIX OS’s. I love penguins. The biggest winner of all with Linux was IBM. Another story for another blog.

Sun Microsystems would exist for a long time afterward, but it never regained the voice it had in the industry . Most of the really brilliant people have left though a few remain. They recently completed the process of being acquired by Oracle. Too bad, they were an exciting company to follow, but in the world of the internet, empires rise and fall faster than ever seen before. Moving forward it’s only going to get faster.

Good Night and Good Luck,

Hans Hoffmann May 18, 2010

My Last Day at Microsoft

Well after 18 years a long journey is coming to an end and with it a lot of changes and a lot of growth. When I joined this company we were about 7500 employees. I knew next to nothing about hardware or software. Our mission statement was “A PC on every desktop and in every home” . Our primary competitors were Lotus and WordPerfect. My first job was in customer service – we had 4 groups in CS, all starting with the word “hot” – we were the “Hotdogs”. At that time Microsoft was young and essentially an extension of college except we were paid, but we still drank lots of beer.

Now of course we are close to 100,000 employees – the challenges are far greater as we now focus on so many things – Cloud Computing, Silverlight, xBox, Windows Mobile, Dynamics, Software Management, Information workers – and our competition is far broader. The competition is great – Oracle, IBM, Apple, Google, Cisco, Adobe, Nintendo, Sony, Open Source, Nokia, VMWare, Salesforce.Com, Amazon, RIM, etc..These are strong companies who exhibit much of the same passions about technology that we do. We compete with everyone from the consumer to the enterprise. For those who are fans of military history the question becomes, ”how many fronts can you open up before your supply lines become too thin?”.

You all work at a great company with a great history, now it will be up to all of you to determine if Microsoft will have a great future. Having had the opportunity to interact with so many of you I think Microsoft will meet those challenges because of the great people that you all are and the passion you bring to work each and every day.

I could probably, after 18 years at Microsoft, write a book on my thoughts and perspectives of the industry but at the end of the day I don’t want to waste your time as you are all under a lot of pressure to make your numbers (I actually am not going to miss that part), but I wanted to thank all of you who I have had the honor and privilege of getting to know during my time at Microsoft. I have heard from many over the last days wishing me well, offering condolences, many who have already had that uncomfortable meeting with HR, some angry, some happy…all appreciated. I am not bitter over what has occurred or how it has occurred, life offers us all challenges and our ability to meet those challenges ultimately determines our success or failure.

I leave here a more educated and more mature business professional and am thankful for having had this great opportunity to be a part of a magical experience.

With that I leave and in the words of Washington State University Alumni Legend, Edward R Morrow – “Good Night and Good Luck”

Hans Henrik Hoffmann

Hansh51@msn.com

November 6, 2009

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MSN: A confused history

Steve Ballmer was in Brazil last week at the University of Sao Paulo talking about the new release of Live Messenger, formerly MSN Messenger.  It has a new social networking focus, which I am sure is cool as everything Microsoft is doing lately for consumers has a social networking component.  It did get me to thinking about Windows Live and MSN and how it evolved while I was at Microsoft. When I look back at the legacy of the internet and how Microsoft responded one group always stands out to me: MSN.  It is an interesting journey.  The original MSN (Microsoft Network) debuted back in August of 1995.  It was to coincide with the release of Windows 95.  To put this all into perspective both MSN and Windows 95 were designed and released without the internet in mind.  To my younger readers, yes there was a world without the internet.   Since that time MSN has changed direction so many times it was even hard internally to keep track of what they were doing or where they were going. 

 The original MSN was built to compete with AOL and CompuServe.  These were what we called “walled garden” services.  What this meant was as a MSN or AOL partner I would sign up to deliver my services over their particular network.  When I went to AOL I got options for all sorts of things.  It could be “Mama’s cookie recipes'” or “Bob’s train collectible’s”, the point being these were only available to AOL subscribers.  When Microsoft in 1996 announced MSN 2.0 it was apparent right away the impact the Internet was having.  All these partners who had signed up for the walled garden approach came to Redmond and were told, the internet is the future and you are all on your own.

