Dear Tim Cook – Learn from Steve Ballmer

Dear Mr. Cook

I am sure you are settling into your new role as Apple CEO, wondering how do you succeed a legend? I can only imagine it is a daunting task. Speaking from experience though I can say I have witnessed the good, the bad and the ugly of what can happen.  I was at Microsoft when Bill Gates decided to step down as CEO of Microsoft and handed over the reigns to his self-appointed successor, Steve Ballmer.  At the time things seemed to go so swimmingly as it was never in question who would be the successor to Steve Ballmer.  Things have worked out far differently than those of us who were around would have predicted.

I have been a witness to greatness as I had the opportunity to listen to BillG speak many times.  His ideas and vision for Microsoft and the industry always so crystal clear. As if they had been freely floating around in his mind since the day he was born. As change took place in the industry, Bill always seemed  to understand it, to grasp it and to be ahead of it.  This is not much different then Bill’s chief competitor for the top spot in tech history, your former boss Steve Jobs.  Steve seemed to understand the impact technology could have on day-to-day life and what it emotionally meant to people, and most importantly how to get there.  But these chapters are now closing and it’s time for your chapter, but let’s hope it is better than Steve’s.

When SteveB took over from Bill he was the golden boy.  He was much revered and loved in the field sales force.  Many of us considered him one of us.  Unlike you he even had the benefit that Bill would hang around for a while as Chief Software Architect.  And for a while things seemed to look like they would work out ok, or so we thought.  He was being given the opportunity to lead the future, not just of the industry but of a company that had made changes in the world, in the way we live..  But cracks in the armor were starting to show.  And that is my first bit of advice to you which is old advice, big things start small.  Both the positive and the negative.  We started to see some of the tech guru’s leave the company, most notably Paul Maritz.  Even though I revere BillG he had a circle of people around him that was his think tank. People he could turn to and have those deep discussions on the state of the industry and where it was headed.  Today I don’t know who Steve listens to these days for advice and guidance, but he has become an increasingly isolated figure.

Point two, remember the core of who you are and what makes you great.  It’s easy to look at others success and think it may be a good idea to emulate, but don’t do it at the cost of what got you to where you are.  As Microsoft grew managing growth became a paramount obsession for Steve,  He really fell under the guise of Jack Welch and the GE model, trying to apply those ideas to Microsoft.  The problem was that though it worked for GE that does not necessarily mean it was a good fit for Microsoft.  Over time the passion that was so core to Microsoft seems to have dissipated and been replaced by big corporate politics from the top to the bottom.  It has created an environment where people are more interested or fearful in doing the politically wrong things versus doing what’s right for the company.

Point three is drive the industry and don’t let it drive you.  This to me was a direct result of point two.  When I first started at Microsoft, the idea of standards and specifications were something that Microsoft was directly involved in and trying to drive a major influence in bending them to what Microsoft saw as the right direction for the industry.  It was important that Microsoft be viewed in the lead on technology.  As new start-ups and technologies have come forward Microsoft has chased these new opportunities, thinking they could catch up like they did in the past and taking their eyes off the core standards.  A case in point was HTML5.  While Microsoft was pursuing Adobe with their Silverlight Player and Smooth Streaming, Apple rightly saw that the right thing to do was support the new standards being developed for playing media files, HTML5.  Thus causing Microsoft to do yet another about-face.  This type of mistake can be blamed on product groups, but ultimately these type of visions start at the top.  Which is why your mentor was on record as saying the future is HTML5, Microsoft has seemed to stutter and fail with each new change in the industry and ultimately be viewed as a laggard.

Microsoft back in the day was always fearful of falling prey to a company that was smaller and hungrier than they were, Steve was certainly involved in a lot of those discussions.  It was an obsession of  the executive teams. However today that does seem to be exactly what is happening to them.  It has everything to do with that they forgot all about those fears and took their eye off the globe shaped ball predicting the future.  Nothing has changed in the industry.  This remains an industry where small start-ups innovate and create the next generation shifts in the technology industry.  You and I have both seen companies like Facebook, Google, Twitter, Flickr, Pandora, Linkedin, Dropbox etc. emerge within the last 10 years.  Some of these will grow very large and some already have, some will fail.  The only guarantee is that there are more to come, so pay close attention to who they are and where that are taking the market place.  And most importantly capitalize on it.

