October 21, 2007

Is Microsoft Irrevocably Broken?

Microsoft is still number one in some major elements of the computer industry, without a doubt. It's number one in consumer operating systems and number one in enterprise operating systems. The company sells the number one office suite, has the number one position in Web browser software, just saw the XBox 360 beat Nintendo's Wii in the most recent month, thanks to the release of Halo 3, and undoubtedly is a major force in many other areas I haven't mentioned.

But over the last ten years, especially over the last five, the company's momentum has been overshadowed by some extremely nimble, innovative, companies, like Apple and Google. The company hasn't made much headway outside of its core businesses, with public failures of MSN, Live Search, and Vista, to name a few. The old status quo where every startup in the Valley was afraid to compete with Microsoft has been eclipsed with a new realization that not only can you beat Microsoft, but instead, it's Google that might end up being the 800 pound gorilla who could be your greatest partner or your greatest enemy.

Some of the very best blogging on Microsoft comes from two sources who have grown increasingly frustrated with the company's direction, and have seen their skepticism grow as the company continues to just tread water, quarter after quarter, watching as the latest buzz comes from Cupertino, Mountain View, or a gaggle of startups that have Microsoft begging just to be associated with - like Facebook, or prior to the acquisition, YouTube.

The first, Mini-Microsoft, plainly says the company has grown too large to lead in this new economy, asking for the Redmond monolith to scale down and simplify. The second, MSFTextrememakeover, looks at the situation from that of a shareholder, and the answer is not pretty.

Putting one's money in Microsoft stock for the last year, five years or ten years has been as close to a dead end as you can find. While it hasn't evaporated, the aforementioned Apple and Google have seen their stocks skyrocket.


All stock detail sourced: Google Finance | (Table: Apple's Keynote)


The difference is dramatic. That's why MSFTextrememakeover is asking this week: What If Microsoft wasn't a screwup? I think it's more than just screwing up. Microsoft once had a culture of aggressive tooth and nail competition and winning at all costs. Many antitrust suits later, with much of the old blood having moved on to newer, shinier things, the company has lost the competitive edge it once had. It's one thing to be huge, and quite another to be good.

Additionally, in order to be taken seriously as a stock or as a company, investors have to believe in the management and its direction. Bill Gates has lessened his influence on the company, working more on non-profits than for-profits. And Steve Ballmer doesn't have the credibility and the ability to inspire employees and customers the way Steve Jobs, Sergey Brin and Larry Page have. It could be time for a change there, as Microsoft looks more and more like yesterday's IBM than tomorrow's Google. The question is, is the company broken, and can it be saved?

Recently, Ballmer was seen saying the company would buy upwards of 20 startups a year with the company's cash horde. But truth is, smart startups don't want to be part of Microsoft. That's yesterday's story. Now, they want to be part of Apple or Google, or part of Facebook, if there's a match. There have been stories of Microsoft's richer offers being refused. And it runs contrary to Mini-Microsoft's hope for the company to focus and slim down before getting even larger.

If I wanted to stop using Microsoft software altogether, I could do it. I wrote this post on Google's Blogger, running on Apple's Safari browser, on Mac OS X. I edited the above graphic in Adobe Photoshop, after making it in Apple Keynote. The need to run Microsoft software is now gone, as companies move to the Web, and open source alternatives become a very real reality. Innovative companies win through having an edge and differentiation, and I strongly believe Microsoft's edge has dulled. Without significant change in leadership and focus, things are going to get a lot worse for the company before they get a lot better.

5 comments:

  1. Louis,

    You know well how I agree with you about Microsoft and its curent lethargy could be its downfall if Ballmer remains. The one area where Microsoft is strong is the developer area which Ballmer has made famous with his "Developer, developer, developer" mantra. Myself I have about .. oh ... 15 years invested so to speak in VB/VB.NET/ASP.NET with a bunch of minor other technologies.

    As much as I would love to move to an Apple world it would be extreme hard for me to do - even if I had the funds to do so - because I would have to walk away from that 15 or so year investment ... that is a lot to give up.

    And I am not alone in this as the VB.NET developer world is a very big one and an extremely large amount of the corporate software running today using software developed by all these developers.

    True enough it is all for Ballmer to lose which he very well could with his current attitude and that scares the hell out of me as a Microsoft faithful.

