Microsoft – Threats and Opportunities

It is an industry legend and the company, along with Apple that started the PC revolution.  It brought technology to our desks and to our homes. It created a lot of young millionaires.  It was a shining star in the technology industry.  That was now what seems a long time ago. The Microsoft of today is one  that is a lot different from the one I joined in 1991 as a young, wide-eyed, fresh out of college customer service representative.  Then everything was new as PC’s were just starting to take off.  We were wiping out the typewriter.  In those days we were still talking about our different lines of business at Microsoft in terms of making our first billion.  Today Microsoft has annual revenues in excess of 70 billion.  Despite this growth, at times Microsoft can appear like an old and tired company.  One longing for a past glory, a glory that likely will never come again.  When you look to the horizon there are storm clouds gathering that could lead to catastrophe, but at the same time there are opportunities that could lead to greater horizons. Let’s have a look at what those different threats and opportunities are.

Google:  No company has the potential to hurt Microsoft more than Google.  They are threat numero Uno.  Ray Ozzie addressed  this in one of his first memo’s at Microsoft.  Google was using its ad revenues derived from search to fund software development projects, like business productivity applications.  Google  was changing the playing field and redefining the competitive landscape.  Google’s bet is pretty simple.  We live in a connected world, a world that is getting evermore connected with each passing minute.  If we assume we will have ubiquitous connectivity 24/7, whenever and wherever we want we need a simple device that can connect us, ala a Chrome Book (kills Windows).  Then you just need some cloud based applications for business productivity like Google Docs (kills Office).  Then you have just shaved off $25 billion in Microsoft’s earnings.  Not to mention ISV’s would flock to Google and the city of Redmond would file for bankruptcy similar to Detroit.  I assume someone in Redmond has figured this out, but these days when Microsoft is competing on so many fronts it seems hard for Redmond to prioritize.

Three Screen:  One of those great ideas that at a high level made and still makes sense.  Who can provide an experience for the PC – Phone – Television and it is all integrated?  Microsoft has the teams and technology to do it.  When this was first discussed it was around 2007.  The problem?  The TV platform was still nascent and Windows Phone 6.0 was a piece of junk.   Microsoft has since then released a new user experience in Windows 8, added a compelling tablet, and now have a competitive smart phone.  What is missing is TV, the holy grail of user experiences.  The three big companies – Microsoft, Google and Apple are all trying to create an experience that changes the consumer paradigm.  This is a big bet by all involved but the rewards could be immense.  If one figures out the TV experience and then can seamlessly integrate with other devices, well then the world will be their oyster.

Apple:  The obvious villain.  Microsoft versus Apple.  Gates versus Jobs.  Despite all its recent success I think Microsoft’s failing here happened because of one single reason:  Microsoft was not focused on the consumer.  They became like the Republican party and did not understand basic demographics.  While Microsoft was focused on the enterprise a new generation of consumers was being born and raised, with technology present from the first day they opened their eyes.  In the old days the belief was you were a software company or a hardware company.  Apple changed that school of thought and created a new market, an experience company.  Though I maintain Google is the biggest competitive threat, I think what Apple did really hurt Microsoft as a company. Not just financially but psychologically   It seemed every time Microsoft tried to say anything negative about Apple they looked foolish.  The “I’m a Mac, I’m a PC” ad campaign was so dead on and the response from Microsoft was so minimal.  Apple humbled Microsoft and remains a significant threat to their future.

Enterprise Customers: If you can think of one major impact Steve Ballmer had on Microsoft it was the transformation of the company from a consumer company to an enterprise company.  It made sense from a Steve standpoint.  Enterprises sign large deals to long-term commitments and provide a stable cash flow.  They are predictable.  Consumers are fickle and change directions quickly, loyalty is earned, but never guaranteed.  So the enterprise business has grown to tens of billions o f dollars.  That being said there still is room to grow in the enterprise.  Sharepoint became a billion dollar business and Lync looks like a sure bet to join that crowd as well. The Microsoft Azure Cloud offering could turn the corner and potentially be the largest new business.  An interesting area is consulting services.  Efforts have been made in the past to make this more of an IBM global services model.  This would go against Microsoft’s partner driven model, but these days that seems under threat anyway.  If they did do this I have no doubt this could be a multi-billion dollar business.  If Microsoft decided to focus on the enterprise excessively that would be a successful venture.  The risk of course if Microsoft ignored consumers they would be at risk, since so much of enterprise IT is being driven by consumers.

