New CEO Satya Nadella Needs to Make Microsoft More Like Google

New CEO Satya Nadella Needs to Make Microsoft More Like Google

By Ashlee Vance February 04, 2014

About two years ago, Microsoft’s (MSFT) research arm described something amazing in a blog post. It had developed a contact lens equipped with a tiny chip that could measure the blood sugar level of tears.

The technology could free people from having to prick their fingers to check insulin levels. Instead of intermittent reports, people would be able to record a steady stream of data and get warnings when they need them most. “The team envisions a way to automatically display important information—including abnormal glucose or insulin alerts—in the lens wearer’s view,” Microsoft wrote in the December 2011 post. “It could alert the wearer when their glucose levels indicate that they should stop eating, or remind them when it’s time to eat a snack.”

Microsoft earned a few pats on the back in the press for this announcement. But the reception was nothing compared to whatGoogle (GOOG) received in mid-January when it unveiled—wait for it—a contact lens that can measure blood sugar levels. Hundreds of stories celebrating Google’s innovative thinking appeared and portrayed these contact lenses as a natural extension to the Google Glass product churned out by the company’s research division. “Google doing amazing things,” wrote one commenter on Google’s blog post about the invention. “Again.”

The projects sound similar because they are, in fact, the same idea. Babak Parviz was a researcher at the University of Washingtonwho had teamed up with Microsoft on the original project. He later took a job at Google, spearheaded the Google Glass product and then reintroduced the contact lens idea this year. The difference in reception from the outside observers shows why Parviz may have been right to move the work to Google. There’s a belief that Google will back this science experiment with enough energy and resources to turn it into an actual product that people can buy. When it comes to envisioning and delivering the future, Google is clearly the company people now seem to turn to most.

Of all the questions that Satya Nadella, Microsoft’s new chief executive officer, will face, the most pressing one may well revolve around deciding whether or not Microsoft still wants to be an arbiter of technology. Years ago, Bill Gates, Microsoft’s co-founder and former CEO, promised there would be a PC in every home—and then delivered on that vision through force of will and daring business deals. From there, Microsoft introduced the world to smartphones, tablets, wearable devices, ubiquitous voice recognition, smart homes, and scores of other ideas.

Futuristic videos shown at trade shows portraying the company’s even more remarkable technologies became legendary in the industry. Microsoft, though, has mistimed and failed to execute well on many of these products, and it has simply given up on pursuing the others. All too often, the company’s creative thinking has been stifled by its focus on Windows and by infighting among division chiefs. Google, meanwhile, has become even more aggressive at inventing and acquiring tomorrow’s technologies.

In many ways, Google has become the company Microsoft always hoped to be. Executives at Microsoft realize that the stakes in this battle for the future are high. Areas such as automotive technology, robotics, and the smart home finally appear poised to take off. This is why Google has developed self-driving cars and launched a new effort to get Android into automobiles. It’s also why the company has gone on an historic spree to buy dozens of robotics companies, including Boston Dynamics and Meka Robotics, acquiring artificial intelligence start-ups such as DeepMind, and spending $3.2 billion on the smart home appliance maker Nest. The search giant has made big, bold bets and managed to get its research and product groups to work together.

Microsoft, too, has invested in all these areas, but it may well be letting its chance to compete slip away by not backing some of its more audacious gambles with enough bodies and investment. “The same kinds of thoughts are on my mind and everyone’s’ minds,” says Peter Lee, head of Microsoft research. At about $10 billion per year, Microsoft’s annual research and development budget makes it one of the biggest spenders in tech. (Google spends $8 billion.) A lot of that money goes toward advancing existing products such as Windows and Office. Still, Microsoft employs 1,000-plus researchers just to tackle scientific endeavors, write papers, and invent mind-bending technology for future products.

Outside of a university setting, it would be difficult to find a larger collection of top-flight researchers given the latitude to think without the burden of corporate pressures. “The priorities were clear when I was there,” says Kurt Akeley, former general manager of Microsoft Research in Silicon Valley and Asia and now chief technology officer at camera maker Lytro. “You were brought in first and foremost to do excellent research.”