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  2. I've gotta admit, Microsoft's DevDiv is kickin so much ass yet nobody's noticing. The absence of Buzz around LINQ kinda frightens me: Microsoft could kill it without enough marketing. You've to use it to feel it: My stat code reduced by about 60-70% when I rewrote it to use LINQ...

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  3. I'm no expert ( caveat/disclaimer) but isn't google more in league with yahoo rather than microsoft? All are tech stocks, but I don't see the fundamental business as being similar between microsoft and google.

    While its moat is reduced, I don't think you could say it is broken.

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  4. Ilona, Google is absolutely competing with Yahoo! But as for prominence and influence in technology, only Microsoft rivals Google. Also, Google is branching out into applications and services core to Microsoft's portfolio, including Office, and some believe, eventually, an operating system. The success of Google only serves to highlight the lacking successes of Microsoft.

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  5. The following has been posted at
    http://ifihadmyway.com
    http://nationalcomputerassociation.com
    Since I am not a Techmeme insider and know absolutely nothing about RSS, I send this to you via conventional e-mail -- I hope you like it.
    from: Doug Skoglund - skoglund@pdmsb.com
    ------------------------------------------------o0o---------------------------------------------
    Tuesday, October 23, 2007
    What Next for Microsoft??
    Last Saturday, the 20th, MSFTextrememakeover posed the question, "What if Microsoft wasn't a screwup?"
    The market, it seems, doesn't much care about what might happen if MSFT weren't a screwup. They only care that MSFT is one, and is in total denial about it. As critical as I have been, I have always been optimistic that this company could eventually get back on track. That optimism is fading. Turns out the market was right five years ago when they ignored Ballmer's rosy outlook and disconnected MSFT from the broader averages. Flash forward to today, and again the market is sending a negative message while Ballmer waxes poetic. Only now, the market is the sole one with any credibility.
    On Sunday, the 21st, Silicon Valley Blog posed the question, "Is Microsoft Irrevocably Broken?"
    Additionally, in order to be taken seriously as a stock or as a company, investors have to believe in the management and its direction. Bill Gates has lessened his influence on the company, working more on non-profits. And Steve Ballmer doesn't have the credibility and the ability to inspire employees and customers the way Steve Jobs, Sergey Brin and Larry Page have. It could be time for a change there, as Microsoft looks more and more like yesterday's IBM than tomorrow's Google. The question is, is the company broken, and can it be saved.
    On Monday, the 22nd, The Wall Street Journal reported, "Microsoft Bows to EU Regulators On 2004 Antitrust Measures."
    The case touched only two corners of the sprawling Microsoft software empire-- operating systems for a single class of computer servers, and software that plays audio and video files. The EU had told Microsoft to unbundle the Media Player software it sells with its ubiquitous Windows operating system, and to give competitors the data they need to make their software work effectively with Windows
    Is the company broken?? -- NO, not yet.
    Can it be saved?? -- YES, depending...
    ...on its handling of the Antitrust Matter!!!
    We need a small change in attitude on the part of all affected participants -- no matter our personal prejudices, we each have a stake in the success of Microsoft.
    The crux of the antitrust matter is the bundling of applications with the operating system. Under the bundling problem lies a technological controversy about the scientific merit of computer programming. Whether Vista represents a technological advance or not, is irrelevant right now. We need to recognize that meeting the requirements of the EU will be very difficult with the present technology -- requiring much negotiation.
    I have a better idea!!!
    Create a new product line by unbundling at the Windows 2000 level. Market an operating system plus a Windows middleware, each with the necessary support applications
    Acquire my product line and introduce a ScrapBook middleware with the necessary support applications.
    Revise and introduce necessary Development Kits, compilers, linkers, along with MSDN documentation.
    Obviously, there are a lot of details to be discussed -- and THAT is the crux of my proposal -- ALL OF THE DETAILS SHOULD BE SUBJECT TO AN OPEN DISCUSSION -- NO MORE HIDDEN AGENDAS. (That small change in attitude I mentioned above)
    Product Information - http://pdmsb.com
    Off-line discussion forums - http://nationalcomputerassociation.com
    Contact - Doug Skoglund skoglund@pdmsb.com
    Please put a [MYWAY] in your subject line if you wish to contact me.

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