Xbox:  Whenever the subject of Microsoft futures comes up people inevitably say the Xbox is the future direction Microsoft.  Probably because it is the one group that has a cool factor associated with it unlike the other door knobs, called Product Groups at Microsoft.  With that being said if Microsoft wants to revitalize and market its three screen vision Xbox has inadvertently taken the lead as the platform to bring all three screens together.  Xbox rose at Microsoft because it operated outside the corporate structure.  They were not part of Windows or Office’s legacy.  They were new, fresh and exciting.  In my view they should own all things consumer.  However the rumblings I hear over in Redmond is they are being brought more into the legacy corporate fold.  If I knew what the grand vision.of doing this was I may support it, but since I don’t all I can say is “leave well enough alone”. I would have expanded their playground rather than constrict it.  I would brand as much stuff “x” as I could; Xphobe, XMusic, Xwhatever..would have used the logo, but that is an opportunity I think Microsoft will bypass.

Focus or lack there of:  One thing that I think kills Microsoft and maybe the biggest threat is just what seems to be a lack of focus and cohesive message from the company.  I remember in one week they had a big Windows Phone launch followed by the Xbox Kinect.  The Windows Phone got absolutely no momentum out of the launch.  If a kid hears you launch a cool new phone followed by a big announcement around Windows Server what are they supposed to think?  The marketing folk at Microsoft view this as two different audiences so they don’t intersect, but in the end they do.  IBM does not have this problem because everything they do is targeted towards the enterprise.  Could they split the company into a consumer entity and a enterprise entity and create a wholly owned subsidiary…called Xbox?  Retain ownership while spurring creativity? Increasing overall revenues with a new focused approach? Just a thought.

There you have it, in many ways it’s the “is the glass half full or half empty” argument  In many ways a threat is an opportunity it is just a question of how you attack it.  Could Microsoft do to its competitors what they are doing to it?  Sun Tzu, the Chinese author if the “The Art of War”., written around the 500BC period., wrote “when confronted by superior forces one must change the battlefield”.  This is what Ray Ozzie wrote about when talking about Google using ad driven revenues to fund software development.  Microsoft needs to do two things: Seize the opportunities and take the leadership position and embrace the threats to provide for a brighter future.  Another option would be for Microsoft to read about history because they are history.  Your call Microsoft.

Good Night and Good Luck

Hans Henrik Hoffmann January 30th 2013

Microsoft’s Dark Archangel Joachim Kempin Returns

There are a lot of technology industry legends that came from Microsoft. People who shaped the industry and brought about the PC revolution. Many are revered, and a few are even feared.  During Microsoft’s rise to PC dominance no one played a bigger role in the creation of their unique hardware ecosystem than their VP of the OEM division, Joachim Kempin.  He was a brash, arrogant, take no prisoner’s negotiator.  When you look at the revenue Microsoft’s OEM division generated it can be attributed to the singular focus of their leader.  But perhaps the most interesting thing is that really not much is known about Joachim Kempin.  If you look him up online you will find few pictures.  I can say during my 18 years at Microsoft he never spoke at a company meetings, a sales conference, technical forum or an industry trade show.  In fact I never saw him at all.  The story goes that even Bill Gates and Steve Ballmer stayed away from him.  He had his office and he did his thing.  Of all the big legendary names at Microsoft – Ballmer, Gates, Shirley, Allchin, Maritz, Muglia….Kempin remains the mysterious one.  In the title of his book it includes “…..the secret power broker”.  That would be a pretty fair self assessment.  Everyone at Microsoft knew of him, but very few knew him.