In conclusion Mr. Cook you have been granted an exciting challenge and opportunity at what today is the most admired company in tech.  The pipeline is solid for product delivery over the next five years.  Be true to who you are, but more importantly be true to who Apple is.  I don’t want to see you become a Steve Ballmer,  it has been painful to watch.  At the same time as I have outlined there is a lot you can learn.  The one guarantee I can make to you is history always repeats itself, but you do not need to be the one to repeat it.

Good Night and Good Luck

Hans Henrik Hoffmann  September 7, 2011

Steve Jobs moving on

It was not a stunning announcement but it still surprised us all when it happened. Steve Jobs was resigning as CEO of Apple. Unlike his peer, Bill Gates, not by choice, but because his health had deteriorated to a point he could no longer continue as leader of one of America’s most admired companies.  It’s hard to measure the impact Steve Jobs has had not just on technology but on popular culture.  It’s has been a journey of a young brilliant arrogant man to the top of the pack as one of the most admired and respected leader’s in the industry today.  During that time we saw a transformation from youth to mature dignitary.  He has been the an ultimate leader in technical discipline and a  marketing mega star.

When I started in the industry, back in 1991 Steve Jobs was a legendary lost soul, having been booted from the very company he helped create.  Apple at the time was led by former Pepsi exec John Sculley, while Steve was working on something called NeXT.  I did not have much insight into Steve Jobs at this point until I was part of the account team at ATT Wireless.  I worked with a partner, Accenture at the time, and we were all trying to bid on the call center business.  We needed to replace their existing system built on…NeXT.  Who used NeXT?  It was hard to believe, but according to my counterpart from Accenture, who was in the room, when it was pitched to ATT Wireless it was the single best sales job he had ever seen, delivered by none other than Steve Jobs.  Everything I ever heard about Steve Jobs always spoke to the power of his personality and when he was in a room you knew it, he was not to be ignored.  It was a force of will.

By the time I was covering ATT Wireless and heard the legendary stories, Steve had already returned to Apple.  It was one of those announcements that I am sure for anyone who loved Apple or worked for Apple was greeted with a sense of joy and relief.  Apple at the time was a company in the wilderness.  Losing market share and ceasing to do anything innovative.  It was funny early on that the first release under Steve Job’s direction was the iMac which really only introduced one things of note..lot’s of colors.  Up until then you could have any color that you wanted as long as it was beige.  I think this little fact goes unnoticed but whether by accident or design the introduction of color was important as it was recognized that the personal computer was becoming  more than just a productivity device, it was becoming a lifestyle device.  From there on the history is easy to follow as music went digital.  The web went mobile.  The PC became entertainment. All starting with a little “i” as went from iPod to iPhone to iPad.  All the time the attention to technical superiority and integrating that with the desire to be free and human.  The panache that was the computer geek gave way to the individual, regardless of the technical level of ability.  It was and remains the realization of the way technology is meant to be.

What will happen now that Steve Jobs is transitioning away from Apple. will Apple remain the same?  First the pipeline of innovation is strong with iPhone, iPad and iTV.  Not to mention the traditional sales of the iMac, Air, MacBoox etc…seems to be flourishing.  Every time I got to Starbucks I estimate that half of the laptops have the familiar Apple logo glaring at me.  I predict that in the not so distant future you could see Apple break the 10% mark in total market share for personal computers, which would be huge considering the decades it has been less than ten percent. computers.  Then there is the question of leadership, with the reigns being handed to COO Tim Cook.  In an odd way Steve’s illness has made this transition easier as Mr.  Cook has been running the company at various times while Steve took a leave of absence.  I think they are in good hands, with an experienced leader who has been very close to Steve Jobs over the last ten years, who knows the Apple culture.

As long a s Apple does not get to arrogant and continues to listen to consumers and be innovative they will move on and up just fine.  The reality is most people like Apple.  It will be a company that can reflect upon one of the great business leaders of the last hundred years and will have a legacy to move forward with.  As for Steve Jobs we can only hope for the best, though the announcement seemed to be an indicator that he is gravely ill with not much time.  He had a liver transplant which is never an easy thing to go through or a treatment with a “longer life span” as an option.  It simply buys one time, which he has made good use of.  STeve Jobs is moving to a different place in life’s long road, but many of those places on the road, he defined.

