Category: Microsoft

An insiders view of Microsoft from the bottom looking up

Microsoft = IBM

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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,..it 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

Facebook + Skype = Microsoft

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One minute you’re a villain and an idiot named Steve Ballmer and the next you are a saint and a genius named Steve Ballmer. That is the way the industry flows. This past week, Facebook CEO and boy wonder Mark Zuckerberg announced something he dubbed, “awesome” and then proceeded to unveil video chat for Facebook using Skype.  Today Skype is in the process of being purchased by Microsoft for the paltry sum of $8.5 billion.  For Microsoft this Facebook announcement would strike either of pure genius or luck.  In any case it raises a lot of eyebrows as there is a lot to think about from the future of technology to the survival of Steve Ballmer.

When I think about the future of communications and how we are evolving, Facebook is a great place to look and ingest what is happening with how interact as humans.  Several months ago my old alma matter, Sammamish High School,  had its 25th year high school reunion for the Class of ’85 .  It was a bad day that was chosen (no fault of the organizer), the Friday of Thanksgiving weekend, not many people went, for obvious reasons.  I would have liked to have gone, but it just was not going to happen with all my family commitments. Later in May a bunch of my old high school buddies got together for a weekend get together and as we were walking on the beach we started talking about the recent high school reunion.  My old high school buddy Mark made the astute observation that Facebook has killed the high school reunion.  That is true.  I don’t need a reunion to hear about people from that pasts lives, I see and read about them every day.  It’s both great and sad, but technology keeps evolving making these societal changes happen. Bringing us up to date with the new deal between Facebook and Skype we may finally be on the brink of a new communications paradigm that will see live video streaming reach the masses.  The deal for Skype is huge as it gives instant access to over 600 million Facebook users.  It will be global in scope as Facebook is growing faster outside the US than in the US.  It will give users an old fashioned way to communicate in a new paradigm: face to face.  I must admit in today’s world of email, text messaging and social networking I miss the dynamic of taking the time to get together and talk, freely.  However maybe to a certain extent maybe this paradigm shift will bring face to face communications, back but in a different physical medium.

What should be interesting is to see how this “new” communication tool is used.  Facebook is great for reaching out to old friends, but it also allows you to reach out to those high school classmates I did not know (and in some cases I did not really want to know).  In short Facebook could become like my own personal phone book in the cloud.  Some of the things envisioned in science fiction novels and film may now be on the verge of being reality.  What will be cool is as the quality of streams get better we will have this full screen – no more little windows on our desktop.  We should have instant – on capabilities, meaning the moment a user accepts my request (in old terms, “answers the phone”) the video stream will instantly commence.  Keep in mind as great as technology is there are somethings it still does not as well as the technology it replaces, case in point are old lan line phones.  I have no doubt that eventually performance will be better and the experience, as is already evident will be much richer.  There will be a large amount of excitement in this new paradigm.

A big winner here could be my old employer, Microsoft.  They invested early in Facebook and now their recent acquisition, Skype, has a deal with the world’s most popular social networking site.  This could be a “killer” app for Facebook (ok..I am getting so tired of the term “killer” app).  I would caution senior execs at Microsoft against re-branding this with the “Microsoft” name.  I can hear the arguments already, “Microsoft is one of the worlds most recognizable brand names, who wouldn’t want this brand plastered all over their site?”  But an interesting study might be how do younger audiences view the name?  It’s never the first question that gets you to your answer but the fourth or fifth.  This deal could help Skype get into the stratosphere of mainstream technology, to be our phone service of the future.  It should be interesting if other services like Twitter, follow suit.  Leave well enough alone is my final verdict on this one, but internal corporate politics I am afraid will get in the way.  It’s hard t change things in your DNA.

Finally there is Steve Ballmer, the long serving Microsoft CEO, who is in desperate need of a win.  Both externally and internally.  Externally he has had 10 years of a stock that besides a meager dividend, has provided little value back to shareholders.  Internally he is loathed for his inability to provide a vision and strategic direction to the company and its employees.  The Skype purchase was initially considered overpriced and a waste of money by Microsoft, for a bunch of technology they already had.  This announcement by Facebook, already has reduced the pressure,as in has provided a little “panache” to an increasingly stale company.   It remains to be seen if long-term this could be a turning point for Microsoft.  But at least in the in term they can breathe a little easier and maybe do something rare at Microsoft these days…smile.

