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.