Its barely started, but 2005 already looks like a challenging year for Microsoft. In fact, the company faces more challenges than it ever has, and serious ones, too. No, Microsoft isnt sinking, but its not gaining very much, either.
The Microsoft that everyone used to fear no longer exists. This is in part because Microsoft hasnt thrown gobs of money into mowing down competitors, but its also a result of the companys inability to execute in new businesses.
So, things at One Microsoft Way arent going nearly as well as they used to go. But while many of the challenges are of the companys own creation, there also may have been no way around them.
The core issue for Microsoft is that technology adoption isnt what it used to be. Customers no longer buy just because a vendor tells them to, and Microsoft is finding it increasingly difficult to sell upgrades or deliver new software that customers want to buy. Customers are very often quite satisfied with what they already own or dont think they will be more satisfied with something else. Selling in that environment is not easy.
Its hard even selling maintenance agreements in this environment. Why invest where youre not sure what youll get in return? Perhaps Microsoft needs to sell maintenance on the basis of a certain number of future releases rather than for a specified period of time.
Any way you look at it, Microsoft has made only scant progress in shifting its revenue model to subscriptions and software-as-a-service. Accomplishing this is, however, very important to Microsofts ability to invest in new technology over the long haul.
This column is based, in part, on the annual “Top 10” list of challenges published by the Directions on Microsoft newsletter. This well-regarded publication is written by a group of young Microsoft “retirees” who still want to keep track of what their old company is doing. They arent soft on the company, usually rather the opposite.
Directions list mentions the acquisition of companies in the financial software, online conferencing, and antivirus businesses as examples where Microsoft bought second-tier (perhaps because buying first-tier would have drawn unwelcome scrutiny.) But Microsoft has had a hard time turning these purchases into successes or leveraging them into the Microsoft product line and customer base.
Confusing the customers
No longer should a company tremble just because Microsoft has bought into their space. Microsoft seems to have forgotten how to do things that make people excited about becoming its customer.
In its existing product lines, the introduction of Longhorn and popularization of 64-bit Windows XP desktops offer opportunity for Microsoft to create some real excitement. So far, 64-bit computing is flying under the radar, and few customers seem to really understand what Longhorn is all about. Microsoft has succeeded in FUD-ing its own customers.
One of the points Directions makes is that Microsoft isnt very good about sharing its future direction with customers. Redmonds roadmaps seem to be very much subject to change, contributing to the FUD-ing previously mentioned.
Security is both Job #1 for Microsoft and a critical distraction—for both the company and its customers. I have yet to see anything to support Bill Gates rosy assessment that security issues will soon be behind us. Actually, I have and its called Mozilla. But Mozilla isnt so much a better product as, not being Microsoft, a non-target for those on the dark side. Talk about being the victim of your own success.
Microsoft has also not been able to use the Media Center, thus far, to spark significant new PC sales. And while Pocket PC is likely to become the enterprise standard, Microsofts Smartphone project seems to be making little headway on the global stage.
Lets put it another way: Media Center and Smartphone have been expensive failures, although either could turn around sometime in the future. Like Microsofts tablet initiative seems to have managed to do.
Microsofts overall strategy is to grow its way out of the problems it faces by selling into emerging markets. In those places, customers dont already own something thats “good enough” that they avoid new purchases.
Microsoft is interested in the Chinese market in particular. As that country creates a capitalist economy essentially from scratch, Microsoft wants to be a major partner. But to do this, Microsoft must put a lid on open source without having to give its own software away. That also means addressing the Asian software piracy issue, or more specifically, getting governments to take it seriously enough to do something about it.
Open source is also a global issue for Microsoft, which needs to continually (and convincingly) remind customers what they are playing for and why.
All these things are much easier said than done. Indeed, Microsoft has teams of people who are much smarter than me trying to meet these challenges—and not succeeding very often.
Yet, the challenge is clear: Microsoft must relearn how to reliably and repeatably put something exciting in front of the excitable. Doing this is much harder than it used to be, but it is Microsofts burden for 2005—and beyond.