Hans Hoffmann's Blog

A lot of articles have been written lately about the 40th anniversary of Microsoft and so far they have been written by industry observers, who have covered but never worked at Microsoft.  An outsiders view. A lot has transpired since Paul Allen convinced Bill Gates to drop out of Harvard and run off to Albuquerque, New Mexico and write programs for the Altair. The growth and changes are not just a refection of the company but the industry and maybe most importantly, society.  It has been a long journey and I certainly remember those Microsoft offices that sat right off of 520 heading into Seattle in the late seventies.  The first time I remember using Microsoft software was when my friend Jon got an Apple II and in order to start it you had to insert the DOS 1.0 5.25 floppy boot disk.  Later I would walk the halls in Redmond delivering mail to anyone and everyone at Microsoft, including Bill Gates. It never occurred to me at that time that I wanted to or had a desire to work at Microsoft.  I would learn a lot about tech, the industry and business during my 18 years at Microsoft.  However Microsoft is much like me now: middle-aged.  It has, like me, seen its shares of ups and downs in life.  Microsoft has its own mid-life crisis to go through.

If we spend a quick moment we can look back at Microsoft in its late teens and early twenties, when it was naively conquering the world one desktop at a time.  It was a young dynamic company that was really the first of its kind. Passion and ideas were valued over experience.  It was viewed as a young mans company (I do not say this disrespectfully to women, but this was 1991).  There was no dress code.  It was more or less an extension of college where you were paid.  Employees hung out together after work.  There was usually beer at work.  Pop was free. These seem trivial now but at the time it was a new idea.  You had a stock price that was going always up and everyone was vesting via a generous stock option program.  The company had a vibe about it.  No matter what your job you were committed and felt important.  the line between work and play was blurred, in a very good and powerful way.  As we have learned time is a cruel vice.

Today Microsoft seems like a slightly thicker, out of shape middle-aged guy.  There is a lot that is still the same, but so much has changed. Microsoft is no longer the epicenter of the tech industry as many upstart and strong competitors have grown up around it. Recently I had lunch with a friend in building 18.  Part of the complex which includes one of many old buildings I sat in, building 16.  They had completely updated the building.  The lobby had wavy, very colorful couches with backs that were not attached.  Behind me were strands of glittering lights, that reminded me of the beaded doorways of the sixties, but were now modernized.  The halls were open and conference rooms were spacious and cool in both look and feel.  A lot of the halls were covered with nice maple colored wood paneling.  I think Google or Facebook would approve of these spaces.  The problem was the only ones enjoying this modern high-tech spaces were a bunch of middle-aged, grey haired developers.  In many ways this is an observation that highlights Microsoft’s challenges.  A simple thing called age.

What is the biggest change?  Well that has been going on for a long time.  It really stated when Steve Ballmer took over.  No it is not that he missed the mobile boat.  It really came out of the landmark DOJ case that Microsoft was involved in.  While everyone was focused on its eventual outcome another thing was happening at Microsoft.  The company was getting bigger, much bigger.  It had to manage that growth and figure that out quickly.  Jack Welch was the idol of every corporate CEO at the time and Steve was no exception to this idol worship.  One of Ballmer’s first initiatives was reading and learning all he could from Jack Welch.  I remember vividly that we needed some type of direction to manage this growth, the problem with the Welch model it was very structured and structure equals processes, which slows the pace of a company.  We became what Bill had so often feared, a company being attacked by smaller, more nimble, impassioned companies.  In the meantime Microsoft continued to grow, and as if this writing iv over 200,000 employees when you include vendors.

Part of the change at Microsoft had to do with just life in general as people grew older, got married, had kids, created debts, had divorces, more medical issues, etc..These are things that naturally suck the focus out of a company, but really are not a corporate lesson but life’s lessons.  When I joined Microsoft in 1991 the average age of an employee was less than 27 years old.  Today the average age is 38.7 years.  It may seem insignificant, but you certainly notice when you walk the halls of Microsoft.  Conversations filled with a lot of discussion about life outside of work.  A loss of people screaming about the intricacies of memory management.  The correct strategy to defeat WordPerfect. It is a natural evolution.  Thomas Jefferson recognized the passions of those under the age of 25, he did not seem to comment on those over the age of 45.  I can only hope it is wisdom.

