Resolve and Fortitude : Microsoft's ''SECRET POWER BROKER'' breaks his silence

by Joachim Kempin

  IBM’s failure to keep her PC lead is squarely grounded in her inability to market successfully to consumers. Her PCjr63 experiment demonstrated this as early as 1984. She was and remains primarily focused on commercial enterprises. The main reason why OS/2 never appealed to consumers! Consumers voted for the elegant simplicity of Windows. Lou Gerstner and Sam Palmisano therefore lost the OS war and the PC battle while building a consulting empire and retaining IBM’s mainframe grip.

  When looking at Apple’s rejuvenation and stellar rise under Steve Jobs you immediately understand Apple’s consumer appeal. Neither Gerstner nor Palmisano were able to match his passion for perfecting products as both guided their company persistently through the metamorphosis of a different kind of phenomenal comeback.

  There are now six dominant IBM PC clone companies in the world, representing around 60 percent of the market. The club includes Hewlett-Packard, Acer, Dell, Lenovo and Toshiba and as an emerging competitor the notebook- and tablet-focused ASUS. None of these companies has a valid smartphone or tablet offering of their own. Samsung, a meanwhile less important PC player, is the only one giving Apple true headaches in both fields. And true to form Apple is attacking her in court with patent infringement claims—landmines she probably cannot disregard any longer.

  Ten years ago when I left MS, Apple’s total PC market share hovered around 5 percent. Now it has increased to around 15 percent—making her the overall number two PC market contestant behind HP. She now lists as the most valuable company on the stock market trumping MS’s evaluation by a factor of more than two. Talk about a reversal of fortunes! Perfecting the hottest information appliances paid off handsomely. With PCs, smart phones and media tablets all depending on software to succeed another sign has emerged as to why I believe that MS has let her OEM partners down.

  Linux is vibrantly alive and went from a hacker advocated system to achieving consumer fame when Google released Android for smart phones, media tablets and notebooks. Google benefitted further when deploying millions of Linux server clusters as part of her cloud infrastructure. Well ahead of her competitors, she used them first to dominate the search engine world and later to provide all kinds of Internet services including e-mail and context advertising.

  Red Hat attacked Windows with a Linux-based consumer version of her own in ’05 only to abandon it one year later scared of a patent challenge MS mounted and the company is now focused mostly on workstations. Dell began offering a Linux version called Ubuntu for her consumer PCs in ’07. Other derivatives are trying to gain as well, notably Mandriva and Linspire/Freespire—the danger to Windows’ reign is growing. The competitive moves were no doubt encouraged by the shakiness of Vista. The Linux and hacker community relentlessly demonstrated its vulnerabilities exploiting its security flaws. Dirty tricks? Not really, MS deserved to be caught flat footed. Complacency had snuck in! Released in ’09, Windows 7 put a temporary halt to these types of attacks, but I would not count them out forever—the volunteer army knows how embarrassing they can be—experiencing plenty of their own.

  MS’s response to the appearance of so-called netbooks was to sell Windows Vista at a reduced price for use on these slow performing and stripped to the bone notebooks. I hope I am still well informed enough to say the OEM royalty for these machines was hovering in the neighborhood of $20. Windows 7, with a smaller and efficient kernel, fixed most of Vista’s performance issues. The OEMs saw their Windows prices for netbooks—a meanwhile dead category—go up as a result. Looking at MS’s total business, a Linux PC desktop breakthrough with Android for example remains the most immediate threat to her profitability, endangering Office also. Finally the high efficiency of competitive server farms and the availability of in the cloud residing and superior Office-like applications—free ones—could be MS’s true and final death knell. All these attempts to attack MS’s crown jewels will take time to play out and I believe effective counter measures are already being planned and will be launched with the appearance of Windows 8 and Office 365.

  Before I try to predict MS’s long-term prospects, let’s look at the importance of the Internet one more time. In 2011 a UN report called the right to access it a basic human right and was urging all countries not to limit its use even in a political crisis. Who would have ever imagined such a classification in 1995?

