Google’s Amazon Threat

It was with great interest I read a speech given by  Google’s Eric Schmidt in Berlin at the headquarters of Native Instruments.  The subject was really about innovation and the disruption it has caused and continues to cause.  A large part of the text was simply a history of Google and how it has improved search along the way and how search has led Google into new markets.  But what I found most interesting and what caught my attention is when it came to the subject  of competition.  Towards the end of his speech, Eric said the biggest threat to Google was not Yahoo or Microsoft Bing but Amazon. At its core, though mostly focused on commerce, Amazon was answering questions based on end users search criteria.  Collecting people s likes and dislikes.  What their interests are.  Literally customizing search to meet their customers needs.  This is the essence of what Google does.  Amazon like many of the upstarts in the industry is not afraid to dare into new territories dominated by others.  It says a lot about the industry and the nature on the internet as a disruptive force in industry and society.   But it is always interesting and newsworthy when two industrys giants begin to collide.  It is worth discussing ad trying to foresee how this will play out in the industry.

Living in Seattle it is easy to see the impact that Amazon is having in the local northwest economy.  Driving south on Interstate 5 you can see the multitude of cranes rising up  to the greying clouds that cover the Seattle sky.   The construction business in Seattle is building new structures for Amazon and anyone wanting to live downtown, primarily Amazon employees. Amazon has had the biggest impact of any company in the city since the nineties and the rise of the Microsoft empire.  What is a little different is Microsoft’s empire rose to the east of Seattle in Redmond, where Amazon has grown within the city limits of Seattle.  What has been impressive about Amazon’s rise and what I admire about Amazon  is their indifference to the establishment, primarily Wall St.  They invest whenever and wherever they can. At the top Jeff Bezos has understood very well that in the technology sector you are just one missed investment away from being irrelevant.  To be afraid is to die.  They have also brought a renewed interest in the venture capital community in the northwest.

In technology to succeed you often have to change the battle field, in an Art of War manoeuver.  Google did this to Microsoft when it used search to indirectly fund projects like Google Docs to compete with Microsoft.  Amazon is doing two things: One, it does not care about profits it reinvests any and all money it can.  It understands the nature of technology sets the rules, not Wall Street.  Hoarding cash like Microsoft, Apple and Google do may get the finance guys excited, but at some point you need to place big bets to secure future success in new fields. The Second is using the retail channel to create the Amazon channel.  Amazon has done a phenomenal job of making channel partners, like bookstores become AWS customers.  Not to mention these are companies actively using those cloud services, not just signing up. Amazon also did a great job of turning all those book publishers into suppliers of digital content for the Kindle Device. Amazon not only built a channel when they started to ship books they have helped guide these partners into the future while helping them and Amazon make more money.

There are others that are a threat to Google, I often think of Twitter and Facebook.  To the latter I remember a few years ago that Facebook founder and CEO Mark Zuckerberg saying during an interview that Facebook was able to generate over $1 billion in search revenues and that they were not really trying.  Wouldn’t we all like to generate a billion dollars without really trying.  Twitter so far is not really about being a search engine, but they are the pulse of the internet.  If you want to know what is happening on the  internet you can just go to your Twitter account and discover what is going on based on your preferences.  Both these companies will be competition to Google, but in the near term the biggest battle for Google will be Amazon.

Eric Schmidt is smart (Bill Gates even said that at a meeting I was in attendance), he probably deserves more notice than he has received.  I think he is in the same class as Jobs and Gates.  Maybe because in between SUN Microsystems and Google he had the ill-fated stop over at Novell.  With Jobs deceased and Bill only involved on the perimeter of the industry Eric may be at the forefront of the industry but he just does not seem to get the same rock star treatment that Jobs and Gates received.  At times it seemed the media waited on every word that the two former said.  Now Eric is unfortunately relegated to that of relic of a by gone era, leaving the young guns like Brin, Paige, and Zuckerberg to speak for the industry.  Or is he?  He still garners a lot of attention when he talks and he continues to push the future with initiative such as Googles robotic vehicle technology.  If he were a general he would have 4 stars and a lot of bars.