Finally as mentioned earlier there is just the question of age and the passage of time.  In technology you can walk through the doors of any company and you can feel a certain vibe.  A level of excitement.  A movement that the company is going somewhere.  That vibe start sup at the top.  When Bill Gates led Microsoft he set the tempo for the day-to-day effort that went into every product.  When he spoke at internal events he had a way of speaking that made the future seem predictable.  And then the question to everyone was, “Do you want to be a part of defining this future?”.  After Bill departed this reverence and fear of the future slowly dissipated.  Replaced by corporate politics. With that transition a lot of talent and “vibe” went with it.

The good news for Microsoft is the industry is once again going through one of its great transitional phases.  Looking beyond mobility.  Microsoft has new leadership and it is trying to recapture some of that swagger that made it the envy of the corporate world.  It seems to be making a genuine effort to try to get out in front of industry trends.  Bill Gates is now dedicating more time back with the company.  He still makes great observations, but with only 30% of his time dedicated one can only hope it is a significant 30%.  He is there to help Satya Nadella, and though it is still early there is a sense that Satya gets it, he seems to understand the industry and where it is headed.  It’s a critical thing to the success of a technology company to know where it is headed rather than try to steer a rudderless ship. As we move from packaged products to cloud and services, it is a critical moment in time for the company.    Time is not Microsoft’s friend at the moment, but then it never seems to be when you are getting older.  As Satya has stated, in tech you cannot live in your past glories.  Microsoft is positioning itself to make a move, to perhaps wake from what has seemed a long winter slumber.  Middle age can be harsh on the body, but the experience of the mind can be very beneficial.  It may seem like a long time, 4o years, but in the grand scheme of things it is but an instant.  I look forward to the next 40 years.

Good Night and Good Luck

Hans Henrik Hoffmann April 13, 2015

The twentieth century was defined by the battle of economic ideas and the battle of the “ism’s” – capitalism, fascism, socialism, and communism. It gave rise to Karl Marx, John Maynard Keynes, Milton Friedman and Ayn Rand. It set in motion the cold war, which raged for half a century.  In the end the idea of free markets and self-determination would win out, the ultimate winner not being necessarily an economic model but the idea of democracy and individual freedoms.  This was not a total global victory as many countries would struggle and ultimately find their own path in the world.   In the midst of it all was created the power of Wall Street and the belief that all that mattered in life was maximizing shareholders value.  That ability to squeeze every last cent out of a company and its profits.  As the century came to a close something new dawned upon mankind, the age of the internet and technological revolution.  One of the big shifts the internet created was the concept of indirect selling and funding models. Highlighted in Ray Ozzie’s one and only memo when he was with Microsoft.  At the time he was commenting on Google, which was using huge online ad revenues to fund things like Google Docs. But this has expanded beyond Google and now is creating a new economic model that will rivet through Corporate America, and I predict will wipe out half of the Fortune 500 companies that exist today.

Google was the first to really figure out how to monetize all those visitors to its search engine,   Prior to Google there were those that had highlighted their internet traffic.  And though the numbers were nice they had failed to capitalize  on their new-found fame.  Netscape was the first I remember.  Doing what seemed weekly, if not daily press releases on the millions of visitors to their website every day.  They just could not turn it into real dollars.  There were search engines like Excite, Alta Vista and Yahoo.  However none seemed to get the formula correctly.  Not until Google arrived on the scene and created a user search experience better than what had previously existed.  More importantly they knew how to turn it into money.  They have since created Android for mobile devices, which can in turn generate more revenues.  The goal of robotic vehicles will generate more search revenues.  In the process they have taken those huge sums of money to create Google Docs, which can be and likely will be a serious threat to Microsoft Office.  Google Docs may not make any money today or next year or the following year, but it has a money-making machine behind it to keep it relevant.  Once all the world’s information is made available online, the world can be their oyster.

