ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Wednesday, September 21, 2005

Re-Arranging the Deck Chairs at Microsoft

Well, Microsoft is in trouble and has bet the farm on a reorg within the company. Unfortunately, I don't see how this is going to change the course of the company...

Be sure to check out blogger Mini-Microsoft, who reports "from the inside" on these changes.

Three-Part Harmony for Microsoft?
The software giant is undertaking a major reorganization, down from seven divisions to just three. More power is now in fewer hands

On Sept. 14, Microsoft (MSFT ) CEO Steven A. Ballmer sat in an empty conference room at Las Vegas' Venetian Hotel and vigorously told BusinessWeek that the company wasn't getting bogged down by bureaucracy. "We have the healthiest company in the world," Ballmer said at the time. Sure, Microsoft has a series of hoops that managers have to jump through as they coordinate efforts across divisions. But, Ballmer insisted, that wasn't getting in the way of producing great software (see BW, 9/26/05, "Steve Ballmer Shrugs Off The Critics").

Just six days later, Ballmer announced Microsoft's biggest reorganization since 2002, in part to help the company move faster. Microsoft's seven divisions will be merged into three groups -- Platform Products & Services, which includes Windows, MSN, and the Server & Tools division; the Business group, which includes Office and Microsoft Business Solutions; and the Entertainment & Devices division, which includes Xbox and the mobile devices group.

"Our goal in making these changes is to enable Microsoft to achieve greater agility in managing the incredible growth ahead and executing our software-based services strategy," Ballmer wrote in an e-mail to employees announcing the change.

Unfortunately for Ballmer, it's tough to get ahead when your key talent is heading over to your competitors. I happened to read this BW article on Monday, which gives some insight into the problems which prompted this re-org:
Troubling Exits At Microsoft
Once the dream workplace of tech's highest achievers, it is suffering key defections to Google and elsewhere. What's behind the losses?

When Microsoft Corp. (MFST ) hired computer scientist Kai-Fu Lee away from hardware maker Silicon Graphics Inc. (SGI ) in 1998, the move underscored how thoroughly the software giant dominated the computer industry. Not only did it monopolize PC operating systems and hold an edge in Web browsers, but it was also vacuuming up the world's brightest technologists. Lee's expertise was in speech recognition, considered one of the next big leaps in computing. With people like him flocking to Microsoft's labs, it seemed that the digital world's reigning champion had a lock on the future.

Things didn't turn out that way. In July, Lee bolted from Microsoft for Web search king Google Inc. (GOOG), and once again his personal journey is emblematic of a shift in computing's balance of power. These days it's Google, not Microsoft, that seems to have the most momentum. Microsoft sued to stop Lee from working for the upstart, citing his noncompete agreement. But on Sept. 13 a state judge in Seattle ruled that Lee could work for Google, with some restrictions, pending a January trial. Microsoft said it was happy the judge limited the type of work Lee could do. Yet when court adjourned, Lee smiled broadly and threw both arms in the air. "I feel great," he said outside the courtroom. "I can't wait to start work tomorrow morning."

Contrast that with how Lee felt about Microsoft. During the two-day hearing he painted a distinctly unflattering picture of the company's inner workings. Lee, who opened Microsoft's research lab in China in 1998 and moved to headquarters in Redmond, Wash., two years later, fretted over what he saw as repeated missteps. In court he detailed how the more than 20 product-development centers in China tripped over one another, duplicating efforts and even fighting over the same job candidate. Lee called the company "incompetent." After the ruling he praised Google, noting, "the culture is very supportive, collaborative, innovative, and Internet-like -- and that's bottoms-up innovation rather than top-down direction.

One of the key things that Ballmer is quoted as saying in this article is the following:
"If you take a look at where we're going with innovation, what we have in the pipeline, I'm very excited. The output of our innovation is great," says Ballmer. "We won the desktop. We won the server. We will win the Web. We will move fast, we will get there. We will win the Web."

I'm sorry, but I don't think the Google execs are saying "we will win the web." And not to mention that he's full of B.S. when he says that the output of their innovation is great... keep reading for info on that. Another point of contention is that Microsoft has "won the server." I'm sorry, but Linux is making a serious charge against MSFT o/s dominance? And in the Web Server space, Apache far outstrips MSFT's IIS (68% to 21% of the market)? Likewise, Sendmail has a larger share of the mailserver market than MSFT's Exchange (41% to 10%)...

As hinted above, Microsoft has other problems. It spends a TON of cash on R&D, but can't seem to find any business value from their projects. This Fast Company article points to some of the problems (which I don't see being addressed by this re-org).
It was on November 12, 1990, in a speech at the Comdex/Fall show in Las Vegas, that Microsoft chairman Bill Gates first proclaimed his vision for "information at your fingertips" -- software that would let people easily find the data they wanted, wherever it was on their computer or office network. The new system, he promised, would arrive within three years.

Those three years passed, of course. Then another 10. Today, Microsoft is still promising information at our fingertips, now in the guise of powerful search technology built into the next generation of Microsoft's operating system, code-name Longhorn. But Longhorn, originally expected this year, remains just beyond our grasp: It now isn't likely to reach customers until 2006.
But when it comes to online search, arguably the hottest technology of the past five years, Microsoft has missed the boat. Heck, it hasn't even been near the dock.

Say the same for the Web browser (created by Netscape), the streaming media player (by RealNetworks), the game box (Sony), interactive television (TiVo), so-called smart phones (Nokia, Ericsson, and Motorola), and digital-music distribution (Napster and now Apple). Once the bellwether of the computing industry, Microsoft has watched from the sidelines as comparatively smaller, poorer companies brought to market virtually every important technical innovation of the past decade.

It's not the sort of track record that inspires confidence about Microsoft's prospects. "It's not good enough. And it's not just the incremental product innovations that matter. Microsoft's inability to create leadership in entirely new product areas . . . is a real problem," says Adrian Slywotzky, strategy guru at Mercer Consulting. "If they didn't have $61 billion in cash, if they had only $40 billion but they had dramatically stronger strategic positions in games, or [digital] music, or technology in the home -- which is where they really want to be -- then people would think very differently about this company."
Redmond, Washington, has never been a great cradle of invention. In fact, Microsoft's research labs, though enormous and enormously well funded, are also strikingly inefficient. Beyond missing big opportunities, the company has placed some very poorly conceived bets (digital toilets -- no kidding -- come to mind) and poured hundreds of millions of dollars into technologies with neither sizzle nor apparent commercial prospects (SPOT Watch, anyone?).

Given the track record of Microsoft's execs over the past... oh, 8 years (?), I'd say that something rotten is in the state of Redmond. Fortuntaely, they've got the Office and Windows cash cow to keep them afloat. However, as these positions receive challenges, MSFT must continue to invest in defending these products and forego market-making innovations.

Your Co-Conspirator,
ARC: St Wendeler