While Microsoft wants its scientists to focus on research, it has urged them to take a stab at more practical work, too. And the company has an impressive list of successes, although not always with eye-candy type stuff. Microsoft Research, for example, has done some of the key work behind the company’s shift turning boxed software such as Office into a service that can be delivered via the Web.

Nadella, as the head of Microsoft’s cloud computing strategy and data center software, has first-hand experience with these efforts. Researchers have also driven breakthroughs in the Bing search engine and—most notably to consumers—with the software behind the Xbox Kinect movement-tracking software, a huge leap forward in computing interfaces. “All of these things have been major efforts out of research in collaboration with our product groups,” says Lee. “All of them make billions of dollars.”

Microsoft’s research and development failures, however, have received far more attention. The company, for example, acquired smartphone maker Danger in 2008 for $500 million. That deal resulted in the Kin phone, which hardly anyone remembers today because it was an epic flop that Microsoft sold for only about a month. For its part, Google acquired mobile-phone startup Android and now dominates the smartphone market. In robotics, Microsoft beat most of its rivals to the punch years ago, shipping an entire suite of software that helped developers and researchers build smart machines. The software did well enough but it was overtaken by an open-source rival; Microsoft doesn’t even promote the product today.

In the automotive arena, Microsoft has a partnership with Ford (F), while Google has software deals in place with General Motors(GM), Honda Motor (HMC), Audi (NSU:GR), Hyundai (005380:KS), Tesla Motors (TSLA), Kia (000270:KS), BMW (BMW:GR), and Toyota (TM). And the smart home? Gates has been living in one for more than a decade, but you’ll need to buy that clever thermostat and smoke detector from Google.

Researchers who have worked at Microsoft’s labs find this a sad state of affairs. “It frustrates me,” says Lyndsay Williams, a former researcher at the company’s sprawling Cambridge, U.K., labs. In 1997, Williams worked on a phone with touchscreens and accelerometers and eye-tracking technology but says she could not get Microsoft excited about the technology. She also helped develop the SenseCam, a wearable cameras that would automatically take photos and document a person’s life. Microsoft still touts the product on its Research Web site. (Google just began selling Google Glass alongside prescription lenses.) “It is a shame, really,” says Williams. “To me, Google is now my favorite company. They bring out so many useful pieces of software for people.”

Microsoft insiders argue that the company is at a different stage in its life cycle than Google, whose share price has risen from $85 to more than $1,130 in the past 10 years, and say that this explains some of what is going on. Google, with its “Don’t Be Evil” slogan and risk-taking co-founders, is often allowed to make massive gambles without investors pushing back at all. Days after its $12 billion deal to buy Motorola and get into the smartphone hardware market blew up, Google’s shares surged to an all-time high.

Will the contact lenses turn into money-making products? Who knows? Who cares? For Microsoft, such scenarios do not exist. Every time it hints at a forthcoming, risky product, investors immediately push as to why the company is “wasting” money outside  its core business software market, and they want to know when these new, fanciful products will be sold—and at what profit margins. “Right now, Google has a path with its shareholders and the press and the public to invest significantly in some pretty far-out ideas,” says Lee. “It would be a shame for Google not to take advantage of that.”

What Microsoft has lacked is a leader willing to kill some sacred cows and redefine the way the company is perceived.

The latest management shakeup would seem to provide recognition of this, along with an opportunity to change it. Steve Ballmer is gone and Gates has given up his role as chairman, though he will remain on the board. Those looming, bigger-than-life ties to Microsoft’s past have been pushed to the side. It will take guts, but Nadella should seize on this moment, tempt the public with a couple of the company’s boldest ideas, and then deliver on them. This may be his only chance to reset expectations with investors and consumers. Microsoft could let the world know that it not only cares about participating in the future but intends to invent it.

Vance is a technology writer for Bloomberg Businessweek in Palo Alto, Calif. Follow him on Twitter @valleyhack.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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