  A COOL RENAISSANCE TO BE RECKONED WITH!

  “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten years. Don’t let yourself be lulled into inaction.” —Bill Gates

  In the past, MS’s successes have often been achieved by coming from behind to later dominate a product category through clever marketing actions, sales tactics and most importantly perseverance. Being the underdog, the press enjoyed the uphill battles the company had to win, cheered her on and sympathized with her numerous times. MS’s intense campaigns mounted with resolve and fortitude bought time to perfect a product, successfully retaining end-users. In hanging on, they bet that their patience and loyalty would be rewarded with value added releases eventually addressing all of their needs. Sometimes they had to wait for a long time. MS seldom let them down. Executed with passion and Auftragstaktik by highly motivated employees, a relentless pursuit taking advantage of competitors’ mistakes always accompanied MS’s crusades as she won customers’ hearts and minds. In short, her management team perfected the art of wrestling customers away from rivals, producing both staggering results and envy.

  This was then. Having eventually achieved a kind of top dog status and having been condemned of being a monopoly increased the odds against her. Today the company is tightly watched and intensely scrutinized by the press, her competitors and the Feds, making it harder to win with the same-self tactics. Her competitors have gotten better at releasing nearly perfect version one products and responding to her marketing tactics. While still at her disposal, rough and tumble sales and marketing maneuvers are being used way more cautiously. Fearing the Fed’s wrath or a public outcry nearly rule them out. Today the company has to rely on top-notch performance or severe competitive failures as the only means to improve her image and win a prosperous future. Indeed a tough spot to be in!

  As expressed before, after a string of failures gloom and doom about her future is continuing to pile up. I see this differently. A radically new strategy to win is already being deployed and a couple of factors favor a turn-around. First and foremost the immense strength of creating profits with existing products hand over fist. Considering the immense war chest of her competitors, this will help less to win decisively, but for sure means management can take a larger calculated risk. Second, she is the only company engaged in all key IT fields except mainframes: Game consoles, smart phones, PC operating software, tablet software, PC server software, office productivity applications, cloud, e-mail and search services and related development tools, and she possesses an impressive consulting arm. Most companies she competes with do not have the same type of depth or breadth. Like Apple they do a few things right and win in a narrow number of categories. A lot of analysts consider MS’s broad engagement activities a disadvantage. I disagree and believe MS’s management will use this in the short term as an advantage, in particular when I look at the hype surrounding Windows version 8. Longer term she will have to switch gear and restructure through keeping the strategically important parts and divesting the less important ones which will shine brighter when pursuing an independent and less doctrinarian path.

  A long time ago Bill Gates talked to me about the concept of “Win-tone” as a way to propel the company to the sought-after number one spot in the IT universe. He envisioned that when customers used information technology they would always encounter a unique Windows signature. Embossed like a trade mark, highly visible and accepted by businesses and consumers warranting quality, value and perfection. (I can hear the critics already: “God help us!”) What Bill once outlined in a memo in ’98 and what he discussed much e
arlier inside the company went way beyond what journalists reported. He wanted to create and own the ultimate dial tone of the IT universe. The means to achieve this was to supply seamless services via mega-servers. A vision emphasizing ease-of-use, less complexity and cross-platform connectivity! Seven years before Ray Ozzie published “his” memo on the same subject. The only thing Bill did not do was label his idea continuous and ever accessible cloud computing. Do you really always need a nickname?

