I’ve been thinking about Microsoft lately, maybe because I’ve been in an email dialog with Gary Flake, or because I just interviewed Ray Ozzie for my column, or because, perhaps, of silly speeches given by Gates like this one, which was summarized thusly by a news service I subscribe to:
“The cell phone will become a “digital wallet,” able to receive e-mail and even scan business cards, while computers and TVs will merge, predicts Microsoft chief Bill Gates.”
Now, I know it’s Gates’ job to make the world of tech seem approachable and understandable to the typical MS Office user – the same person who apparently has a dinosaur for a head and stopped paying attention to technology somewhere back in 1997. But g’damn, we’ve been hearing this speech for more than ten years now, and if Microsoft ever wants to get back out in front of the pack in technology, if it really wants to lead again, as it did in the mid 1990s, it needs to do one simple thing: Split the company up.
Everyone knows that Microsoft has one center of gravity that matters: The Office and Windows revenue line. Everything else pales in comparison. But where does Microsoft get judged, day in and day out? Not on Office, or even Windows. It’s search, and innovation across the web generally. And there, it’s clear, Microsoft’s gravitational mass is getting in the way.
Gates needs to do to Microsoft what Jobs did to Apple when he launched the Mac team – give the new guys carte blanche, and get out of their way. There so so many smart, amazing minds at MSFT, but also so many stories of brilliant mediocrity. How can a company innovate against the likes of Google and a thousand Web 2.0 startups when it has to worry about Windows and Office integration? Short answer: It can’t.
Microsoft is a middle aged company struggling to figure out how to dance with the teenagers, and its body simply can’t keep up with its intentions, no matter how correct they may be. I’m not claiming “Microsoft doesn’t get it” – in fact, I very much think it does. I’m saying that structurally, the company is not capable of executing on what it knows it must do. Major projects like Live, Search, and MSN need to compete in the same market ecosystem as Google, Yahoo, and the startups. As it stands now, they can’t.
But that could be addressed. MSFT has already taken the first step, which is to reorganize into three distinct businesses – Platform and Products (Windows and MSN), Business (Software), and Entertainment/Devices (Xbox etc.). But really, what it needs to do is spin out a Google/Yahoo killer. Take Search, Live, and a good chunk of MSR (research) and make it a separately traded division of MSFT. Take the damn thing public. Imagine that IPO!
Let’s call this new company LiveSoft. It spins out with exclusive licenses from MSFT for integration with Windows and Office. For infrastructure support and access to patents/IP/research/human capital. All the stuff it needs from Mommy Microsoft, it can have. But, it’s kicked out of the nest, and run by a real madman/woman, someone who lives to run this shit. It finds its Terry Semel, Meg Whitman, Barry Diller, or Sergey Brin. (Paging Dan or Jeff from Yahoo…) And it runs from day one out of the gate.
If I were at Google, this development would scare the sh*t out of me. And if I were on Wall St, I’d have a reason to really love a MSFT related stock again.
Anyway. There you have it. I read one headline, and this rant comes out. So, what do you think?
I wholeheartedly agree. Despite Microsoft’s awesome assets, mountain of cash, and ten-year commitment to the Internet, it’s still running a distant (and nearly irrelevant) third. Time to get the legacy cash cow off the net division’s back.
Very good. Glad to read you using your prodigious intellect for rumination and idea mongering…rather than trying to cover every happenstance in Web 2.0 with a one liner.
I knew I couldn’t be the only one who’s not a fan of those dinosaur head ads. Their depiction of office life is particularly cruel when viewed on the commute into work on the Tube every morning.
John, I could not agree more!
Live needs to IPO and operate with no strings attached from MSFT Windows/Office teams!
If MSFT doesn’t manage to compete I see very few other companies in the World with the capability to do it. Google will become more of a monopoly… and that is bad news for all of us.
They can’t do this because a spun-out MS search company would instantly be revealed to be losing hundreds of millions a year, i.e. the Emperor in waiting would in a commercial sense suddenly be seen to be wearing no clothes.