Amazon followed a much different course.  Never paying heed Wall Street and more focused on its own ambitions. What started out as an online bookseller has become a leader in Cloud Computing and the greatest threat to Wal-Mart on the planet.  I remember when Jeff Bezo’s announced that Amazon was going to be a Cloud Leader. It seemed odd and unlikely.  At the time they had a lot of data center with servers, most of which were under utilized.  They were going to more or less operate like a utility company and needed to leverage excess capacity. There is no question in the past ten years Amazon has become the leader in cloud computing.  What I think get’s lost is that these cloud consumers are not a bunch of IT folks coming in and saying, “can we use your cloud”?  What many are, are small business wanting to leverage Amazon’s retail reach and re-sell their products through Amazon.  It is more or less an indirect model where Amazon can say, “Would you like to sell your products?  Please sign up here!”.  Negotiate a monthly rate and all of a sudden you have millions using Amazon Web Services.  A lot of cloud sites I have been to are very IT focused, anyone outside of IT would have a hard time understanding the value.  Amazon has done a phenomenal job of leveraging what it does best to create a new market dominance for themselves

Facebook became that company that was a social destination point on the web.  It seemed within a fairly short amount of time it was the social hub of the internet.  Today is valued at over $200 billion.  Beyond the over one billion subscribers it has today, it has something cool, people hang out on Facebook.  The longer the people hang out the more opportunities Facebook has to monetize that time.  Since going public in 2012 Facebook has quickly amassed earnings in excess of $12 billion.  That is pretty amazing considering when I joined Microsoft in 1991, after it had been public for 5 years it was just cracking one billion.  Facebook has generated ad revenues, been at the forefront of mobile, etc..None of this selling directly to customers.  No subscription fees.  They just figured out if they can get eyeballs to the sight they can in turn generate revenue.  They have great leadership and seem laser focused.  I remember a time…lets not go there.

When we look at the disruption in our world as countries look to break free of centuries of totalitarian rule, it seems in events like the Arab Spring in Tunisia or the Green Revolution in Iran, one communications medium that is consistent is the use of Twitter to the outside world.  Twitter has become the aggregation point for news and what is currently happening in the world.  They are the pulse of what is happening on the internet.  Though they just did an IPO in the past year and dare being scrutinized, they already are a billion company.  Again they do not sell direct to anyone they just get people to register and use the service.  Twitter is big on mobile devices, so they should have the capability to increase revenues.  More than any company they will kill print media.

What these companies have all become is destination point on the internet and by accident or intent have become leaders in Big Data.  The fact that all these companies are accumulating vast amounts of data, provided they can manipulate that data and monetize it , will give them a huge competitive advantage.  The company with the most data will win.  Amazon is already owns one of the ten largest databases on the planet.  A database full of everyone’s purchasing habits.  What if they can effectively analyze and monetize that data, what will that do to Wal-Mart or Target?  If Google collects all the world’s information will there be any limits to their continued expansion of revenues?  If all news is aggregated in Twitter will there be any need for direct 1-1 news services?  All these new information tools challenge different traditions.  Killing along the way those that no longer belong.  How many people still get a newspaper?  Have Lanline phones? Send personal invites via traditional postal services? What will the future bring for transportation services?  We see 20th century conglomerates crumble before us and soon beneath us.

These companies represent significant changes to how companies will operate in the future.  For the most part they don’t manufacture products.  What they invested for upfront is not how they generated revenue, it did generate a massive audience.  The money came later.  Our leading economists and philosophers of the 20th century would need to re-think a lot of their guiding principles.  But maybe that is the point, times change and what was once considered infinite may no longer even be relevant.  A lot is determined by generations and as one dies out another is born, Sometimes the new generation reinvent old ideas.  Other times they create whole new movements.  Technology has had a large part in these changes as we have moved from agrarian to industrialization to information and on to robotics.  When the dotcom boom started there was a lot of talk of the death of old business models, it did not happen…then.  The people who said that were not wrong, they were just early.   As I like to say predicting the future is nothing, timing it is everything.

Good Night and Good Luck

Hans Henrik Hoffmann March 18, 2015