Good Night and Good Luck

Hans Henrik Hoffmann August 30, 2011

Microsoft = IBM

When I started in the industry, sitting at my cubicle, reading email and trying to learn as much about the industry as possible there was a common joke that floated around: IBM. They were viewed as grey beards and very old school.  Where as Microsoft was defining the future with “A PC on every desktop and every home”, IBM were the guys who said, “Why would you want a computer in your home?”.  We were young, brash, cocky and arrogant.  We were the definition of your not worn down by life’s experiences and thing anything is possible, even the impossible.  The IBM guys, well frankly they needed a diaper change, in the old guy sense.  We seem to have come full circle since those days back in the late 80’s and early 90’s. In this down economy IBM just announced blow away earnings.  IBM seemingly over the past decade has rediscovered itself while Microsoft has become eerily kind of like IBM, going in a variety of disjointed directions.

For starters IBM back in the mid to late 90’s made a series of smart decisions under the direction of CEO  Lou Gerstner. There is a saying in the industry “No one was ever fired for hiring big blue”.  Lou understood this.  At the time IBM was involved in the emerging PC business and being looked at as the company to drive the industry vision forward.  the problem was that a lot of this “vision” involved consumers.  Consumers are not part of the IBM DNA.  IBM was an enterprise company.  It was after Lou did a speech on “The Network is the Computer” that Lou returned IBM to its roots.  Let IBM use technology to focus on where it can make in impact, the consulting business.  When Open Source  came along it was not a threat to IBM but an opportunity.  When Off shoring came along it was not a threat but an opportunity.  Anything that would require some type of consulting with cost savings, IBM could play.  For such a large company they have done a truly magnificent job.  Not getting caught up in technologies holy wars, just watching from the sidelines and seizing the opportunity.  Lou has since retired many moons ago but IBM keeps on moving forward.  In a complicated industry they have kept it simple and simply asked questions like, “Who are we” and “what do we do well”.

Microsoft, on the other hand, had pursued a path of complication.  A large part of that is Microsoft’s DNA is rather complex.  When Bill Gates was at the helm it was simple.  If there was a large opportunity that required a graphical user interface, that implied software and Microsoft had to play.  That is how they got into the phone business, the game business, television, the internet etc..  The challenge today is that the user interface has become rather pervasive.  It is everywhere and on all  the time.  It is in people’s home, at our schools, at work, where we shop, would be more difficult to name where it is not.  Microsoft has attempted to be everything to everyone, from Joe Blow on the street to the high-powered CEO in every Fortune 100 company on the globe.  It has led to a company stretched thin across the board.  When you look across the competitive landscape you have companies very well entrenched and defined as to who and what they want to be.  IBM is an enterprise company.  Oracle a enterprise software company.  Google wants to make information available anywhere at any time.  Nintendo does games.  Apple wants a soup to nuts consumer experience.  VMWare is about the enterprise and the cloud. Try making such an easy definition with Microsoft.

I believe Microsoft has entered its IBM moment and needs to rediscover itself so here is my list of what needs to be done:

  1. Kill the GE model:   SteveB really went into this hardcore phase of creating the Jack Welch GE model – which is essentially creating a bunch of silos where each division operates as its own entity and generates the next billion industry.  At the same time BillG was talking about integrated innovation.  This requires cross group collaboration. In the end it has created confusion  GE is not Microsoft and Microsoft is not GE.  Steve needs to find the Microsoft way.
  2. Unified Vision: Microsoft employees I talk with (and I talk to many) all have the same concern.  They can talk about their individual metrics but as to where the company is headed, in a meaningful way, they are being pulled by every new event.
  3. Create your own Events:  People get tired of one week it is Search, because search is hot, next week Cloud, because Cloud is hot, following week it’s Smartphones because Smartphones are hot – all the time following, all the time being late.  I rarely hear the discussion of the future  – it would be nice for Microsoft employees for a change to have Google or Apple chasing Microsoft.
  4. Think Big: The iPhone did not alter technology it altered our culture, that is simply how big the phenomena is.  the good news is it will happen again.  Windows 95 really ushered in the PC to the mainstream of day-to-day life, so Microsoft has a legacy of life changing technology.  People might say, the internet was the game changer.  they would be right.  But remember 90% of the world did it with Windows.
  5. Get Young and Focus:  Sorry Steve but if you want to compete leadership needs to change – starting at the top.  You know the industry but depending on what is decided it maybe time to have someone closer to the end customer.  It is time for a different viewpoint in et company.  That gets to my second point which is focus – Microsoft needs direction on what it wants to be and where is it going.  Can it be a consumer company?  An enterprise?  There are many more questions, and they all need answers.
These are tough issues to address because despite the problems and challenges you are still talking about a company that earned $62 billion in 2010.  My fear is with Apple seemingly on a straight line north and upward, will we have the quarter where revenues come in under and market share slips into the 80 percent range?  Microsoft’s IBM moment is upon them, is there a Lou Gerstner to ride in on his white horse and reinvent the company?  I believe we will see this sooner than anyone thinks.  I can only hope.
Good Night and Good Luck
Hans Henrik Hoffmann July 21, 2011

Microsoft Licensing History and Challenges Revisited

Sometime in my blog posts I like to revisit older posts to see if thing shave changed or not.  With the Microsoft Fiscal Year coming to a close June 30th I thought I would revisit this one.  It may be a bit dry to some but this one is for all my old co-workers in the field, hoping the year has treated you well:-)

With the end of the Microsoft fiscal year coming around I thought I would write a little about what my fellow co-workers make their living on – the licensing of Microsoft Software. It actually is a rich and exciting history and good insight to the future of Microsoft. In 1976 Bill Gates wrote a letter titled “Open Letter to Hobbyists” in the MIT Homebrew Computer Club newsletter which expressed his frustration that many were using Microsoft’s BASIC programming language and distributing it without having paid for the software. This letter is probably one of the most important documents ever written, not only for Microsoft, but for the entire technology industry. The Open Source community may decry my assessment of this as the most vile and evil thing ever written, but without this document they would have no enemy. If you don’t have an enemy you really don’t have much of a cause. The letter established what Microsoft was going to do to build a business model that would lead to billions of dollars in revenue. All in the name of the right to profit on intellectual property. Amen.

When I started in 1991 one thing that had been in place for a while and was generating a lot of revenue was the OEM model. I wrote about this earlier but this was the simple process of licensing software (early on MS-DOS and later Windows) to hardware companies who manufactured PC’s. It was a great model for a new industry that was still trying to find its footing. All these new PC manufacturer’s needed an operating system and at the time MS-DOS was cheap and could be licensed. Some of those names became big players in the industry like Dell, Compaq and Gateway. It was cheap for Microsoft. Once you had created the disc you just made some copies and shipped to eth OEM who installed on their hardware. It was simple math. My cost is $1 to duplicate the disc and I charged $75 (this is a rough estimation). The margins in the intellectual property business are usually greater than 90 percent. It has become multi-billion empire within Microsoft. Whenever you watch CNBC or read the Wall St Journal and it says PC shipments are up, it means Microsoft is making hundreds of millions of dollars.  The millions are counted in seconds.

What was beginning when I started at Microsoft was the more structured process of licensing to businesses. Like all things it started small, but it represented a real “green field” opportunity for Microsoft. Remember at this time the idea of personal computing was still new to many companies and with it they received a whole host of benefits, but at eth same time they had new headaches they had not experienced before. When a new operating system was released did the company have to go to the local reseller and buy new copies of the OS? would they get a discount after they had purchased so many copies? Why did they have to do this, why couldn’t Microsoft? Bing (no pun intended), a new licensing model was created. First there was Select Agreements, soon to be followed by Enterprise Agreements. Stay with me on this one as I know licensing is about as much fun as watching paint dry, but it is super important to helping one understand how Microsoft makes money and the challenges they face in the not so distant future.

