Microsoft’s ultimate threat – Google

When I first joined Microsoft in 1991 we were a company rapidly ascending to the top of the mountain.  We were a company trying to fulfill our destiny, “A PC on every desktop and in every home”.  To climb that mountain required laser focus.  To have people day in and day out committed to accomplishing that goal.  To do this required Microsoft to build a  great set of products.  It also required focus on what was happening  in the industry.  We needed to know at all times what our competition was doing and how it was impacting the market. The potential threat to the Microsoft bottom line.  This was driven into every employee  from the top, from the top man, the founder and chairman, Bill Gates.  Time and time again he would hammer home his fear that a company that was younger and hungrier would come along and clean Microsoft’s clock.  That Microsoft would fall behind in the game.  Every employee understood that and worked hard to prevent it.  But time and growth can be cruel lessons of missed opportunities and so what Bill feared has happened.  It did not happen overnight, but slowly and surely it happened.  A silicon valley sweet heart, named Google came along and slowly they have increasingly encroached on everything Microsoft thought was their birthright.

When Novell CEO Eric Schmidt announced he was leaving his post in Provo, UT.  It was in many ways welcomed.  Eric was well known from his days at Sun Microsystems.  Eric was highly regarded, it was actually more  surprising he took the helm at Novell to begin with as they were rapidly sinking at the time he took over. During a meeting with Bill Gates, while he was commenting on Novell, he felt they were in very capable hands with Eric at the helm.  Google was known, but nowhere near where it has ended up.    In tech circles it was viewed as a interesting and exciting move.  Schmidt was a talented guy who was leaving a dying company to go somewhere where their was a future.  It was good to see him land somewhere worthy of his talents.  He would also serve as a capable mentor to Google founders, Larry Page and Sergey Brin. There were a lot of search engine players in those days (Yahoo, Alta Vista, Lycos etc..).

Google would rise as they changed the computing paradigm with the web search engine.  It was this new business revenue model Ray Ozzie would reference in his landmark memo while he was at Microsoft.  Google was using their incredible ad revenues from search to fuel software development in other areas, among them Google Docs.  This should have served as a great warning to Microsoft executives, but instead they seemed to just read the search revenue piece and seemed to miss what else was going on and focused on the obvious.  They focused on search, not heeding Ray’s words about the funding “other stuff”.  Those being Google Maps, Android, Google Docs, Google Cloud, Robotics, Google Glass  etc..In the end what we  got was Bing.  Google has used search to be a disruptive technology company, one that changes the playing field and in doing so change the balance of power. To simply follow their lead is to risk certain death.

Microsoft has released with some success their cloud based version of Microsoft Office with Office 365 .  In the meantime Google Docs has slowly plodded along improving its feature sets and capturing the low hanging fruit. start ups who do not want to pay a few for Microsoft Office.  They are also starting to make headway into larger enterprise accounts.  With a simple flat fee structure of $50 per desktop, enterprises are talking notice and either considering Google Docs or going to Google Docs.  Companies like Office Depot, Roche and Dillards have already signed on.  Keep in mind if Google takes 10% market share that is over $1 billion to Microsoft bottom line that they lose.  It is no wonder Kevin Turner issued a ultimatum of no losing to Google Docs.  It will be interesting to see how that goes.  Corporate CIO’s would be foolish not to consider Google Docs.  It is the first true contender to Microsoft with a sales force and money to back product development.  Worst case for a CIO is they knock the price of MS Office down.  I cannot think of an instance these days where a CIO is not being asked to do more with less.

The Chrome book has been an interesting development.  It really takes us back to the early days of the internet and what Netscape founder Marc Andreessen said about Windows, “Netscape will soon reduce Windows to a poorly debugged set of device drivers”.  The problem was at the time was not the vision necessarily, but launching an attack against a competitor who had billions when Netscape only had millions.  A second point was ubiquitous bandwidth was not available yet.  Most people at the time did not have DSL services let alone wi-fi in their house.    It was still  28.8kb modem.  Fast forward to today and a couple of developments have changed that has created a new landscape.  The first is we are always connected.  It does not matter if we are in our favorite cafe, at home, at work or at the beach.  We can access the web, we can call our friends, text them, post what we are doing to Facebook, tell people what we are thinking via Twitter.  What device do we use?  Laptop? Tablet? Smartphone? Chromebook?  It is about price and convenience.  The second is Microsoft has decided to compete against its traditional OEM partners with the  launch of SurfaceRT and SurfacePro lines of hardware.  One thing Netscape struggled with in their day was access to Microsoft’s OEM channel.  Give these recent strategic decisions by Microsoft, Google will not find it as hard to gain access to this channel.  They will arrive in a much stronger negotiating position.