  Has MS ever abandoned this ancient yet brilliant idea? I think the dream is still being pursued with all possible vigor and resolve. Ray Ozzie revived it and MS’s cherished principles of “being in for the long haul” and “never giving up,” as often publically expressed by Steve, guarantees its renaissance. What took so long is simple to explain. First of all, Bill’s old crew had to leave. Second, Steve had to whip a new team into shape so it would be loyal to him and act in unity following his command. Then, helped by his team, he had to personally embrace the general concept of how to own this imaginary dial tone and put his personal imprint on the ensuing crusade. This is the way this gutsy, proud and self-centered man motivates himself, works best and acts with fortitude. He loathes following others—even his own chairman. His newly formulated and meanwhile company-wide adhered philosophy took at least three years to be worked out and take hold, recently leading to respectable product offerings. Office 2010 comes to mind and so does Windows 7 and IE 9, all solid pieces of work in regard to value, security and stability. Cloud computing finally got addressed as Ray Ozzie left his footprint behind with Azure, which MS now offers at a cloud development tool and an extensive fee based service64 option. Having closed that gaping loophole successfully means trouble for her competitors.

  Steve has always believed that Microsoft equals Windows and Windows equals Microsoft. How often did he tell me? For him this product represents the soul and heart of the company and any return to magic, and with him at the helm, will have to start there. He considers not following him on that path heresy—Ray Ozzie’s disbelief in that expressed in his presence, on stage and in public undoubtedly led to his fall. When I met with Steve two years ago and told him all of my family’s PCs were running Windows his eyes lit up. He is the ultimate Windows-forever man. I believe he is right on and he now has a chance to eventually conquer the mobile and chat eccentric generation F with its next version.

  Windows 7 spearheaded a comparably small rejuvenation. I predict Windows 8 is readied as a much deadlier assault weapon. It reminds me a lot of the hoopla surrounding Windows 95. How we positioned and launched it. Every week MS is again in the spotlight. The blogger scene is ablaze. The product is poised to address the smart phone and media tablet market well and is readied to fit on yet to be invented cool form factors. In a nutshell, Windows is finally coming into the 21st century. The company has the technology and the will to provide the seamless services a mobile workforce and a social network crazy crowd demand—some of it even for free. She for sure can afford it. A modern Win-tone to the rescue!

  Pre-announced at the CES65 in January of ’11 in Las Vegas, 8 flabbergasted the IT world by running on a tablet powered by NVidia’s ARM-based CPU. I consider this move to ARM a scale 9 earthquake and wake-up call for MS’s longtime allies Intel and AMD. A long overdue Windows variant not only for buyers of media tablets but potentially signaling that notebooks and even desktop PCs may be prone to a future ARM attack as well.

  Over the last five years these types of CPUs have through increased performance found their way from modern graphic cards into smart phones, media tablets and netbooks. They are characterized by a very small footprint like the size of your finger tip,66 a limited instruction set compared to typical CPUs found in today’s PCs and extremely low power consumption. It makes them an irresistible proposition to be used in handheld devices. They need no cooling fans and nobody needs to fear getting burned when touching devices powered by them. Extended battery lives are their other obvious benefits.

  Over time advanced silicon manufacturing technologies have not only shrunk ARM CPUs but enabled the expansion of their instruction sets. The leading brands like TI’s OMAP, Qualcomm’s SnapDragon and NVidia’s Tegra 2 are well qualified to be price and performance competitive with Intel’s and AMD’s mid-range spectrum. NVidia’s chip for example is capable of running 3D graphics without requiring an additional graphic processor, quite an accomplishment considering its size. With Windows 8 supporting several of them, MS will now be in a position to challenge Google’s, Apple’s and Amazon’s ARM based mobile phone or tablet offerings.

  To mount the attack, Windows 8 software will arrive with a modern and sexy looking tile interface.67 A huge deviation and fantastic improvement from the by now 20 years old design!68 Its eye appeal is very pleasing and should help its acceptance as users learn how to navigate with it. Despite of some pundits already expressing skepticism about user’s willingness to relearn, trust me, they will! Best of all, Windows 8 information appliances, be it a phone, a tablet, a notebook or a PC promise to provide users with the same-self modus of operandi. No need to bother with the annoyance of having to remember different key strokes or gestures when switching between devices or operating them with a mouse or a touch screen. Neither Apple nor Google have ever accomplished such uniformity. There are more than ten different Android/Chrome versions out there and switching between Apple devices is no easy feat either.

