With challenging litigation in several states, an ongoing and strengthening consent decree with the U.S. Justice Department, the ongoing attacks on Microsoft products and customers by virus writers, and the recent ruling by the European Union, the company has never been under greater threat.
In fact, I cant remember any company—technology or otherwise, with the possible exception of Standard Oil in the first part of the last century (which was, fortunately, before my time)—that has been under greater, and longer, sustained threat. Strangely enough, the company appears to be weathering the storm. However, while things appear very bad now, there are indications that this may be bottoming out for the firm.
How did we get here? I figure this is a question that the Microsoft executives must ask themselves on a regular basis. Much like IBM in the late 80s, at which point the same question was asked, Microsoft has over the course of a decade slid from being the child prodigy of a successful nation to being the standing example of what is wrong in that same nation. In fact, it is interesting to note, the United States is experiencing similar problems, and I believe the causes are similar—and, in the case of the European Commission decision, somewhat related.
For the United States, as it is for Microsoft, the problem has been the elimination, over time, of advocates. For the United States, the trigger event was the war in Iraq, which polarized enemies and alienated friends. For Microsoft, the trigger event appears to have been a pricing change a few years ago that wasnt fully researched. However, Microsofts image had been slipping for some time. It worsened when the Justice Department trial created an image of a company that misused power and behaved improperly. That image, coupled with the unilateral and poorly received pricing actions Microsoft took with its enterprise customers several years ago, put Microsoft advocates on the endangered-species list. During the Justice Department trial there were already a distinct lack of credible advocates for Microsoft, which made this problem, even then, painfully obvious.
Strangely enough, I believe it is actually the combination of the slipping image of the United States and Microsofts own image problems that resulted in the European Commissions decision. This decision appears to have several components, including a large fine; the removal of the Windows Media Player, which has no European counterpart; and changes to the interoperability provisions already in place as a result of the Justice Department settlement. The actual details of this decision are expected to be released by the commission on Wednesday.
Much of this was questionable to begin with. The initial action was brought by Sun, another U.S. company. Moving against one company at the request of another is, to my knowledge, unique in the history of the European Commission. Europe is pissed at the United States, and Microsoft is on the short list of firms that are undisputed targets for this anger. Few came to Microsofts defense, and even the U.S. government was strangely absent— which is interesting, given that any fine will pull resources from the United States and put them in Europe at a time when even offshore outsourcing is an election issue.
The lesson here is that even companies like Microsoft cant go it alone. However, things may be getting better.
Light at tunnels end
The light at the end of the tunnel. One of the big problems with recovering an image, as Louis Gerstner found when he took over IBM, is that you first need to build trust before you can communicate improvement. As one of his first acts, Gerstner put in place a world-class corporate marketing organization and created the image of the firm he wanted to build. Even though he never actually completed his corrective actions, the image was strong enough, coupled with the improvements that were made to the IBM corporation itself, to restore much of what had been known as Big Blue. Microsoft, which is still run by its founders, is taking the slower path of actually trying to fix the company before addressing the image issue. While this will take longer, the end result should be a stronger foundation for long-term growth. Because this kind of thing takes a lot of time, we probably wont know for sure for a number of years, but if you like function over form, this should be good news.
Product security is improving. Certainly you have already witnessed Microsofts focus on security. This week, Forrester Research is expected to release a well-researched, comprehensive report—one that wasnt funded by Microsoft—that shows Microsoft products are, with regard to security, on par with Red Hat Linux, and that Red Hat Linux is the most secure of the Linux distributions. This would suggest that Microsoft has been able to materially improve its platforms. This report will likely not be believed until Microsoft addresses its image problem, although it does in fact document solid improvement at a product level.
This study was done before the release of Windows XP SP2, which is targeted directly at the security problem. Following products and variants should improve on this. Regardless of whether you believe the study—and you should, of course, acquire it and judge for yourself—the fact that the study exists shows improvement, and early reviews of SP2 have shown that it sharply improves on the existing platform.
Advocacy is improving. It will be a while before someone can release a positive report or write a positive article on Microsoft and not feel like they have painted a target on their back and walked out onto a firing range. But that doesnt mean that the number of advocates isnt increasing.
To directly address this advocacy problem, Microsoft has rolled out an MVP program that identifies customers who stand out with regard to their successful use of Microsofts products. Such customers are put in contact with each other and rewarded for their participation in efforts to improve Microsoft products and services. The model is designed to be a more formal, and improved, version of what the open-source community enjoys in that it is designed to foster and improve upon the kind of peer-to-peer product development, support, advice and training enjoyed by open-source developers.
Part of this resulted from a practice, begun by Microsoft some time ago, of hiring key customers as employees to help modify the company by both understanding the problems being experienced in the field and accurately addressing them. Often in a large company, even though the firm may intend to help customers, by the time the customer need arrives in the development organization, it is so contaminated by organizational interests that it bears little relation to the originating need.
At the Game Developers Conference in California this week, you will see a similar effort to capture the hearts and minds of that community.
Microsofts culture is changing. As you would expect, all of this is the result of a cultural change inside Microsoft. Friedrich Nietzsche wrote, “That which does not kill you can only make you stronger,” and these attacks on Microsoft have certainly had a dramatic change on how the company is run. From an increased reliance on outside, mature sources for employees, as opposed to the more traditional “get them young and grow them into the business” approach that resulted in a lot of very smart, relatively clueless (with regard to customer needs) employees, to an organizational structure that is now more closely aligned with customers than with internal empires, Microsoft already looks vastly different inside than it did a year ago.
From my own perspective, it seems that Microsoft is listening more and telling less. Executives seem to be out visiting more often as opposed to being in back-to-back meetings on campus, and there is clearly a deep understanding that if something isnt done, their own futures are at risk. Sometimes, whether it is a large or small firm, it takes a solid hit with a 2-by-4 to make the executive staff wake up to a problem. While Im quite sure Microsofts staff would have just as soon missed the 2-by-4 step, the end, in this case, may actually justify the means.
In effect, Microsoft is being forced to evolve very quickly. Since change is always incredibly painful and expensive, having Microsoft change so that we may not have to is most likely a good thing. I do wish Microsoft would at least try the IBM approach as well, because Im getting tired of having to hide under my desk for a week after saying something positive about the company. Then again, “Whatever doesnt kill me …”
Disclaimer: Microsoft is a current client of Enderles.
Rob Enderle is the principal analyst for the Enderle Group, a company specializing in emerging personal technology.
Editors Note: This story was updated to include the above disclaimer.