How to Turn Microsoft Around

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[Disclaimer: Arm chair quarterbacking is easy, execution is a heck of a lot harder]

John Furrier, CEO of Podtech, is out with a post saying that Microsoft needs new blood. He says that Bill Gates is off saving the world and that Steve Ballmer doesn’t seem hungry enough. He says that although he’s been a Windows user for many years that a Mac may be in his future very shortly. His post is in response to widely reported news yesterday that Microsoft’s top search executive, Christopher Payne, is leaving Microsoft.

I guess Payne leaving Microsoft doesn’t really surprise me. Microsoft continues to lose market share in search to Google. What is more surprising to me though is what seems like an almost daily slate of negative news on Microsoft. Yesterday I noted that influential analyst Michael Gartenberg was leaving Microsoft as an “enthusiastic evangelist” after less than a month (he says there is no story here but it’s still surprising to see this), also this week you had another “enthusiastic analyst” Stephanie Quilao leaving her post after 9 1/2 weeks. Stephanie was a bit more candid than Gartenberg blogging that there was no Microsoft product beyond a wireless mouse that she felt she could blog about.

Add to these recent defections Chris Pirillo’s post last week that he was going to “upgrade” back from Windows Vista to XP (not good when you are spending over $600 million to try and promote your new operating system).

More than all of this though is the informal anecdotal evidence I’ve been seeing of a shift from the Windows operating system to the Mac. I wrote about my own conversion last year. In the past few months I’ve been completely surprised at some of the names of people that have privately emailed me saying that they were switching as well. And then earlier this week over coffee with one of the top technology journalists in the world (no, not Walt Mossberg, but close up there) what did he pull out of his bag? A brand spanking new sleek black MacBook Pro less than a week old.

Now the numbers are not necessarily going to reflect this yet, but when your key influencers, bloggers, journalists, etc. begin abandoning Windows and moving to the Mac it’s like a wave and over time this wave can actually threaten Microsoft’s monopoly on the operating system. Look for Apple’s numbers to continue advancing here in the months ahead.

So the question becomes how should Microsoft turn this around?

1. The problem with the PC is the user experience. It’s not good. Especially when compared to a Mac the PC does not provide a good enough quality of experience. The main reason for this is the whole nature of how Macs vs. PCs are built and sold. The Windows operating system is an open system vs. Apple’s closed system on the Macintosh. What this means is that there is a near infinite number of hardware / software configurations for the PC.

Microsoft took a little heat earlier this year when they gave a bunch of bloggers free high end Ferrari PCs with Vista on them. Why did Microsoft give these bloggers these PCs instead of just mailing them free Vista upgrade discs? To ensure the quality of their experience. If they didn’t these same bloggers might have ended up having experiences like Chris Pirillo did and writing that Vista was crap.

They say a chain is only as strong as it’s weakest link and the same is true of computers. Apple has the luxury of being able to test limited and known configurations on their products. Combine this with an almost manic commitment to user experience and you get a better product.

Microsoft of course can’t just reverse course and piss off all of their OEMs and start building their own PC, but what they can do is create a Microsoft certification whereby thoroughly tested systems receive a special Microsoft seal of approval. This would be reserved only for PCs that met the most rigorous testing requirements. Microsoft should even offer to provide the actual customer service and support for these PCs (if they are built perfectly enough there won’t be many calls, eh?). These certified PCs *can* cost more money. People will pay a bit more for a better experience.

2. The problem with is that it lacks compelling content. Robert Scoble says that he told Microsoft to buy Flickr three weeks before Yahoo actually did. Flickr is compelling content. Flickr was one of the best buys of the decade. For $35 million Yahoo got something that now has over 7 million registered users, over 20 million monthly uniques, over 400 million photos (and the best organized photo library in the world), and something that is going to actually (eventually) provide Yahoo a big leg up in image search.

But there are so many other great companies out there still to buy (hint Yahoo, Google and IAC have been buying a lot of them). I don’t use because I don’t give a crap about having a homepage that shows me the news and weather and stock quotes. *had* a lot of potential. Now it is pretty much dead.

