Ray Ozzie and The Regrooving of Microsoft

Originally posted on Get Real on 23 September 2005.

Microsoft is reorganizing seven divisions into three, which is being widely considered as the company preparing itself for the next war, since the battle for the desktop (as in operating system) is long over, and the next battle is looming.. Erick Schonfeld argues that is may be Ozzie Time:

Perhaps the biggest shift, though, comes with the announced retirement of Windows chief Jim Allchin (who will continue as co-president, with Johnson, of Platform Products and Services until Windows Vista ships later next year), and the rise of Ray Ozzie as chief technical officer for all three divisions. Allchin was always the biggest champion of Windows and, thus, PC-centric software. Ozzie is tasked with helping Microsoft shift to more of a Web-based software-as-a-service strategy.

Waiting five years between major revisions of Windows threatens to put Microsoft at a competitive disadvantage when Web-based software companies like Google and Salesforce.com can upgrade their software and add new features on a monthly, weekly, or even daily basis. If Ozzie can figure out a way to combine the power of Microsoft’s PC-based applications (Windows and Office) with the flexibility and network effects of its Web-based applications (MSN), he can help Microsoft maintain its industry status as biggest dog on the porch.

Well, good luck to him. Groove never became anything more than a niche application, but it was out there *way* in advance of the new explosion in web applications. He may be the right guy at the right time, but I think he will have his hands full with the wave of innovation going on out there in the weeds, and the entrenched competitors on every front: yes, Microsoft is fighting big competitors on everyfront. In search, online music, business collaboration products, handheld devices, and their cornerstone, PC operating systems and office apps.

A pointer from Om Malik led me to a piece from James Stoup on Micrososft’s challenges:

Many years from now analysts will look back, draw a mark on a timeline and say, “Here it is, the beginning of the fall of Microsoft.” But don’t think for a second that MS is going to collapse in a week or two. Oh no, we couldn’t be so lucky, it’s going to take some time. You see, much like the Roman empire, MS is going to take a while to completely crumble. And even if they do fall there is no guarantee that they won’t pick themselves of up start over. Or, more likely, something different will arise from their ashes and a new company with an old name will start to compete in the market place.

But where will that mark be? When will historians peg the start of their fall? Personally, I feel it to be in about a year and a half into the future. When Longhorn comes out, and fails to be everything MS hoped it would be, that is where you can draw your line. That is where Microsoft had the chance to reassert their domination and instead they pissed their chances away. Longhorn is going to be a big disappointment to a lot of people. And when all of those people realize it’s time to upgrade, they might just look somewhere else.

I think the turning point goes back to Microsoft’s inability to get people to upgrade to XP when it was first released. That was the first nail in the coffin.

But the coming Battle-Of-The-Stacks is really the war for everything: the entire application and communication stack. Microsoft has bet that they will win, everywhere, and invested strategic levels of their capital into that prospect. Can they survive is they lose any of the battlegrounds? Yes, Microsoft can survice if MSN loses to Google in search, and loses to Yahoo in online mail and instant messaging, and loses to Apple in music. But it can’t survice if it loses some critical collection of these areas. If web-based app development based on open source (Linux + Java + MySQL + Apache) becomes the dominant base for future apps, and business collaboration and communication shifts to that platform instead of Microsoft’s .Net and Office servers and applications, Microsoft is in deep yogurt. If Microsoft loses the battle for the living room – the blackbox that connects PCs, game machines, and teleivisions together – to Apple, or Sony, or any combination of other players, Microsoft would be gravely wounded. If iPod PDAs and phones become ubiquitous, then Microsoft’s enormous investments in that sector implode. And so on. There are so many battlefields I don’t know why the pundits think Microsoft can do it all.

The most likely scenario to me is that Microsoft will lose one, two, or more of these battles, and will then be a much diminished player: perhaps dominant in games, but not in cell phones; perhaps strong behind the firewall for large business (like IBM of old), but nearly non-existant in small and medium business (their initial beachhead in business, once upon a time); maybe strong on desktops, but not on servers.

Its possible that one central battlefield will become clear, and Microsoft may be able to concentrate all their energies to winning it. But such a Waterloo could play against the Napoleon that Microsoft seems to have become. Aggressive and schooled in the competitive tactics that have brought justice departments the world over after them, they may look like the smart bet. But I see them fighting against dozens of strong and highly motivated competitors – Cisco, Apple, Sony, IBM, and so on – so I am betting against Microsoft. Or at least I am betting that Microsoft can’t win everywhere, and unless they take drastic actions – basically ceding the battle in some of these areas before losing strategic rescources along the way – they may lose in areas that could be won, if they concentrated their resources and investments. But I am betting on hubris, momentum, and short-sightedness, so that Microsoft will have a few big losses, and the hope to conquer the world will lead to them losing most everything.

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