> a spun-out MS search company would instantly be revealed to be losing hundreds of millions a year
This makes no sense; why would MS Search division losing hundres of millions / year when other comparable companies are wildly profitable?
I don’t know how they managed MS, but i guessed they are facing another common middle aged company’s problem : beaurecracy vs meritocracy.
probably what they need is someone like GE’s “Neutron Jack”.
As you mentioned, splitting MS will make them lighter and younger. However, if they can proved that they are undefeatable then they are really somebody, at least in running their business.
The only thing I don’t agree with is the choice of CEO. I don’t think any of the CEOs mentioned could take on Google, with the exception of Sergei ;-).
While MSFT and Yahoo and others are still thinking about search, Google changed the game a while ago to be about innovation and constantly pushing the frontiers. This game cannot be won by a conventional business minded CEO. They will go back to their tried and tested approach of building large organizations that move in a hierarchical fashion. That can at best keep up for a few years.
Actually I think it has to do with a basic problem with corporate innovation. The problem is that it doesn’t exist. It can’t. Once you’re into a team larger than 5, the dynamic changes and all of a sudden you are making decisions by committee and you’re also obliged to please staff, officers, customers and your shareholders. These two problems, the decision process and the stakeholders, are what kills innovation in a company.
This is why the majority of innovation comes from one or two person teams. Any corporation who actually innovates just got lucky. The statistics support this. Think of the trillions of corporate dollars world-wide that get thrown at R&D and the dearth of resources that very small start ups have. Then look at how much real innovation came from each side.
Great post, John. It’s good to see some lengthy thoughts from you.
A strong case here for a strategy consistent with what MS says it must do (adapt fast to Web 2.0 or suffer greatly).
Microsoft’s MIX06 conference is next week and I’m anxious to see how/if MS can handle the hustle and bustle of the new web.
Spot on, John. If you read the business texts in the late 90s, this is precisely what the pundits prescribed for brick-and-morter behemoths on how to complete with the “new economy” dotcoms.
Agreed in principal. Not to nit pick but :), no way they can or should keep an exclusive integration liscense with Windows or Office. A) it would undermine their need to compete and innovate – one of the main benifits of being standalone b) it would keep them tied to a (legally reconginized) monopoly, which ties their hands in the market in how they bundle and price, for fear of justice department reprisal and c) I would be surprised if justice lets MSFT keep any sort of exclusive integration license on windows (and probably office) with an “independant” company.
John, great post and insight! I love to read more of this cogent analysis from you.
However, I don’t think Bill Gate will do it because he’s got too much ego. Even if he did, the new company will be better but still a distant third behind Google and Yahoo.
John, I have to agree with you. The part about this whole thing that gets me down the most is that there are hundreds of people at Microsoft that could be creating the most amazing software if only given the chance. Even if Microsoft adopted Google’s 20% rule, it would produce something more exciting then the drudge that they produce now.
Last time Gates proposed the digital wallet it was supposed to be the Pocket PC. Microsoft’s latest boondoggle, the UMPC (Ultra Mobile PC) seems destined to quickly join the Microsoft Smart Watch in the Dustbin of Bad Design. As stated in my blog, Microsoft has just lost it as a company able to respond rapidly to the the market. Look at the 5 years it has taken to “upgrade” Windows XP to Vista; IE6 to IE7. Sorry, but I don’t see much coming out of Microsoft today that reflects any kind of talent or innovation.
As a side note, what was the point of hiring Ray Ozzie? Lotus Notes is dead, Groove only took off in the law enforcement space, so what’s the story? Hiring the guy who came up with Notes and Groove doesn’t strike me as an intelligent investment. His innovations have been more newsworthy than practical.
John, you did not get it. Microsoft’s cash cows make 120% of microsoft’s profit. The rest lose the 20%.
Yahoo is ahead of Microsoft in the internet technology. Then why do people believe Microsoft has a better chance of keeping Google in check than Yahoo? Because of Microsoft’s other cash cows which Yahoo does not.