Given the choice between building or buying Microsoft almost always chooses to build. And yet where is the Flickr of Microsoft? Where is the digg of Microsoft? Where is the Pandora or Last FM of Microsoft? Where is the or Involver of Microsoft? Where is the Podtech of Microsoft? Where is the Twitter of Microsoft? Where is the TechMeme of Microsoft? I don’t know if it is just too bureaucratic a place to build cool things that I want to use but they are not being built. These social networks have particular application in search that has not even been realized yet today.

Microsoft is sitting on $29 *billion* in cash and short-term investments. Rather than buying sleepy little companies, Microsoft needs to begin beefing up it’s arsenal with properties that people will actually use and love.

In the next year Microsoft should spend $3 billion buying everything cool that it can get it’s hands on irrespective of the busness outlooks of the individual internet properties. By combining these properties into something cool they *can* build a presence yet on the net.

3. Open an incubator in San Francisco. As part of spending $3 billion to buy a host of great internet properties the key thing is to let them run independently. What Microsoft should do is just create this kick ass campus in San Francisco. They should have a cafeteria like Google does and feed these people and encourage them to spe
nd 24 hours a day there. It could become a think tank of sorts producing some of the best stuff on the internet. Why San Francisco? Because this is where these things are being built these days.

4. Get their evangelism back on track. Scoble was a big loss for Microsoft. Gartenberg would have been an interesting choice to try and fill his shoes but now he’s gone as well. Microsoft needs to, in conjunction with the above efforts, get the right evangelists in place to then promote their new initiatives. Top bloggers, journalists, analysts, etc. should all be considered. Rather than one or two top evangelists though they should hire about 30 of these connectors and also give them direct access to the executives making the business decisions at Microsoft.

Fundamental to the four changes above is a realignment of how Microsoft views businesses. It means going from a structured corporate environment where each purchased company must have a compelling profit/loss case made to an environment where the vision of the future takes as compelling a seat as short term profitability. It also means adopting a new spirit that not only accepts but encourages and rewards self criticism. Less the company line and corporate mantra and more innovation. Roadblocks to innovation (including short term profitibilty) need to be removed. Processes need to be streamlined and Microsoft needs to redefine itself as a place where talent comes, not where talent leaves.

Honestly I’m not sure that any corporation can turn itself around the way that Microsoft needs to. Even Yahoo while acquiring the right internet properties still can’t seem to integrate them in the ways that they should. Like I said before arm chair quarterbacking is frequently a lot easier than executing.

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  1. Jason says:

    Microsoft already does certify devices and systems. There are several tests you have to pass in order to get the “Designed for Windows Vista” logo. The issue is that users are using “certified” systems that were logoed for Windows XP and upgrading them to Vista and expecting the same great out of the box experience that a “Designed for Windows Vista” PC would get them. The sad reality is that hardware vendors have no incentive to provide drivers for a new OS because they recieve no income from the user upgrading. They would much rather you buy a new PC.

  2. Jason makes a really good point.

    My friend Ian also pointed out that this would be a massively uphill battle for MS, since public perception is against them so often.

    Personally, I feel that if they start owning reliable and innovative web properties, public perception of them will shift. It will just take time and, like you said, a lot of money.

  3. Mike Torres says:

    Microsoft also has a rather large silicon valley campus and has had one for appx. 10 years. A lot of core dev work is happening there.

  4. Justin King says:

    Thomas, I do agree in some regards but Microsoft are their own worst enemy.

    They have so much market share that to release say an OS like Vista without backwards compatibility like OSX when Apple made that brave move would just kill them. Even if they did recover from it, they would take a major market share hit and probably billions in lost revenue (over the short term).

    Part of Microsoft’s success is the fact that they generate so much for other companies whether hardware or software.

    The other problem is that they should by great companies like Flickr or Zooomr, but the base technologies are written in things like PHP or Java which if Microsoft bought they would have to change to their own technologies such as .Net as it would not reflect too well if they didn’t sue their own Servers and technology.

    Sure they could get away with it for 12 months or so but in the end they would just have to write what they could have done, the only advantage they have of buying these companies is purely for the user base/content you mentioned.

    Just my 3 cents worth today.

