Microsofts Strategy Memos Dont Tell All

By Darryl K. Taft  |  Posted 2005-11-11

Microsofts Strategy Memos Dont Tell All

The memos from Microsoft leaders made public last week raised more questions than they answered, observers said.

Both Bill Gates, Microsoft chairman and chief software architect, and Ray Ozzie, the companys chief technology officer, wrote memos designed to detail the companys emerging services strategy.

Microsoft CEO Steve Ballmer told eWEEK in an interview, "I think youre going to have all three models [sales of software licenses, subscriptions and software as a service]."

Going further, Ballmer said, "Youre going to have the transaction model where you sell something, therell be a subscription model where you pay for something as you use it, and therell be some things thatll be funded via advertising or essentially as part of a bigger idea.

"What are we doing with our Express editions? The fact that theyre available for free downloads doesnt mean weve given up being a profit-making company, but we do recognize theres just a budget limitation that students have.

"And yet we want to create a funnel so that over time some percentage of those people actually, themselves, or the companies they work for, end up buying a full Visual Studio and a full SQL Server.

"So I think youre going to see a variety of business models and were embracing all of them."

Click here to read more about what the memos Microsoft released say about the companys vision for on-demand computing.

Stephen OGrady, principal analyst with RedMonk LLC in Denver, Colo., said, "The memos underscore the fact, as was implied during their announcement and demo of the Live technologies, that both Gates and Ozzie perceive services as both a threat and opportunity for Microsofts business."

OGrady said the implications are unclear, adding, "Microsoft, as Ozzie discusses, should have been out in front of the AJAX [Asynchronous JavaScript and XML] curve. That they were not is a testament to the Innovators Dilemma that Microsoft faces with both its Office and Windows franchises. … On the one hand, [those franchises] have been and likely will continue to be for some time de facto licenses to print money.

"On the other hand, the protection of those franchises kept Microsoft from assuming the leadership position Ozzie feels they should have had in a newly emerging, and quite lucrative, advertising-driven services world."

Ballmer said Microsoft "grew up, certainly, on the transaction business model, but what we really talked about last week is were going to have a variety of things we do that are ad funded, and a variety of things we do that are subscription funded."

In particular, "We already sell almost $2 billion a year in advertising, so I cant tell you its small," Ballmer said. "And depending on how you look at some of our enterprise agreements, a number of those are kind of subscription based, so its hard for me to tell you thats small. I think theres a lot of economic promise in all three for different scenarios. Each has its own place, if you will."

Ballmer added, "Do I actually think ad funding is going to be the primary source of revenue for mission-critical applications in the enterprise? No, I dont think so. I think thats still going to be either transaction- or perhaps some time in the future, more subscription-oriented revenue."

Do Microsofts memos reveal anxiety about its on-demand strategy? Read more here.

Eric Newcomer, chief technology officer at IONA Technologies Inc. of Waltham, Mass., said, "I thought the e-mail was right on target. But I do not see evidence in Ozzies memo of any plan of attack. The description of the problem seems pretty good, but theres nothing about a solution, or how exactly he expects Microsoft folks to go about implementing the proposed change.

"Hes asking for a study, for each division to respond with a proposal to solve the problems he describes, and he has created a process within which he will be assigning people to work on solving the problems. But again, nothing concrete about how its going to happen, or what it will mean in terms of products and technologies. We all know the problem—what we are looking for is what Microsoft will do about it, and theres nothing here about that."

And despite Microsofts efforts to become more transparent, Newcomer said, "Traditional Microsoft innovation is performed behind closed doors, and even if you sign an NDA [nondisclosure agreement] you may still not get access to everything theyre doing or thinking."

And, noting that Gates and Ozzie mentioned earlier sea change strategies Microsoft has undergone, Newcomer added, "Unlike earlier efforts they cite as precedent, such as the famous Internet memo and bet the company on .NET and XML/Web services, theres no concrete action here other than a call to work on proposals and processes for solving the problem. No solutions are proposed."

Also, beyond the technical challenges, which Microsoft acknowledges amount to turning around in midstream, the current challenge also represents a cultural challenge, since Microsoft has built up its entire business around the shrink-wrapped license, as Ballmer admits.

Microsoft needs to get its teams on the same page to execute on this strategy, Newcomer said. "I think the recent reorg into divisions will work against this proposed change to services. Ozzie is asking each of the divisions to come up with plans and proposals to address the problems he outlines, but they are as likely to compete with each other as cooperate."