You may be biassed by Eric Schmidt or somebody else at Google.
BTW, there must be something wrong with Microsoft. Over the past year Yahoo search improved so much that it undoubtedly gives better result than Google, thought it takes few milisconds more to do so. Why can’t Microsoft do that? It is no more a science problem but an engineering problem which can be solved crudely with more resources. That is anybody willing to put more computational resouces could produce better search than Google, except that instead of taking 20 milliseconds, it may take 30.
Hmm..I guess i see it a little differently. I see Google trying to become Microsoft, so why should Microsoft change. I’m not saying I do not agree with the statement that “Live” should be split out; it would probably accelerate its position. Googles crown jewel is Ad sponsored search. From a business perspective, brilliant, but techinically I don’t see how that’s sooo innovative. They got out there first and are repeaing the rewards. This idea that Google is the new innovator seems short sited. It wasn’t too long ago everyone was slamming Microsoft for not innovating and just buying technology. Isn’t that what Google is currenlty doing. The hot thing now is Web 2.0, whatever that is to become; and Mashups seem to be the first offspring of that. Well if I have a Office Suite, OS, and reasonably good online properties wouldn’t the next step be to integrate them all and push Mashups to the desktop and beyond, ala Office, Vista, PocketPC, Xbox 360, etc. Seems to me Microsoft knows what they are doing and have the money to sit and wait; and so does Google that’s why they continue to purchase both web and desktop apps and supporting OpenOffice (and always rumored to be creating an OS) and thus becoming what Microsoft is today.
One other point; now that more and more people are getting DSl/CableModems and with speeds increasing every year, at some point it really won’t matter if the Application is a “web” app or a client app that’s pulled down very quickly from a server.
Just my thoughts.
If proof that there are no new ideas then this post from John proves it. How many times have people talked about Microsoft creating a tracking stock for MSN. MSN is being phased out and brought back into Microsoft. See the new reorg charts.
Like the fable of the tortoise and the hare – Microsoft is in no rush to win this race because when they do people will bleat to the DOJ about how it is unfair. So they need some competition. Remember Lotus, WordPerfect, Dbase, Paradox, Novell, Netscape etc. Where are they now?
As for earning money, look at Google’s recent quarterly earnings compared to Microsoft’s. What is the point of having free software which is paid for by adverts and then earning no money. Even Google’s CFO admitted they have a problem! So who is in trouble?
Microsoft does face the innovators dilemma with Windows/Office but they will slowly migrate more processes to the web overtime – if Google bring out Web Office and if they start to lose market share. But Google will give it away for free and put adverts in the UI and then track our activity to add to their search just like Google Desktop.
As for innovation what has Google or Yahoo given the blogosphere recently – SSE, Live Clipboard, SLE, Common RSS platform – not from Google or Yahoo! Yahoo buys in all of their new innovation and Google keeps all of its innovation close to their chests and has started to buy their new cool stuff like their mapping technology.
Microsoft the dinosaur has been awoken from its five year sleep by Google etc and is beginning to slowly bite back. It will take Microsoft another 5 years before we all look back fondly at Google as we do AltaVista and Netscape.
John is an (un)official employee of Google and his posts need to be judged in the same light as those from Google’s Official Blog. As for someone running the new company I would give the Job to Ray Ozzie period. He is running Microsoft (ballmer is a figure head waiting for his sabatical) already so running MSN would be no sweat.
Microsoft doesn’t get it. You believe they do “get it”. But if they did they’d know what they need to do today. If they see they’re having a problem they’ll naturally ask how to fix it. It’s so obvious they’re lacking in agility they have to be blind not to see that. Yet they have no motivation to become the IBM of the 80’s. There’s really nothing holding them back from being more agile. Therefore they must not “get it”.
Microsoft has lost something on the order of $10 billion in the past three years by not promoting MSN search by putting a search box in the windows task bar.