Then there is Bezos.  When Amazon first started he did not seem to be such a visionary.  They were the book guys.  What is so exciting about selling books over the internet?  But like many, myself included, we all underestimated him.  When he said that Amazon had so much excess computing capacity that Amazon needed to harness that power and deliver new cloud services, it seemed like he was encroaching on the domain of the more established players like Microsoft, Oracle, SAP etc.. except none of the aforementioned was doing anything like the cloud.  Next thing that you knew was Amazon Web Services was a billion dollar business and everyone was chasing Amazon into the cloud.  Along the way Kindle was launched.  They are getting into the tablet business and smartphones.  Bezos has become somewhat  of a visionary in the industry, though his misses (phone & tablet) sometimes cloud his successes (Kindle and Cloud)..

As Amazon encroaches on Google’s business, they are right to be concerned in Silicon Valley.  Just like Google used what was initially search to stretch into mapping, mobile and vertical business, one can see Amazon doing much the same.  If you follow the flow of Eric Schmidt’s talk in Berlin, start replacing all you learn about Google and see if you could start replacing the word Google with Amazon.  It turns out not to be that difficult.  Go a step further and look at big bets both companies are making and you start to see overlaps in areas like drone technology.  In the end it is inevitable as both are trying to be the launch destination for people getting onto the internet, similar to how Windows was the launch site for people using a PC.  It will be a typical ferocious battle in the technology industry.  Some areas we are still very early on in the industry, robotics coming to mind, and upstarts will challenge the industry giants, they always do.  As of today the battle of titans is between Amazon and Google, but then, in technology, there is always someone lurking around the corner

Good Night and Good Luck

Hans Henrik Hoffmann October 24, 2014

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Steve Ballmer: The Final Review

I guess with all the reviews I went through at Microsoft, it is time to give Steve Ballmer his final review.  He was with the company for nearly 34 years and a part of its foundation.  He was a primary reason the company rose to great wealth and fame.  He was a cornerstone of the company’s growth, but as in all things in life, things come to an end.  In Steve’s case he probably did not go out as he would have wished.  To be frank it was rather quiet, which is odd coming from a man who is anything but quiet.  When Steve was in a room everyone knew.  In order to do a proper review we will have to have a system in place.  I shall borrow one from the various Microsoft review systems I was a part of during my 18 years at Microsoft. Now we had the old system of five being the best and one being the worst.  Then we had the last system that inverted the old system. Never quite followed why HR wanted to do this.  In any case I think I am going with the middle systems that was between the 1 to 5 or 5 to 1 system.  This consisted of the following: did not meet expectations, met expectations and exceeded expectations.  We shall also break this out by category.  I have laid out the following categories: 1) Financial Results 2) Vision 3) Talent Acquisition and Loss 4) Company Enthusiasm  5) Leadership.

One thing we have to give Steve credit for is he saw a company that was growing in terms of its financial results and number of employees.  Very early in his tenure he bought into the business models created by than business guru and GE CEO, Jack Welch.  Though I cannot agree to a lot of what Jack was a proponent of, it did enable Steve to create a business machine.  It created structure where there was little.  He took Microsoft’s software licensing machine to new heights. Over the course of his tenure the numbers were always on Steve’s side.  As he looked to make a more efficient company.  During Steve’s tenure revenues increased from $20 billion to over  $70 billion. I once had a sales manager tell me that in sales it is quite simple and brutal, “you are what your numbers say you are”.  For Steve one can only say he was brilliant in this regard.  Review Score: Exceeded Expectations

A key component of any companies survival is vision.  A company must envision where it will be in ten yours and how it will get there.  In technology this is even more important as companies must continually innovate to stay alive.  One minute you’re in, the next your out (kudos to Heidi Klum for this quote) Steve had a vision of where the company would be and how it would get there.  The problem was it was generally the wrong vision.  His vision usually started with and ended with Windows and Office.  Even a month before he stepped down he was saying to Microsoft employees, “this is a Windows company”.  The problem was he was not seeing that it was rapidly becoming a non-Windows world.  He failed to see and understand the consumerization of technology.  When the iPhone launched he did not recognize what had happened.  How the industry floor had shifted from under him,   Steve often said he loved Microsoft.  He bled Microsoft.  He had been with the company for over 33 years.  The problem was that products that created Microsoft’s success, were products he could not see beyond.  The numbers backup up the decision, but at the cost of the future for the present.  Review Score: Did not meet Expectations