Good Night and Good Luck

Hans  Henrik Hoffmann July 14, 2011

Harnessing the Power of the Web

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It was often said at Microsoft and highlighted in the industry trade rags that one of the great strengths Microsoft had been its legion of developers. To be successful in technology it has always been paramount to court the developers, help developers make money and continue to innovate so they stay loyal to you.   To be stagnant is to die.  I was thinking about this as I read about Google’s new technology SPDY (pronounced speedy).  It is a technology designed to help load web pages faster, thus improving web site performance.  If web site performance is better customers, users etc..are likely to stay on the page longer.  It is a win-win for everyone involved.  What I found most interesting is that once it has matured enough Google plans to give it to the open-source community.  It is a strategy that has worked before for Google so I see the appeal. Where is the largest community of developers on the planet?  They are on the web.  So what does the future hold for the developer and how technology goes from inception to reality?

As I have written before the Open Source developer community at its core is that heavenly place on virtual earth that they can come closest to their god…one’s and zero’s ( for assembly developers that one is for you..for the rest just read on).  It is the wild west where everything is available for free, so they can download and get to the actual code of whatever they are working on.  Could be writing and compiling code.  Getting access to the kernel code of the latest Linux OS.  Asking questions to the community about scripting tools like Ruby or Java Script.  Developers love a challenge and the open source community is great for asking questions, getting answers and learning about the next great challenge.  I equate Open Source with “the Borg” from Star Trek – The Next Generation (ok I have crossed over into “über” geekdom, but it was the best analogy I could think of – next blog: “The life of Giorgio Armani”, how’s that for recovery?).  But open source does provide for a network of a broad and collective minds and tapping into those minds and getting them excited is a way to tap into a huge potential financial windfall.  The support of the developer community is the quickest way to start generating “buzz” and once that starts others quickly come on board to try to get on the wave early before it crests,

Sales and Marketing is one of those things the open source community equated with the ills of a capitalist society and was and sometimes still is frowned upon.  I can see the appeal of the net to bypass this need for sales and marketing but even the internet has evolved.  Despite the appeals by some to minimize this skill set it will always be necessary to some degree as they are the ones that develop and deliver the message you are trying to convey.  Open source started as a grass-roots movement but as it has matured corporations have started to be more willing to embrace.  There a multitude of services behind it, could be ad driven models or service driven all requiring the S&M (oddly appropriate) folks to get involved.  In terms of generating “buzz” they were core in getting Google’s Android off of the ground and into the minds of developers.

Moving forward it is  also important to developers that whatever platform they are writing software for, that the company they stand behind is perceived as a leader towards the future.  Developers have responsibilities to and want to make sure they see bright employment horizons beyond the current year.  Apple, which is anything but open source has been able to get developers revved up for its platform by being perceived as a market leader and innovator with a strong grasp of what the future will hold in terms of opportunity. They also do a great job of sales and marketing with the Apple logo and tens of thousands of websites, TV personalities saying ” go to www… and download your iPad app”, not to mention the many websites I visit with the download your Apple app, “click here”.  The flip side is Google’s Android, which shows the velocity one can generate through the web.  Apple had jumped out to a considerable lead.  Had Google opted for a apple’s to Apple’s approach, I don’t think they ever would have caught Apple.  It is already projected that Google will catch Apple and exceed Apple in market share and applications.  By engaging and embracing the open source community, Google was very quickly able to generate excitement and mass in its platform.  It engaged the open source community and the “buzz” generated spread like wild-fire.  If they had tried to build their own more closed community it would have taken years to be successful.

It has  become apparent that to generate mass quickly that you have to consider trying to harness the power of the web communities to gain access to your ultimate customer – the consumers who use the web.  In an ever increasing competitive environment to reach existing and new audiences the internet is the fastest way to success.  That of course does not just mean put it in the web and you will be successful.  It does take some skill and experience.  However if you can excite the army it is a very large army you will have at your disposal.  Everyone wants an army of support.  It’s in intimidating and historically successful and right now, and for the foreseeable future, the largest army is on the web.