  5. Mikey126 says:

    A great list of “oughtas” there. I don’t think MS would have it much harder than Google or Yahoo! in terms of monetising bought-in technology properties. And they do have a cash flow that can keep things ticking over while they work on it. I’d like to see them try.

  6. JT says:

    “And then earlier this week over coffee with one of the top technology journalists in the world (no, not Walt Mossberg, but close up there) what did he pull out of his bag? A brand spanking new sleek black MacBook Pro less than a week old.”

    A black macbook pro? I thought they only made black macbooks.

  7. Shawn Oster says:

    An interesting take on what Microsoft needs to do and it’s refreshing to hear you say that a huge part of Apple’s success is their ability control both the hardware and software.

    I have a slightly different take, though I don’t think all that much.

    1. Microsoft should stop trying to compete with Web 2.0 properties. I don’t want to see a Microsoft flickr or Pandora or digg and all of those would be bound to fail anyway as everyone would say Microsoft was pulling strings to make certain pictures more interesting or only playing certain record labels or purposely digging down anti-Microsoft news. You don’t see an Apple flickr or Pandora and they seem to be doing OK without them. Microsoft needs to focus on core values and software, not trying to spread out like the blob.

    2. I don’t want “cool” things from Microsoft, I want a base to put those cool things on. Plus, the more cool things Microsoft creates the more lawsuits by companies crying unfair market advantage, just like the anti-virus makers are doing now.

    3. Forget San Francisco, go Boston! 🙂 A lot of great stuff is going down in Boston, just look at the 37signals guys.

    4. Hit hard on the markets Microsoft *is* doing well in, such as the XBox 360, or in markets where they could be doing a lot better if only they worked a bit harder, like Media Center.

    5. Let a little crazy in. Steve Jobs is a visionary, a charmer. To those that know him better he is egomanical and perhaps slightly crazy. There needs to be one person driving Microsoft, someone everyone loves and fears, someone with fire in their eyes. I was hoping J Allard would be that person but I think he’s going to be a much better field commander than a general.

    6. Find a holistic user-interface tzar and give them too much power. When you use an Apple product you know it, love it or hate it. You don’t quite get that same feeling from Microsoft software. Even inside of Vista you can find things being done or displayed in two or three ways. Granted, this is rather hard because I know even OS X has these types of issues (I had an Apple friend show me when I asked) but someone whose hell bent on making sure everything looks and feels like one cohesive whole would help tighten up that feeling.

    7. Create Microsoft hardware, OEM’s be damned. I’ve worked in industries that used OEM’s and they are great when they work but horrible when they don’t. The whole reason the Zune was created and PlaysForSure dropped was because Microsoft was disgusted with the fact that no one was even trying to capture market share, they were content to sail in way, way behind the iPod. You have to aim for more than first, you have to want to beat the course record. It’ll take Microsoft a few years to even see the back of the iPod’s running shorts but they did it with the XBox against the PS3 and I’ve wagered stock they’ll do the same with the Zune.

    8. Drop all backwards compatibility. People are already hanging back on upgrading from XP, it would have been a perfect time to ditch the backwards compatibility anchor. I still have hopes that projects like Microsoft’s Singularity will lead to a clean break in the future.

    So, it really boils down to:
    – Go simpler and smaller, not bigger

    – Focus on being completely solid

    – Create hardware to best showcase these efforts

    – Find the people that will have the backbone to stay the above course, even against initial stockholder, market, and OEM out cry.

  8. Shawn Oster says:

    Off Topic: Any chance you can enable comment feeds? I believe it’s under Settings | Site Feed, then click on “Advanced Mode” and set Per-Post Comment Feeds to either Short or Full (I’d suggest Full).

    Unless you already have and I’ve just completely missed it.

  9. Scott says:

    Disagree with the San Francisco incubator. A lot of the successful web 2.0 apps are successful because their creators live there and get to press the flesh with the Arringtons/Scobles 😉 and others that hype the companies. Getting them lots of free publicity. Lots of attention and lots of users. Which goes a long way provided your app doesn’t suck. MS has a campus down there, it isn’t helping them.

    They *do* need to spin off some companies internally and let them work on some skunkworks projects for a while though.

    Shawn O. I believe 37Signals is based out of Chi.