It was around 1999/2000 that the group I was in was briefly re-organized under MSN.  At the time MSN was being led by Brad Chase (Windows 95 fame) and Jon DeVaan, an engineer.  Thomas Koll was our VP for what was then the Network Service Provider Group (NSP).  We were introduced to the new organization at the Bellevue Convention Center.  Brad was the “showman” so he did most of the talking.  Jon was an engineer, did I already say that?  Brad talked about MSN as “The comeback kids”.  In order to have a “comeback”, you had to have achieved some measure of success in the past.   Something MSN had not really experienced. Everything Brad talked about was very consumer focused.  The NSP folks in the audience were Business Development people used to doing deals with large Telco’s and Network Equipment Providers.   We were like deer in headlights.  Speechless and confused.  It was apparent in the weeks following that Thomas pleaded with someone  to change this pending train wreck.  But I can say for at least 2 weeks I was a part of MSN.

At Microsoft MSN was its own entity doing its own thing.  This was highlighted more or less by Microsoft’s move into mobile phones.  The mobile phone folks believed in a world on windows.  The MSN folks just wanted to be a relative service, regardless of the platform.  The mobile world had a lot of different platforms, which Google, AOL and Yahoo played on all of them  – Symbian, Palm, RIM, Windows Mobile etc..They were offering services lile instant messaging, email and search.  Needless to say the MSN folks did this as well across all platforms.  The Windows mobile guys working with the wireless carriers did not like this one bit and only wanted those services available on the Microsoft based phones.  What happened then was the MSN mobile team  and Windows Mobile team each went into the carriers alone to strike their own deal.  The wireless carriers were confused as to whom they should be working with at Microsoft.  At the same time Bill Gates was out their talking about integrated innovation and better together.  Problem was internal politics (to this day) did not allow for that to happen.  On this issue I will be honest I was with the MSN folks, I did not ever understand the logic of the Windows Mobile groups thinking.  I am sure Microsoft is not unique in these type of political plays, but in the end the results are all the same, the customer loses.

When the internet changed yet again with services like Google and Yahoo! starting to dominate the Internet landscape it seemed ripe for change yet again in MSN land.  In particular like I highlighted in my earlier blog post on  Google, search was now the big game changing beast on the internet so Microsoft jumped on board and launched Live in 2005.  The search strategy was owned at Microsoft by MSN.  As is usually the case when Microsoft thinks too much the whole Live branding experience (Live Search, Live ID, Live Messenger etc..)  was a bust.  The common thing you heard was that Google was a verb and how do you compete with that.  As I have said before Microsoft is not good at sex and sizzle.  The whole Live strategy I found confusing the fact that it still lives on, even now after the launch of Bing, has made the brand even more confusing to me.  To muddle things even more according to Alexa Live search still ranks higher than Bing at #5 while Bing sits at #24.  I believe that is a big challenge when Microsoft changes strategies that before they compete effectively they have to undo what they have already marketed to consumers. 

I guess this brings me back to Sao Paulo and the new Live Messenger.  When I read it, it made me realize l do not know where the whole Live brand fits in overall to what Microsoft is trying to accomplish against Google.  I probably should since I worked at Microsoft for 18 years, maybe I did not pay close enough attention, but if I can’t make sense of it how can consumers??

In the end MSN has been through a lot in its now 15 year history at Microsoft.  They have had downs and they have had some slight ups.  Though those ups rarely happened around earnings season.  They continue to try new things and drive new revenue streams (advertising driven revenue).  They have seen every trend the internet has thrown their way and failed more times than I can remember (Anyone ever use Soapbox?  It was the YouTube killer…I am being serious).  They need an infusion of youth to help them think ahead of the curve.  Bringing in veteran’s of Microsoft leads to old ways of thinking.  They need a Sun Tzu moment where they change the playing field otherwise they will continue to follow.  Until they do they will…well they will just continue to be the same old MSN.  Or as Bruce Springsteen was sang about  MSN (not really it was his marriage) “One step forward, two steps back”.

Good Night and Good Luck

Hans Hoffmann May 6th 2010