How Microsoft spent a decade asleep on the job

How Microsoft spent a decade asleep on the job

BY JOHN NAUGHTON

THE OBSERVER

JUL 23, 2013

LONDON – Once upon a time, a young man named Bill had a vision. He saw “a PC on every desk, and every machine running Microsoft software.” And lo, it came to pass, and the company Bill cofounded became a gigantic machine for making money, and Bill became the richest man on Earth.

This agreeable outcome was arranged in a most ingenious way. The tedious business of making computer hardware was left to others — so-called “original equipment manufacturers” (OEMs), who sweated away in Taiwanese and other jungles manufacturing machines that attracted ever-smaller profit margins. All Microsoft did was to write the software for the operating system and the Office applications that transformed OEM hardware from expensive paperweights into something that could do useful corporate work.Because most of the expense in creating software is incurred upfront, once it’s been written every subsequent copy is, effectively, free to produce. And because for a long time Microsoft Windows was the only game in the corporate town, all Bill and his mates had to do was collect their monopoly rents. Which they did.

Indeed, they were so focused on the revenue stream that flowed from the world’s desktops into their coffers that they failed to notice an important development. It was called the Internet, and a cheeky startup company called Netscape was busy exploiting it.

Netscape’s leaders even talked boldly about the likelihood that a program called a “Web browser” might one day replace operating systems like Windows.

Now that did get Bill (Gate’s) attention, and in 1995 he composed a famous internal memo that likened the Net to a tidal wave. “Developments on the Internet over the next several years,” he wrote, “will set the course of our industry for a long time to come … I have gone through several stages of increasing my views of its importance. Now I assign the Internet the highest level of importance. In this memo I want to make clear that our focus on the Internet is crucial to every part of our business. The Internet is the most important single development to come along since the IBM PC was introduced in 1981.”

The Internet threat was so grave, in Gates’s opinion, that every part of Microsoft’s operation — and every one of its products — should become network-focused. And the astonishing thing is that he managed to make that happen. In a remarkable example of corporate leadership, he turned the company on a dime. In the process, he almost ensured that Microsoft was broken up because of its determination to destroy Netscape. A federal judge found that Microsoft had abused its monopoly position by incorporating its (inferior) Web browser into its operating system. Ultimately, Microsoft appealed and the resulting antitrust suit was knocked somewhat off course amid George W. Bush’s election victory in 2000, and the company survived to breathe again.

Coincidentally, in that same year, Gates stepped down from his position as CEO and began the slow process of disengaging from the company. What he failed to notice was that the folks he left in charge, chief among them one Steve Ballmer, were prone to sleeping at the wheel.

How else can one explain the way they failed to notice the importance of (successively) Internet search, online advertising, smartphones and tablets until the threat was upon them? Or were they just lulled into somnolence by the sound of the till ringing up continuing sales from the old staples of Windows and Office?

But suddenly, that soothing tinkle has become less comforting. PC sales are starting to decline sharply , which means that Microsoft’s comfort zone is likewise set to shrink. Last week, we had the first indication that Ballmer & Co have woken up. In a 2,700-word internal memo rich in management-speak drivel, Ballmer announced a “far-reaching realignment of the company that will enable us to innovate with greater speed, efficiency and capability in a fast-changing world.”

The various internal warring silos known as “product groups” will be disbanded and the entire company (97,000 employees) is to be rejigged on “functional” lines (engineering, marketing, advanced strategy and research), with the aim of “focusing the whole company on a single strategy.”

And what, pray, is this vision, this single strategy upon which all are to agree? Why, “to execute even better on our strategy to deliver a family of devices and services that best empower people for the activities they value most and the enterprise extensions and services that are most valuable to business.” Which, translated, reads: We haven’t a clue, really, but we need to be seen to be doingsomething.

Say what you like about Bill Gates, but you have to admire his timing: He got out when the going was still good.