Android which is a huge success poses two problems: 1) The mobile OS 2) The developer.  On the first front projections are that in 2013 800 million devices will ship with Android.  How many will ship with Windows 8?  Microsoft will not catch this juggernaut anytime soon.  The mistakes made by Microsoft are many in mobility.  They got hit by Apple’s iPhone, were slow to react, watched as Google ran past them, and fundamentally did not understand what was happening in the market place.  Google in the meantime has been laser focused on building a Android ecosystem that rivals that of Apple.  They have more importantly focused on consumers mobile lifestyles,  To the point, as far as competition goes in the mobility space consumers and industry analysts do not think about Microsoft.  I sometimes wonder if my old friends in Redmond realize what an insult that last statement was.  There was a time everybody thought of Microsoft when competing in a market.  Now Microsoft is just trying to get noticed.  The biggest announcement over the past couple of years has been their exclusive partnership with Nokia, another fading star.  As Google Exec, Vic Gudotra said when this partnership was announced, “Two turkeys does not make an eagle”.  It kind of sums up Microsoft mobility.

On the developer front, Google is a huge hit with the dev community.  Google’s premier dev conference, Google I/O sold out in under an hour this year.  Last year it was twenty minutes.  As I wrote in last July’s blog post “Google I/O and the giveaways“, Google knows how to treat developers.  Like royalty.  They have the advantage of being an internet company who knows that the internet is the development platform.  That sounds obvious but it seems some are slow to learn. Microsoft is still intent on promoting and protecting its “Windows Paradise”.  That was the refrain used back in the day when Microsoft was competing against Netscape, but tat world no longer exists.  The numbers I have heard around applications written for Windows 8 for that launch are horrifying – less than 5000.  The events Microsoft holds for developer are designed to reduce costs and treat developers more like welfare recipients.  As noted Google treats developers with all the care and feeding they could possibly want and it is noticed in the community.

Then there is the area of taking risks.  Despite the billions of dollars spent by Microsoft on Research and Development, there seems little to show for it.  In a group that is funded to take risks it seems little are being taken.  Google seems to be doing nutty kinds of thing all over the place.  At South by Southwest they showed a prototype of the digital shoe.  Their Google Glass, though expensive seems to be getting lots of press.  In the bay area you can see Google’s experiments with robotic vehicles.  Google has ventured into the world of wi-fi attempting to connect cities via wi-fi service, in such cities as Kansas City.  Will any of these tie into Google’s revenue model?  As long as each has internet access you can bet that Google will figure out how to monetize.  A lot of Microsoft’s struggles in this area is cultural as it looks to protect today’s revenues while forfeiting the futures.  Steve Ballmer’s love of the Jack Welch GE model, though a legendary business lesson, does not play so well in the world of innovation.  It has become a quagmire, sort of Steve’s personally built Vietnam. Google at the same time despite their growing size, seem to have remained nimble and agile in how they go about their business.

Finally there is User Interface Design.  Yes the ever present UI – how we interact with the world of technology.  Google’s search engine has been applauded for the simplicity and elegance of its search interface.  For a long time it seemed Microsoft owned the ideas of interaction with the device.  But Microsoft became complacent and did not seem to update or change basic user functions.  With the launch of Windows 8 Microsoft finally killed the Windows 95 interface.  In the meantime we saw not only Google, but Apple and Facebook present us with much more elegant and friendly user interfaces.  Once you lose the advantage it has hard to catch up and in this case the defeat is generational.

Technology is in the end about survival.  To foresee the future and not just react to it, but shape and create the future.  The ability to stay relevant.  To push the boundaries of what is possible.  The easiest way to lose focus on what made you relevant.  Microsoft seemingly has tried to be everything to everyone over the past 15 years.  In the meantime those small start-ups who are young and crave success day in and day out have emerged.  Google seems to have the vision for what the future will be and their role that they will play in it.  Microsoft unfortunately treats Google as one of many competitors.  Google meantime has kept their eye on the prize…Microsoft billions in unchallenged revenue..Windows and Office.  Microsoft now finds itself in the precarious position of having to defend those empires.  More importantly since Ballmer has taken over the reigns from Bill Gates the desire to innovate has been lost and replaced with a culture of old school corporate politics. More concerned with maintaining existing empires rather than creating new ones.

Microsoft needs to refocus, starting by turning its sights to its most immediate threat: Google.  It needs Google more than it realizes.  It needs them to help focus the company.  To energize the companies employees, to rally them from product development to sales behind a common cause.  That was the way it was in the early days.  In those days the companies who lacked resolve faded quickly as Microsoft always looked 3-5 years out.  Companies like Lotus 123, WordPerfect, Borland, Novell etc..Microsoft was thinking ahead of the game visa vi the competition. But maybe I am asking too much of today’s Microsoft.  Maybe I am harping back to a day and a time that will never return again. Just maybe Microsoft is about to become another celebrated company that is more a part of history, rather than making history.

Good Night and Good Luck

Hans Henrik Hoffmann March 25, 2013

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