First lets tackle a Select agreement. In simple terms this is just a negotiated price sheet. Only two things occur here. The customer and Microsoft negotiate what will be on the price sheet. The second being what will the discount be. They are always three-year agreements. From a sales reps perspective it is pretty simple – when they sell additional software into a company they place an order through their reseller who provides the quote back to the customer and collects the purchase order. Pretty simple stuff – there is one additional things – maintenance or the current term software assurance (SA). I purchase this at the time of order and if I want all future releases of Office I pay for SA, when it ships I automatically receive as part of my contract. Usually however a Select agreement is not alone.

Now we hit the big agreement the Enterprise Agreement. I will say my bias in this whole blog is towards these EA agreements as I spent over half my career at Microsoft calling on Fortune 1000 companies and working with our account teams to facilitate the growth of these large cash cows. The EA in short is a commitment. A three year commitment. It is a large part of the Microsoft licensing machine. For many sales reps it is their lifeblood (or death depending on how the deal goes). So what exactly is it? It is a list of products a customer commits to that includes a product (Windows) with Software Assurance and payments are spread out over three years. If you do a $60 million deal then it..(I take it most of my readers are good at math). So there you have it you are all now Microsoft Licensing Specialists. There is a job title at MS for Licensing Specialist, so apply now you are qualified.

Early on in the early to mid 90’s this was all greenfield opportunities for Microsoft sales reps. Most companies needed an agreement with Microsoft and the products were really not many – in fact the first ones would be dominated by Windows and Office. It was a great time to be in the field. It created an odd sales model as well as when reps made and exceeded quota they were not compensated with huge commission bonuses but stock options. As we all know in those days the stock options were the road to riches. It also created a very Redmond centric environment where the Product groups were all-powerful and the field was simply a delivery vehicle. I only say the sales model is odd because to a large degree that mindset remains today and though bonuses are available the Microsoft field rep is not compensated like other industries. Redmond still holds the view that they are the kings of the company. It always cracked me up and made me angry when product managers would say “the field does not know how to sell our product”. This despite the fact that they spent so little time in front of customers. This is why so many senior leaders who have joined Microsoft say that Microsoft truly lacks a sales culture.

To follow-up on this some more the days of stock options are gone and the EA agreements that were originally Windows and Office have grown. Early on that was a good thing as Microsoft added more and more value into the EA. However starting even before the financial market meltdown the agreements had encompassed so many products from Windows to Office, development tools, Server products (SQL, Exchange, BizTalk, OCS, MOSS etc..) all with client licenses, it had become apparent companies were in many instances paying for stuff they did not use. When the market meltdown hit companies really started taking a closer look at not just Microsoft agreements but all agreements. The challenge the field is now facing at Microsoft is how do you grow a business when companies are trying to shrink what they buy from you? The answer from current Microsoft COO Kevin Turner has been “you take share from your competitors”. I always found this a bit simplistic since in my view you are always trying to take share from your competitors – in the good times and the bad. When it comes right down to it the acct execs and other sales professionals at Microsoft get brought into a spreadsheet excercise and provided the account team has done their job the numbers either go up or go down.

Moving forward and looking towards the horizon there are big changes in licensing under way as the industry starts to look at cloud computing and subscription based services and move away from the traditional licensing of software. It is not entirely new. I was there at the beginning when we introduced at Microsoft Service Provider Licensing Agreements (SPLA) in 1999. It has just taken a while for the technology to catch up and the market to be ready to make this move. For sales reps it represents an entirely new “green field” opportunity. You can see based on the latest sales hiring activities at companies like VMWare and For Microsoft it represents both an opportunity and a challenge as they have to transition from traditional licensing models to new licensing models. It is the challenge of having a legacy, which many companies entering the cloud do not have. I have no doubt Microsoft will overcome th technical challenges it faces but the ability to handle the financial transition from “old school” licensing of IP to the modern world, in my view, will play a huge part in determining the success or failure of Microsoft in the next five years.

Good Night and Good Luck.

Hans Henrik Hoffmann June 15, 2011

Skype…it’s a verb

It was in the local paper today, Microsoft is buying a verb. It’s hard for me to comment here as I will be the first to say grammar was never my grade school strength. It was that stretch during the school day where I resigned myself to be bored. But thanks to Google it is now a core part of every major tech companies strategy. We must have a strategy that adds to the English language. Screw our partners the only partnership that matters is a partnership with Webster’s.  It’s the largest deal in Microsoft history so I am forced to address my youthful loathing and attempt to confront my greatest weakness.