    The rest of it is pretty spot on IMO. Soapbox is a superior video experience compared to YouTube, but betamax couldn’t beat VHS.

  10. Ben Long says:

    While I like ‘cool things’ as an IT manager I encounter things in the corporate environment on a daily basis which Microsoft should be doing better on a daily basis.

    So I agree with some of the comments here, Microsoft should let the cool kids do the cool things and concentrate on keeping their core business.

    I don’t think the odd person dropping Windows Vista for XP or a Mac is necessarily representative of Microsofts standing in the martket place.

  11. Anonymous says:

    Lemming=Mac zealot

    I don’t want someone dictating the hardware I get to use.

    I don’t want someone dictating anything about my computer to me.

    I can build or buy any computer I want.
    A $350 box that my sons play with.
    A $1500 box that is my DVR.
    A $2000 laptop that runs Vista very well.

    I assembled the first two machines with my own hands. Microsoft and the open source operating systems allowed me to do that.

    Apple doesn’t allow me to do any of this.

    Glad your mac works for you. The only reason your Windows machines didn’t work is because you didn’t have the skills to manage them properly.

  12. Anonymous says:

    Thomas very time i read your blog and you talk about windows it just tells me that your a moron.

    I cpoldn’t make this stuff up even it i try.

  13. Anonymous says:

    Buying up companies will not help turn Microsoft around. Why? Because the new properties get absorbed and then crushed into a useless state by Microsoft’s bureacracy and entrenched interests.

    Just take a look at Hotmail. At the time Microsoft purchased, it was the hottest thing in email. What did they do with it? Practically nothing, except turn it into the world’s free spam delivery service.

    Instead, while everyone out there was innovating, responding quickly to new entrants like Gmail, Microsoft seemed to have problems upgrading email storage from 100 MB to 250 MB. The interface remains as sucky as ever. Hotmail went from being hot to not.

    Just head over to Mini Microsoft’s blog to get an idea of what’s really vexing Microsoft.

    Basically, you get the clear sense that the major problems are:

    1) No vision
    2) An HR group run amok, forcing engineers to spend more time navigating ridiculous HR initiatives like “Career Compass” and doing performance reviews
    3) A screwed up incentive system where doing useless performance reviews becomes more important to career advancement than shipping product
    4) Thousands of upper level partners who only care about cashing in their options

    None of these things can be fixed by buying up innovative new companies, except that the world will lose yet another source of innovation to the Microsoft abyss.

  14. Anonymous says:

    Microsoft? I haven’t used it in years, in any form, so I really don’t care what happens to them, articles about Bill and the boys are worthless when no one cares, so why waste your time.

  15. Anonymous says:

    I don’t understand the motivation behind trying to give advice to a monopolist. Why bother? Some companies grow and grow and grow. Eventually, they might become large enough to lose all the energy that made them big in the first place. Then, they die. No big deal. It just happens.

  16. David says:

    Since it was Ray Ozzie who woke Microsoft up to the Googlel threat and he is about (as far as I know) to take Gates’ job as Chief Scientist, it would seem that MS still has the moving force to move into the 21st centruy.

  17. Ritholtz says:

    Here’s a clue to the clueless: What’s broken at Mister Softee ain’t (thats always been secondary in Redmond);

    Whats broken is the corporate politics — nothing gets done, they have become a monolith of bureacracy. Until that changes, tits all shite

  18. Anonymous says:

    I think you missed the major problem with Microsoft. Virtually everything they do – first and formost – is designed to be tied (dependent) to Windows. That may have worked 5 or 10 years ago, but now with the web being the connection point, excluding all others is doomed to fail.

    Microsoft needs to go back to the basics and develop a great OS that “just works” and does not get in the users’ way. Doing that, they would not have to worry about keeping their marketshare – people will flock to a great (not just OK) OS.

    I also think that Microsoft’s other problem is management. They are running Microsoft like a government entity that is slow and uncaring about the customers.