In the technology industry your technology giants usually have a lot of rock star talent behind their CEO.  This was certainly true of Microsoft during the Bill Gates era.  There were some great developers and visionaries in the ranks.  At Microsoft you had people like Nathan Myrvold, Ray Ozzie, Paul Maritz, Bob Muglia, Charles Simonyi, J Allard, Brad Silverberg, etc..all the aforementioned are gone.  There have been few if any replacements.  The big reason is Steve wanted immediate action and valued business leaders more than technology leaders.  There was really only one visionary that Steve trusted and tha was Bill Gates.  When Bill left he left a large void that was never filled.  It largely, I believe, came down to an issue of trust.  Even when Bill left, putting Ray Ozzie in charge of driving the technology vision, Steve did not seem to want to listen.  In the end all the talent at the top had pretty much all left, leaving it all to Steve.  In order to steer a ship you need to know where you are going, this was never quite clear with Steve at the helm  Review Score: Did not meet Expectations

There was Steve’s enthusiasm for the company and then the employees enthusiasm for the company.  If it were Steve’s enthusiasm alone that was being reviewed the rating would be off the charts.  When Steve said, “I love this company”, it was with unbridled passion.  He really cared. One of the negative things that happened during hos tenure was the creation of a review system based on the Jack Welch model implemented at GE.  It was designed to foster competition in the employee ranks, but it did so at the cost of innovation.  Without going into details it fostered a system if trying to gain political advantage and in the end soured many employees on the company, which was disheartening.  Steve tried mightily to keep employees in his world of “Microsoft love”, but in the end a key part of the Microsoft culture was lost.  Like on Capitol Hill politics breeds its own kind of poison,  In my first 12 years at Microsoft, everyone loved the company.  As the years moved on and exciting technologies came from outside the company the love of Microsoft seemed to float out with it. Review Score: Did not meet Expectations

Leadership as is often said is not something you  are born into, but the events that surround you create the leader.  When Steve was appointed CEO by Bill it seemed the natural course.  He had been Bill’s number two for a long time.  The fact that he was named CEO to replace Bill was not a big surprise (Bill stepping down, however, was a big surprise).  Early on Steve did some important things.  The DOJ trial was behind Microsoft, but there was housekeeping that needed to be done.  He settled with Sun Microsystems.  He realized the company had grown and was no longer a startup anymore.  It needed to put in place policies and systems befitting a Fortune 500 company.  Where Steve veered and went wrong was forgetting what had made the company great and staying on too long as CEO.  If he had stepped down in 2010 I think he could have had a positive legacy.  Perhaps it was the fact that the country was still recovering from the worst economic crisis on history.  But more likely it was the fact that Steve could not see anyone but him running the company.  Finally the fanatical passion of Microsoft employees seemed to weaken a great deal.  Partly it was just an aging work force, partly because the technical visionaries were gone.Primarily the Microsoft culture had changed.  In the end I thought Steve’s leadership was either half empty or half full, depending on how you look at it.  In my mind it puts him in the middle.  Review: Met Expectations

Microsoft is now forging ahead under the guidance of Satya Nadella and it is still early going.  In truth a large legacy has been left behind and it will take time to sort out what will be kept and what will not.  We have years (I hope) before I write about the legacy of Satya Nadella.  For Steve’s sake I hope that is ten years from now otherwise if Satya were to set with the sun much earlier the blame will likely go to what he inherited not what he created.  For Steve post Microsoft he is already doing some exciting things.  I was happy he resigned from the Microsoft Board of Directors.  I never felt it wise to have your former boss on the Board especially of he started scrutinizing decisions Satya was making. This will give Satya more freedom at a time when he desperately needs that freedom. Finally Steve has thrown himself into professional sports as he went out and paid too much for the LA Clippers.  However in getting rid of Donald Sterling I think we can all agree it was money well spent. Steve was always driven by passion, he is an emotional leader.  I think he will succeed, but as for Microsoft that time has passed for Steve and he left with a lot of battle scars.  I am afraid history will not be kind.  Just like when I started at Microsoft and business schools joked about how IBM did not see the industry direction, time has passed and now Microsoft will be similarly remembered as having its IBM moment, all under Steve’s leadership.

Good Night and Good Luck,

Hans Henrik Hoffmann October 3, 2014

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