The acquisition by Microsoft of Skype was largely driven by consumer behavior and the desire (in my opinion) to have a likable consumer face.  It is also great technology that has matured and been around for a long time (by tech standards). There are a lot of people and companies who actively use Skype for voice over IP communications.  It is one of those technologies if we are not using it today we can safely say we will be using it in the not so distant future.  If it can be done digitally, it will.  It is also popular with over 145 million subscribers, in particular in Europe where traditional lanline phone services are very expensive.  Beyond a large user base it seems a purchase with color or as it is called at Microsoft, life beyond beige.

A successful acquisition for Microsoft at this stage of the game is important.  Otherwise it will just prove the skeptics correct.  Many Wall Street analysts are saying it’s a bolt on solution, the real value in Skype is past its due date and why did Microsoft not buy this 10 years ago when it was just bursting onto the scene (and was much cheaper…eBay paid $2.7 billion while Microsoft paid $8.5 billion).  The last point I cannot fault.  Had they done this ten years ago it would have displayed a vision for the future.  By doing now they are just validating the future.

Still I believe there is tremendous upside should my former employer to do this right.  With Skype comes a lot of phone numbers and seamless integration into XBOX or the enterprise would be huge.  Also the upcoming Nokia Phones with Windows Phone 7  (or later) could provide a nice marketing opportunity to drive interest in the Microsoft Mobile platform.  Though XBOX has live chat today and video camera’s this could expand the base.  A question here is how many of Skyp’s 145 million users are gamers?  Based on that question this seems for XBOX more a technology play, I do not see this about driving XBOX adoption.  But with XBOX becoming more of a home media center integrating cool voice/video capabilities has its merits.

What could derail this?  Politics. Brain drain.  The first is internal to Microsoft but could affect the latter.  With Skype comes a lot of talent, now granted the good new here is it’s not all about the talent (which was major reason to buy Yahoo! for $35 billion, good thing that did not pan out).  Still retaining the key engineers who built up Skype and are loyal to Skype cannot be underestimated.  For too long now Microsoft has been losing the true creators of technology at Microsoft.  The people who built a business and wore Microsoft on their sleeve.  Once it’s handed off to those with no history it is just a business and the passion that built the breakthroughs is gone.  One thing about the tech sector, you had better have passion for what you are doing, otherwise save us all time and go home.

The biggest challenge will be integration, which over the last 10-15 years has been an Achilles heal for Microsoft. Starting with WebTV, through Navision and Great Plains to Danger,  aQuantive, all seemed like great acquisitions at the time they have just had trouble finding a home (ok I will come clean…I never got the Danger purchase).  With Skype the two likely places for the technology to land will be in the Microsoft enterprise solution, Office Communicator and it will make its way into XBOX.    I will add both products and technologies I really like.  The challenge could be more organizationally as they operate under two entirely different divisions at Microsoft.  Microsoft has long had the idea of integrated innovation and I do mean idea.  Sharing technology across organizations at Microsoft has proved far more challenging than the dreamy memo’s from Bill Gates originally suggested.  Internally Skype may have to be split up across groups.   The last point is interesting in that in the announcement a new business division was being created at Microsoft specifically for Skype.  But as has been pointed out the technology Skype brings is being eyed by multiple other groups at Microsoft.  I can only guess this was a part of the deal to help ease transition.  The tech industry is not a patient industry.

Buying a verb is an odd strategy, though as stated it has its technical merits.  But of late Microsoft seems to be doing odd things.  The partnership with Nokia to standardize on Windows Phone 7, getting RIM to use Bing as the default search engine for their mobile devices, and now buying Skype. I get the sense reading the blogs and talking with old colleagues, is people are frustrated with deals being done out of desperation and not a clear vision of the future.   The future used to be a divine right, now it seems a distant star.  Also so many of the things Skype is bringing our already being dome within various Microsoft products – why not invest a few billion in a significant marketing campaign?  It seems like  it would save some money and as a shareholder I may get angry about all this, but for now I am just going to try to identify the verb in this sentence…for free.

Good Night and Good Luck

Hans Henrik Hoffmann May 12, 2011