Next Page: What users think of Microsofts memos.

What Users Think of

Microsofts Memos">

Some users of Microsoft technology are not impressed, either.

"Its all vaporware for products that wont be out until 2006-2007 at least," said Richard Olson, a developer with Digett, a Boerne, Texas, interactive media firm.

"Like that My Hailstorm/Passport nonsense from a few years ago. Itll be interesting to see how well they can compete without the home field advantage."

Mark Figart, Digetts president, added, "One must only take note of the fact that my firm subscribes to, and pays for, ordinary business services from Basecamp, TimeConsultant, Simplicato and Flickr to see that the online services model is thriving."

Indeed, Figart said he has been "a fan of Microsoft for years, and I think their desktop products like Outlook and XP are better than ever. But we at Digett have actually reduced our dependency on their development and other server-side tools, and will probably continue to do so. They have become more expensive and more difficult to manage, while less expensive alternatives have improved in terms of quality and support.

"Microsofts Live strategy? I dont know if it represents anything of significance or not. Out of necessity Im more focused on the here and now regarding the resources available to deliver Digetts services."

George Girton, a member of the Santa Monica software patterns study group in Santa Monica, Calif., said the Ozzie memo echoed some of the concerns about reduction of complexity in software that his group has discussed. But, while Microsoft has shared some of its forward-looking strategy, "On reflection Im not sure why its so important to them to try to remain dominant. Just because?"

Stephen Forte, CTO at Corzen Inc., N.Y., said, "Many people love to predict the death of Microsoft or compare them to IBM of old (before the turnaround) or with being a slow dinosaur, but I think they are still a very competitive, sharp, and innovative company—from the top down."

Indeed, "When they see the winds changing they move pretty fast—and usually with good innovation," Forte said. "I remember the now infamous Bill Gates on the pitchers mound at the Kingdome speech back in the early 90s when the dot-coms were going to put Microsoft out of business and Bill [Gates] declared: we are now an Internet company. Can anyone argue that they did not deliver on that? I am sure that they will deliver."

Forte added that he thinks Web 2.0 is over-hyped.

Andrew Brust, chief of new technology at Citigate Hudson, N.Y., said: "My critique would be that the term service is, paradoxically, both loaded and completely hackneyed and meaningless. I think they [Microsoft] need to work through some more precise vocabulary. They need it for internal focus and planning, and they need it to ward off external parties viewing this whole thing as rehashed Hailstorm."

Moreover, Brust said, the "seamless vision Ozzies got of getting all these devices to just work means they need to think hard about Windows. It carries a lot of baggage, and thats severely impeded their success in devices and digital media. They have to look at Xbox, and look hard: Its not Windows (not really, anyway), its branded without the Microsoft name, its targeted at kids who care about experience and ease of use, and it integrates with Windows when it needs to. They have to do that again. About 50 times."

On Nov. 1, Microsoft Chairman Bill Gates and CTO Ray Ozzie outlined Microsofts services strategy, christened At a recent launch event in San Francisco, Gates and Ozzie detailed two of the main components of that strategy: Windows Live and Office Live.

A week after the unveiling, Microsoft made public memos that further detailed Microsofts services plans. Those memos, penned by Gates and Ozzie, went to Microsofts top managers.

Ozzie wrote that his memo was "intended to get all of us roughly on the same page, and to get you thinking." As part of his 5,000-word missive, Ozzie outlined what Microsofts planned next steps in the services area will be.

Ozzie said that by Dec. 15 he will have appointed a number of "scenario owners" who will lead each of Microsofts business units in creating a plan to develop, deploy and market services that are pertinent to their lines of business. These services will be either advertising-based or subscription-based, he said.

He added, "Limited trial use, ad-monetized or free reduced-function use, subscription-based use, on-line activation, digital license management, automatic update, and other such concepts are now entering the vocabulary of any developer building products that wish to successfully utilize the Web as a channel."

Ozzie said he expected that "for some groups this will impact short-term plans; for many others on path to shipping soon, it will factor significantly into planning for future releases. As we begin planning the next waves of innovation—such as those beyond Vista and Office 12—we will mobilize execution around those plans."

As Citigates Brust said, "Success here is far from assured, especially since Google will own most of the ad market for the foreseeable future, and because Microsoft is encumbered by their size and established position. But theyre asking the right questions, theyre being introspective. And when they set their minds to it, they are very quick studies. So I wouldnt bet against them."

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