The thing Joachim did was create agreements with Microsoft OEM partners that were one-sided and always to the advantage of Microsoft. The internal discussions were well-known.  The agreements true or not were deals in which no matter what the OEM shipped, they still paid Microsoft.  If you shipped a PC with OS/2, since Microsoft was originally on board with the  design and development of the operating systems, somehow Microsoft still got a cut.  When WordPerfect Office shipped..great, the OEM’s were billed on shipments of PC’s so Microsoft still got a cut.  Are these stories true?  Maybe or maybe not.  However every OEM knew who Joachim Kempin was and they knew negotiations with him representing Microsoft was a dance with the devil.  In the end, it appears that the devil, Joachim, always seemed to win.

Why this sudden interest?  Joachim is getting older and I guess it was time to write his own account of what happened and normally I am not excited about technology luminaries writing books (see Bill Gates and Steve Wozniak…awful).  But the thought of reading Joachim’s book fascinates me. Simply because he was the one major executive at Microsoft, during my time there, that I never met or heard speak.  I am very interested in what he may share in his dealings with OEM’s and other Microsoft executives.  He has a view from inside that not many have, that he has not readily shared.  It should be an interesting voice to listen to.

His view on things that Steve Ballmer has done incorrectly as CEO at Microsoft are accurate but in many instances not new.  The lack of success Microsoft has had in social media, under Steve Ballmer, is more entertainment for how out of touch Ballmer is rather than the actual content of what he is saying.  Which is minimal.   The failure of the tablet…yes Joachim, Microsoft was working on this long before Apple.  To be blunt, however, the user experience sucked.  Microsoft never could get beyond the stylus.  The decision to make their own Tablet is a slap in the face to Microsoft’s OEM partners.  I could not agree more.  There was also the accusation of Steve Ballmer ousting everyone who was seen as a threat to his power.  One example was Rick Beluzzo, who was President for a very brief period.  I disagree a bit on that one as I was there and it was more a question of what was a President at Microsoft supposed to do.  Btween Ballmer and Gates, there was not a whole lot for a President to do. The second however was Ray Ozzie.  I really believe that Steve felt he new better than Ray.  After a year Ray was pretty much out of the loop in terms of the strategic direction of Microsoft.  I saw some of Ray’s memo’s at Microsoft.  The difference between Ray Ozzie and Steve Ballmer when it comes to technology is Ray is brilliant and Steve is average, which means Joachim is right.

The most interesting comment to be released so far is his scathing critique of the Microsoft Board of Directors.  He basically calls them caretakers and that they offer no real value.   I am surprised this has not been brought up more in public discourse.  To be fair back in the glory days there was not much to do.  You do not have to do much when growth always exceeds expectations.  The stock is always going up and splitting and then going back up.  Today I think the biggest challenge is your largest shareholder  is the guy who built the company, Bill Gates.  To top that Bill placed Steve in power.  Has anyone ever heard of someone standing up to Bill?  Someone challenge Bill and say, “hey this company is headed in the wrong direction and we need to make changes”.  Boards are there to provide guidance and advice, it may be time for Microsoft to have a board that acts that way rather than being caretakers as Joachim accurately points out.

If what has been pointed out in  press is accurate I look forward to reading Joachim’s book.  This is a person who during the DOJ trial is sited on many internal emails to the highest levels of Microsoft, that were referenced during the landmark trial.  I can only guess that during those days every effort was made internally at Microsoft that Joachim Kempin would not take the stand.  As much as I admired (and despised) the work of lead attorney Joel Klein, I think by not getting Joachim on the stand was one miscue on their part.  He was a lightning rod figure.  Joachim is a figure who in many ways deserves as much credit for the rise of Microsoft as Bill Gates.  He drove the deals that would make Microsoft Windows the default OS in the PC’s that we still buy today.  Within Microsoft and the industry he was a secret power, with an  emphasis on power.

Good Night and Good Luck

Hans Henrik Hoffmann January 25, 2013

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State of Tech…2012 was a non eventful year

The Technology industry always moves fast and is always forging ahead but I can’t help but think this past year has been a bit disappointing. When I look at the big guys I did not really hear anything that was game changing. What have been some of the big things over the past 5 years?  The launch of the iPhone was huge and created a blazingly competitive Smartphone market.  We had the iPad and the race for the tablet space.  Because of these innovations mobility took on a new meaning and social media in the form of Facebook and Twitter took off.  These past 5 years have been a very exciting times, however when I look back at 2012 to be honest despite all the hype, the  technology was kinda dull.  Lets review some of the players.

