Microsoft, Meet Darwin—Again
Once again Microsoft is being asked to reinvent itself in the face of a competitor coming from an unexpected direction. This time it is Google, and the challenge is nothing less than the reinvention of the software business model in light of the stagnation in enterprise computing, the rise of consumer computing, and the convergence of computing with media. In this context does the licensed software model, the bedrock upon which the entire Microsoft empire has been built, evolve or get marginalized?
Microsoft has been under siege before, most recently by Netscape and then by the open source business model. Both have forced reinventions. But neither challenged the fundamental paradigm of software as a product. Google does. Its offers are not products. Arguably, they are services, but they are not paid for as such. They are better thought of as media properties—services that attract eyeballs to be monetized by advertising. (Aaghh! After the dot.com crash, I swore I would never say such phrases again! Ah well, perhaps it is true as Emerson said that consistency is the hobgoblin of petty minds.)
The only thing harder to fight than a free product is a free service. For at least with a product you have to go through some effort to license it, install it, maintain it, etc. With services, it’s all done for you. That is real ease of use.
Now this model is not likely to resonate with the enterprise. At the Vortex conference in October of this year, CIOs told John Gallant and me that they had little interest in seeing a Google desktop inside their firewalls any time soon. But the enterprise is caught in a Sargasso Sea of client-server complexity, and until it works itself free, it is not the happening place for a software company to be. That instead would be on the web, in the air, on the phone, in the iPod. And that is precisely where Microsoft needs to catch up.
Ray Ozzie is leading the charge. He talked to us at Vortex about the role he is playing. Essentially, he has to lead by influence across the established business units at Microsoft. This will create a classic core-versus-context battle for control where the legacy business models, the one that make all the money as they will be quick to remind folks, will resist yielding their most precious resources—time, talent, and management attention—to an unproven, high-risk endeavor for which Microsoft historically has demonstrated little competence. Yet yield they must—indeed, actively collaborate they must—for Microsoft to reinvent itself yet again.
The old innovation type of Microsoft was product innovation, while the new one is value migration innovation. That is, the web-enabled world has forced a value migration from product to service, the latter already beginning to marginalize the former, and the question is, can the company reposition itself in the new value chain to continue to capitalize on its intellectual property? The answer, at least in part, is not without deconstructing its current workload and organizational structure to repurpose it for the new endeavor. That’s a lot of cheese to move, and there are bound to be a lot of disgruntled mice resisting the effort. It is going to require a very clear-eyed, long-term approach to change management to bring this off—not the sort of thing that technology companies have ever been noted for.
People say, never bet against Bill. But in my view, the key person in determining the outcome of this effort will not be Bill, or even Ray, but rather Steve. Great leaders emerge with great undertakings. For the past several years Steve Ballmer has had to deal with a lot of murky challenges that have frustrated his passionate leadership style of Just do it! Like Gulliver tied down by the Lilliputians, struggling to wrench himself free, he has needed a galvanizing occasion to break out. Well, here it is. This issue is not murky, and it absolutely lends itself to passionate leadership. A lot of heads are going to have to get cracked if Microsoft is really to reinvent itself in this new context. This strikes me as Ballmer’s kind of work, and with arguably the future of Microsoft hanging in the balance, an opportunity to define his tenure once and for all. It's what all great athletes dream about: game in the balance, last second shot, gimme the ball!