Good Night and Good Luck

Hans Henrik Hoffmann June 29th, 2011

Microsoft Licensing History and Challenges Revisited

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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 SalesForce.com. 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

Mango

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I was watching the other morning the announcement by Microsoft of its new update to Windows Phone 7 called , “Mango”. On air was Windows Phone Czar, Andy Lee’s. As I listened to him fumble through a series of questions about what makes “Mango” so cool it took me back to my early years in the industry. I was listening to a program manager talk about the exciting new release of C/C++ 7.0 (put your pants back on I can tell you are getting excited already). He equated a C/C++ presentation to “watching paint dry”. I think I have made my point regarding Andy’s oratory skills.  Phone’s are a sexy device so if you are going to talk about a new phone update with over 500 new features it had better have some sizzle. Why not have some dancers?  Give the public some entertainment value.  Make them think they are having fun!  With my pontificating coming to a close, there were good things that came from this weeks announcement and a lot of things that made me worried for the future.

If you are going to pre-announce a new phone that will not be available for 6 months it had best generate some excitement, because what you are trying to do is tell the market place is, “hey wait…be patient because in 6 months we are going to have something for you that is really cool”.    I don’t think that was accomplished.  For starters this announcement did not have much of a whisper campaign leading up to it.  I first started hearing rumblings about a week ago.  In Microsoft’s defense it’s different when they leak to the press and Apple leaks to the press about a new iPhone, the market dictates and right now in terms of market share Apple is grossly superior.  There was a time in Windows 95 days that Microsoft was the king of the whisper campaign.  But to generate such a campaign there needs to be something in the new product to get people excited.  I heard a lot of feature discussions but nothing I would deem break through. Maybe it’s just me but I do like the name”Mango”.

Second competing on features is a zero sum game.  There are so many mobile apps available in the market place today and your phone form factors are pretty  well-defined, that there is not a lot of wiggle room to create the game changing feature that will change how people use their mobile phones.  The real game changer these days is to change the user experience, which Mango sounds like it is trying to do (or at least market), but it will not happen until the release in fall, just in time for the holidays.  The end users will decide.  However between now and then a whole host of new features will be provided across multiple devices.  Thus cluttering the market place even more.

Partnerships can be a blessing and a burden. The partnership with Nokia has a lot of great potential.  Nokia has invested heavily in emerging markets such as China and India.  Two countries with huge upside.  The downside is the company recently received an internal memo from CEO Stephen Elop that Nokia is a “burning platform”.  Not the kind of motivational speech I am sure Nokia employees were hoping for. A huge part of Mango’s success or failure will hinge on Nokia.  A company that is desperate and making its last stand.  That is not the ideal place to be if you are trying to recapture past glory, but due to a series of missteps Nokia and Microsoft find themselves on the same boat trying to plug the same hole before the ship slips below the surface seeking the depths of the abyss.

Microsoft, despite all the brain drain that has occurred, still have a lot of people who care deeply about the ability of the Windows Phone business to succeed.  Despite Andy Lee’s monotone delivery style he has a brilliant and successful track record at Microsoft, he is not a dumb guy by any stretch of the imagination. Sometimes a legacy of success can lead you down a road of false belief.  The Microsoft mobile group was on a path to success and just got side swiped by Apple, who had a grander vision for mobility.  But maybe that’s the point..it’s about mobility and not the phone.  As long as the game is about developing the next great phone, than an opportunity is lost as easily as it is gained.

Now it’s about sustainment for the next 6 months as Microsoft will need to keep the name “Mango” on people’s lips.  There will be significant hurdles as between now and then there will be updates from Android, called “Honeycomb” and the release of the iPbone 5.  It will be imperative to continue to re-iterate the new features coming in “Mango” and get people to wait.  But Microsoft is a big company with a lot of different big initiatives and what is hot one day and considered a company directive is gone the next as XBOX, Bing, Office, Windows all vie for the publics attention and affection.  That to me is the big question over the coming months leading up the official launch.  Can Microsoft maintain the initial momentum garnered from this weeks big press release in New York, can a whisper campaign be sustained end elevated. Whispers can grow to a Lions roar, causing excitement, angst, a multitude of emotions or they can just blow away silently with the wind, all but forgotten.

Good Night and Good Luck

Hans Henrik Hoffmann May 26, 2011