Facebook: Big news in 2012…a disastrous IPO.  Not sure if this will make a big dent in my life unless I buy low and sell high.  That is if Facebook can figure out how to monetize its user base and generate significant mobile revenue.  Right now we are in a phase of more promise than delivery. They already look like they are trying to tackle search in a new manner, with Graph Search.  However for Facebook I think 2012 was more about the IPO an d getting grounded as a publicly traded company.  I am actually rather optimistic that they can (I own zero shares), but as far as technology goes not a whole lot came out of Facebook in 2012, let’s hope for better in 2013.

Amazon: Though there were many before Amazon really seemed to have the right mix when it came to the eReader space.  They combined a slick device the Kindle with the right content as they had access to all the major publishing houses.  However 2012 was really just an improved low-cost Kindle Fire.  Though improved there was nothing earth shattering that came from this Seattle power house.  What I do see Amazon changing is the whole notion of a supply chain from end to end with their Amazon Cloud services on into their devices and how they hook in to the Cloud infrastructure, creating the underpinnings of a digital lifestyle.  Not sexy on the surface but down the road this could yield huge consumer rewards.

Microsoft: It was a big year for Microsoft with the release of Windows 8, the new Surface Tablet, what looks like a competitive Smartphone, so why am I do bored by it all.  For beginners a new OS with a new look and feel is nice, but when was the last time an operating system came out that actually changed our day-to-day lifestyles?  Windows 8 is not a game changer, it does not advance the world of the OS by using touch screen.  The Surface tablet was big but not for any great technical break through. It was radical in that Microsoft made it and opened up the competitive landscape by competing with its traditional OEM partners.  Finally the Windows Phone though nice and a compelling offering in the smart phone space, it is that just another offering

Apple: We had new Mac Books. the iPad Mini, and the iPhone 5 but these to me are just improvements on what already existed.  Yes they will sell millions, but there was nothing really “wow” in any of these releases.  All it showed was a competitive market becoming increasingly price sensitive.  Though Apple still can demand a price premium, due to its great consumer reputation and phenomenal customer loyalty, there was no game changing piece of hardware or software this year.  It becomes a question of what new market with Apple target and change, they tried to dethrone Google Maps (a really poor choice in my opinion) with disastrous results.   Apple is successful when they change the competitive landscape not go head to head in battle.   the next big battle ground and opportunity will be Television, one which Apple, Google and Microsoft are all trying to redefine in different ways.

Google: They have had a strong year and in some ways the best year of the aforementioned companies,  I am impressed that withe their Google Glasses and venture it robotics with their automobiles they are targeting new territories that may be uncomfortable, but down the road could be very profitable.  On the “today” front it was more of the same.  Some new Android releases, their own tablet, the Nexus 7, a new Chrome Book, better features in Google Docs…all very nice and I think in some instances will take market share.  However nothing really big on the consumer front.  I would add though in Chrome Books and Google Docs there is an opportunity to change the traditional computing a paradigm.  Technical folks will know the difference not sure consumers will except in their wallets.

Samsung:  To me Samsung is becoming the GE of the tech space, providing cool hardware .  They have taken the mobile market by storm with their slick Android based mobile phones and a lot of Galaxy tablets.  They are on the verge of releasing a phone with their own OS.  However I do not see Samsung now or anytime in the near future doing anything breakthrough.  They are a company that just takes an existing device and technology and makes it cooler, not a bad place to be and though I do not see them being a leader in innovation.  However they are more than capable of being a leader in taking market share.

Though I thought 2012 was kind if a dud on the horizon there will be breakthroughs that alter how we live, work and play.  Though I am not sold on the idea of Google Glasses I am excited on the idea of taking computing out of shrinking boxes (mainframe–>PC–>Laptop–>Netbook–>Tablet–>Smartphone) and applying it to brand new use cases.  The TV is set to undergo a fundamental change.  Now what that is remains to be seen and I am not sure if that will be 2013.  Here is hoping for a more exiting 2013 where we change the competitive playing field and where true innovation compels market competition.

Good Night and Good Luck

Hans Henrik Hoffmann January 18, 2013

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