Microsoft Must Focus on What Makes Rivals' Business Models Profitable

NEWS ANALYSIS: Microsoft needs to focus outside the company to learn what makes its biggest competitors successful rather than just create products that beat its rivals' feature lists.

Microsoft's Steve Ballmer created a big news splash last week as he outlined a fundamental reorganization of the company. His 2,700-word memo highlighted a company organized functionally around products and services designed to compute in harmony.

Amid the many news analyses (including mine) about the new (to their corporate positions at least) players, the new emphasis on "One Microsoft" and the investment in "high-value activities," I got the feeling that Microsoft spent a lot of time redeploying internal resources to embrace or counter external market conditions.

Acknowledging great competitor achievements has never been Microsoft's strong suit (Remember Ballmer's dissing of the iPad in 2010?). But there are other strong examples of innovative companies that Microsoft should be emulating instead of castigating.

Ubuntu: Mark Shuttleworth (founder of Canonical and overseer of Ubuntu) and the open-source developer community have gone a long way in creating the "One" experience for devices ranging from desktops to smartphones, except in the Linux environment.

The idea of building a common user experience has intrigued and bedeviled tech vendors ranging from Google through Apple. It is one of those big conceptual conundrums to create a design that works and is familiar on a television screen as well as on a smartphone screen. Ubuntu remains a mere blip in the technology market, but their attempts at creating a single user experience over a range of devices was what Ballmer was writing about in his memo.

Google: Microsoft's reaction to Google's growth has been to emulate rather than leapfrog Google. Bing, Office 365 and the Windows Phone are part of one of those feature checklist races that end up in lots of checked boxes, but little in revenue growth.

At a recent Mass Technology Leadership Council seminar on mobile applications, I had a chance to hear Google Ventures General Partner (and key Android developer) Rich Miner speak about the next era of mobile applications.

He pointed out that in cloud computing, companies are essentially taking their existing applications and moving those applications to the cloud. While those applications gain from being easy to access and deploy, the applications themselves are not necessarily game changers. The unfolding era of mobile applications will result in applications that are game changers that could not exist without the mobile infrastructure.

I was reminded of Miner's talk when Ballmer mentioned high-value activities in his reorganization memo. Microsoft needs to stop following and start leading in mobile applications if it is going to recover the buzz it once had in the developer community.

Amazon: Microsoft's headquarters in Redmond, Wash., and Amazon's in Seattle are not very far apart in distance, but are a world apart in business strategy. Amazon's retail-based, low-margin, high-volume business has consumed entire chunks of the retail sector and has propelled the company to a $140 billion valuation.

Microsoft's forays beyond its core competencies in personal and business software running on PCs and laptops have not been notably successful (except for games). The computing cloud model is being driven by Amazon, and if Microsoft's Azure and Office 365 businesses are going to blossom, the company will have to play by Amazon's rules. Amazon's relentless drive to cut costs and add features is unique in enterprise computing and represents a model that Ballmer and his new group of chieftains will need to fully understand.

Ballmer has reorganized Microsoft, but now he needs to make sure the company has an outside-in focus to make the organization not just adapted to the new technology marketplace, but a leader in the emerging businesses outlined in Ballmer's memo.

Customers often don't know what they need until the new service, new product and new software appear in front of them. It will be up to Ballmer and his new organization to create those new capabilities or risk being left by the technology roadside.

Eric Lundquist is a technology analyst at Ziff Brothers Investments, a private investment firm. Lundquist, who was editor-in-chief at eWEEK (previously PC WEEK) from 1996-2008, authored this article for eWEEK to share his thoughts on technology, products and services. No investment advice is offered in this article. All duties are disclaimed. Lundquist works separately for a private investment firm which may at any time invest in companies whose products are discussed in this article and no disclosure of securities transactions will be made.