  19. Anonymous says:

    Microsoft’s stock has been going sideways for a long time now because they are flailing around trying to win in every market space and, as large as they are, and as rich as they are, they cannot beat the world in everything. They could blow the whole 29 billion sitting in their bank in no time and buy their shareholders and customers nothing. All they end up doing is subsidizing their solutions to win market share like with the Xbox 360, currently a money losing proposition. I have the opposite suggestion from Mr Hawk…Microsoft needs to divest itself of many of its solutions and business units. They need to pick a couple of things – their OS, Office, and Exchange for instance, and compete in those markets.

  20. Mike says:

    You are looking at it from a user standpoint, but it’s equally instructive to look at it from a shareholder’s standpoint (disclaimer: I have a stake in MSFT). The main problem with the current Microsoft leadership (Ballmer) is that he’s drunk too much of his own Kool-Aid – he actually believes that Microsoft is an innovative trailblazer that can dominate any market it enters through sheer product superiority. Furthermore, he yearns to recreate the “glory days” of the 80s and 90s when they achieved double digit growth year after year on the strength of Windows/Office.

    However, anyone familiar with MSFT (e.g., anyone who looks at their 10-Ks) knows that MSFT has spent tens of billions of dollars over the last decade trying to gain dominance in countless markets (e.g, web portals, search, music, TV/video, mobile phones, gaming, voice recognition, tablets, networking, business services, automotive computing, etc. etc. etc.), and to a first order approximation they have nothing to show for it (beyond billions of dollars of losses). So clearly they are not going to be able to carve out the “next Windows or Office” simply by building a product that is so superior to anything else on the market. Nor is this going to change just because they plunk down a campus in SF or buy a bunch of start-up companies. All that’s going to do is result in even more shareholder cash being frittered away.

    Any CEO of MSFT therefore faces two alternatives. One is to say screw DOJ and start leveraging the Windows monopoly for all its worth. E.g., if you want MSN Search (oh sorry, “Live Search”) to get anywhere, then make it really difficult to set Google as the default search engine or home page in IE and make sure that Firefox cannot run very well on Windows. Of course, the risk here is that the government will really come after you once Bush is gone in 2008, plus you might annoy Windows users enough that some switch to Mac or Linux. But you gotta take risks if you want to win!

    The other alternative is to recognize that Windows/Office are where all the money is at, they are in the prime of their lives, and just milk them for all that they’re worth. Cut all the spending on money-losing products, raise the price of an OEM Windows license by $100, tighten up WGA a couple more notches, and run the company like a real business. I guarantee profits will double in less than a year (you’ll lose a few customers to higher prices and annoying anti-piracy measures, but that will be more than balanced out by the fact that you’ve doubled or tripled the revenue from each Windows license). Yes, you’ll never grow beyond Windows/Office, and you might even lose those monopolies over the very long term, but honestly that is going to happen sooner or later anyway. You might as well make all the money you can while you still have the opportunity.

    The problem with Ballmer is that he is unwilling to do either of these…all he does is take wimpy half-steps that don’t amount to anything. He raised the price of Windows a little, he’s trying to leverage their OS dominance a little (but he’s clearly afraid of DOJ, or maybe just the EU now), and he’s throwing billions of dollars into other markets in a desperate hope that something will stick and he’ll find the next Windows/Office. But of course he won’t, and in the meantime he’s just a big drag on shareholder value.

    The glory days are over and they’re not coming back no matter who is at the helm. But that doesn’t mean that there aren’t a whole lot of more qualified people out there who could run the company significantly better.

  21. Anonymous says:

    The average user just wants to buy a computer off the shelf that fits their needs. They do not want to be a builder. Like driving a car, people want to use them to get from here to there. They don’t want to be a mechanic tinkering under the hood. For a lot of people a Mac that just works is a great way to go. And with the Intel chip, you can run Windows if you need to.

  22. Anonymous says:

    However it doesn’t alter the fact that after years of development, and testing Microsoft has:

    1. Released Beta software dressed up as a modern operating system.

    2. Shamelessly copied Apple’s OSX and the version they copied is about four years old.

    With all of Microsoft’s monetary reserves I would have expected better. In fact Microsoft is reminding me more and more of IBM in the early 1990s defending their OS/2 operating system.

    Sad but true!

  23. Shawn Petriw says:

    I would be happy if Microsoft just went away.

  24. Anonymous says:

    This post sounds like “We wish MS buys zooomr”