Microsoft Faces 3 Big Threats

Microsoft COO Kevin Turner outlines the challenges the company faces, including Linux and competition with the Xbox.

Editors Note: This is the third and final in a series of articles based on an interview with Microsoft COO Kevin Turner that examine the software companys current focus, strategy, challenges and opportunities.

Microsoft currently faces three primary threats to its future business: Linux and other open-source software, cloud-based computing and a number of players in the entertainment devices space, according to Microsoft Chief Operating Officer Kevin Turner.

"We view those as the three real threats and opportunities for us as a company, and which we keep our eye on," Turner told eWEEK in a recent interview at the Microsoft Worldwide Partner Conference in Denver. "Those are the ones we track and that we are working on today."

But Rob Enderle, an analyst with The Enderle Group, disagreed with that assessment, saying the greatest threat to Microsoft is the perception that it cannot compete in many of these areas without cheating.

"Perceptions are powerful and if I assume their offering will suck, that is likely what I will conclude when I use it, unless it is perfect, and nothing is perfect, which effectively offsets the natural advantage Microsoft has by being the entrenched vendor," he told eWEEK.


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Another large threat to the software maker is the fact that it rarely carries through on its promises, with many of its products—from the media center to Origami and Zune—falling short of the companys hype about the products potential, Enderle said.

"In general, Microsoft never seems able to complete the end-to-end user experience. They also seem to have an inability to do demand-generation marketing. They primarily do brand work, but dont drive demand, which is exactly the opposite of Apple, which generally does demand generation and not much pure brand work," he said.

"I think small children in underdeveloped nations know the name Vista, but have no idea what it does or why they want it. So, to be clear, much of Microsofts problem is internal, not external, and if it focused more on customers needs and less on competitors and internal politics, I think the external risks could be mitigated. Google does not focus on Microsoft and their execution is vastly better, [Hewlett-Packard] does not focus on IBM or Dell [anymore] and their execution is vastly better. Microsoft needs to learn from Google and HP," he said.


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Asked whether Linux was a bigger or smaller threat now compared with when he joined Microsoft two years ago, Turner said it was neither, that it simply remained a threat. "The company does not view the threat as less or more, but as an opportunity to continue to differentiate every single day, to get our story and the facts out, create value with customers and partners, and make sure that we are bringing the truth to the marketplace," he said.

Microsoft is also readying a number of products for release over the next six months and is getting more experienced in and capable at building capacity around creating value and getting that message out in the marketplace, both internally and with its partners, he said.

"Certainly when you are competing with the perception of free [software], you have to continue to see that you get the facts out. So we have to differentiate ourselves on value creation and what we can bring to the marketplace. So I think that whats different today is that customers are starting to figure it out and our technology solutions are better. Both of those dynamics have allowed us to really seek the momentum," Turner said.

There are also a lot of good things coming to fruition from a product standpoint: There are new releases of SQL Server, Visual Studio and Windows Server coming in 2008, and Microsoft now has a high-performance computing solution in the market, as well as the .Net Framework, he said.

"We are not on the defensive as perhaps we once were. We are taking an offensive approach and telling customers that while our stuff costs money, if they really do the math, so does Linux, and we are not competing on that, we are competing on the fact that we are going to bring a better solution to the table and win on that, and hopefully earn the right to win on that with customers," he said.


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But Enderle said he does not believe Microsoft is addressing these challenges well, noting that while the Linux vendors have a fraction of Microsofts R&D and marketing budgets, that operating system has greater penetration in some segments.

"IT should prefer a multinational provider like Microsoft over smaller, more localized companies. Microsofts advantages on paper eclipse those of Linux, including more commonality, yet Linux is still moving very well," he said.

With regard to the cloud-based computing threat, Turner said the software-plus-services transition was important to Microsoft in this regard, while players in the entertainment devices space like Research In Motion, Sony and Apple were all threats.

Enderle said Microsoft needs to do a better job of figuring out the advertising revenue model and creating a credible hosted solution for Office if it wants to avoid measurable installed base erosion.


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But he acknowledged, as do Microsoft executives, that on the hosted side, Office 2003—rather than Google or any other company—remains the biggest competitive problem.

"On appliances, [Microsoft doesnt] appear to be taken that seriously because their embedded solution is too heavy and they dont ensure the success of their partners. Xbox is their best competitive hedge, but it is largely sold as a game system and not a set-top box," Enderle said.

Asked about his reaction to the $1 billion in costs Microsoft is picking up to service customer Xboxes, Turner said he was proud that the company was stepping up and taking care of its customers. "We are not a perfect company. We strive for perfection, but we are not perfect, and when we are not perfect we are going to work hard to make it right. So, Im proud to work for a company that will do the right thing, even when nobody is looking," he said.

But, he said, Microsoft also needed to learn from the experience to ensure that it wouldnt repeat it.


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"The financial thing is a bad thing, but affecting customers is a worse thing. Thats the foremost thing that I think about from a COO perspective," he said. "This is an area where we are in the hardware business, and we are a software company, so we dont have decades of experience in the hardware business. We are learning as we go in that space, and we still have a lot to learn, so we dont have it completely figured out."

In spite of all these issues, Microsoft remained as committed as ever to the platform, which is a vibrant one for it and an area where the company has worked hard at growing share, he said.

"Now we are going to have to work hard figuring out how to make money in that area. [CEO] Steve [Ballmer] tells me that Windows took eight or nine years to make any money, which no one talks about today. But he reminds me of that all the time. Today everybody just believes it made money from the start, but that was not the case," Turner said.


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