  I am convinced the cool ones among us will eventually embrace this modern version of Windows wholeheartedly, master it and enjoy a slew of innovative ease-of-use features—like switching between foreign languages on-the-fly. Embossing METRO uniformly on all information appliances enables end-users to move up and down the device chain and its attached cloud services nearly effortlessly. Has the Win-tone of the 21st century lastly arrived?

  In general, the move to ARM will mitigate the trend to smaller mobile devices profoundly and give PC manufacturers opportunities to develop a variety of spiffy tablets. To make this even more attractive MS will include her Office productivity suite with the ARM version of Windows.69 Storage for documents and spreadsheets will be provided in the cloud. A very gutsy move reminding me again of the Windows 95 playbook when IE got integrated into Windows. The difference this time: MS does not start with a mediocre product. Google’s similar applications being already free to use in the cloud for sure inspired this move and should warrant no court challenge. Less need for constant connectivity for 8-powered tablets when running MS-Office applications means a further leg up over Google’s solution. Short term this move might sacrifice some revenue, which I expect to be made up through service, storage or subscription fees.

  Using both her crown jewels and selling them cheaply to get a late foothold in the mobile segments proves how serious MS is to recover lost ground and most importantly lead again. What we tried at the end of the ‘90s, offering Office through subscription, will be revived as well. The market might have matured enough to make this successful this time. Calling it modern Office and having it bundled with cloud storage four times larger than what competitors are offering and allowing for installation across multiple devices might just be the ticket.

  Another trump card I expect MS to play is addressing end-user privacy rights issues. The contentious concerns surrounding Google and Facebook in this regard are serious enough to give her an opening. As a policy, I expect her to let end-users choose how messages and their content are being tracked and linked to advertising and how the “fair use” rule will get applied in respect to copyright issues. This is not strictly an OS issue. A proactive move by MS signaling a retreat from practices her main competitors are employing will create a lot of good will, if not admiration. I am sure the Facebook generation—sometimes accused of “digital narcissism”—will eventually demand this. Sympathy shall follow!

  Two recent announcements point to this. Hotmail being worked over—finally! Advertising being suppressed in end-user to end-user e-mails in the improved Hotmail is a
promising first step in the right direction. Internet Explorer 10 having a default setting that will disallow anybody to spy on user preference is yet another. Building a privacy engine into Windows that ISVs will have to adhere to should follow and could police and eventually foreclose privacy abuse once and for all. A faster adaption rate for such a version should easily mitigate potential losses of advertising revenue for MS for sure—but not necessarily for any of her competitors. A scenario well suited to cut deeply into Google’s profit if not mitigated by Google paying ISVs to bypass such an engine. Always possible because it is just software! Will such integration get the courts busy again?

  Understanding that nearly 50 million e-book readers will probably be sold in 2015 alone, MS’s move to obtain a stake in Barnes & Noble’s NOOK70 business—even as she overpaid for it—needs to be understood an assault on Amazon. This move represents MS’s second entry into e-book reader category. A sad issue to highlight for me knowing that back in ’98 MS made a dedicated effort to invent this product category. But the developers involved in this effort were told to shut down because their solution was not Windows centric enough. True on its face value, but impossible to realize at that point in time with then available technology. You do not need Windows to read a book—MS-DOS would have sufficed and could have easily been replaced with more advanced technology later.

  Naturally any media tablet can eventually access book publisher’s libraries and download titles. Yet the more dedicated e-book readers pioneered by Amazon and perfected in her Kindle Fire versions should continue to be cheaper to obtain because of their limited feature sets, and if not Amazon has the financial muscle to subsidize them and/or attract buyers by bundling other enticing goodies with them. Together with Barnes & Noble’s size and reach, MS bringing Windows 8 to NOOK has nevertheless the potential to reduce Amazon’s share and get rid of another Android infested device. MS has deep pockets and Steve loves to get a foothold in consumer segments and win against open-source-based devices. Be prepared for a fierce battle to progress and expect Amazon’s Kindle sales to be hurt.