Foley on Microsoft

Microsoft Watchers Are Missing the Boat

For a company that's under almost-constant scrutiny, Microsoft has been grossly misunderstood.

• By Mary Jo Foley
• 05/01/2008

For much of the past year, I've been writing a book about Microsoft's future, so I've been looking at its present and its past. The result of my labor, "Microsoft 2.0: How Microsoft Plans to Stay Relevant in the Post-Gates Era," is due out this month. In researching the book, it became evident that few people outside the top execs at Microsoft have paid attention to the company's recent pronouncements and actions -- with the notable exception of the bid to acquire Yahoo!.

Are Microsoft watchers missing the boat? Many pundits seem to have lost their way. Even a good portion of the company's 80,000-plus employees appear confused. Some Microsoft watchers seem to have forgotten how and where Microsoft makes its money, and will continue to do so for at least the next three years. (Hint: It's all about Windows and Office -- not Yahoo!) Others have failed to keep up with Microsoft's changing product and business-model lineups. They still define Microsoft as the "Windows and Office company," rather than grokking how Microsoft will diversify over the next decade.

I see articles and blog posts on an almost daily basis claiming Microsoft has no products in particular spaces, when the truth is the Redmondians announced competitive products in those areas months or even years ago.

You say you want examples?

"Microsoft is just letting Amazon, Google and others run off with the hosted compute-cloud space." Um, what about SQL Server Data Services?

How about, "Microsoft is neglecting the social-collaboration market." I guess you missed the SharePoint and Office Live Workspace unveilings, and the "C2" FriendFeed-like technology from Microsoft Research likely to make its way soon into Windows Live Mobile.

You can partially blame this lack of awareness on Microsoft; for the past few years, management has decided that transparency is not in the best interest of its constituents -- or itself, a fact the execs often try to hide. Consequently, the futures of Windows and Office -- Microsoft's two most important and established franchises -- as well as of its new and growing online-services family, are murkier than you'd think.

At the same time, Microsoft's brass has missed no opportunity to highlight how the company is betting on gaming consoles, digital-media players and Web-based advertising. This comes despite the fact that none of these businesses are contributing anywhere near the revenues of Windows and Office.

In the case of Microsoft's Online Services Business, Microsoft is currently losing nearly $250 million per quarter, all in the name of future investments. By over-inflating the importance of these less-business-critical assets, Microsoft officials have distracted market watchers from focusing on more important business issues like Software Assurance.

Having said all that, Microsoft execs aren't completely at fault for Microsoft watchers' poor understanding of where the company's going. After all, Microsoft Chief Software Architect Ray Ozzie spelled out in great detail in his "Internet Services Disruption" e-mail in October 2005 exactly how Microsoft would evolve in order to stay relevant in the coming years. It's eerie reading that e-mail now, because almost every Microsoft business and strategy move he forecast has either come to pass or is happening.

Microsoft CEO Steve Ballmer has also been clear in explaining how, when and where Microsoft will generate revenues over the next three years, as well as 10 years out. Ballmer has outlined where Microsoft believes it will sow and reap; Windows and Office top his list.

One surprising outcome of writing the book has been the number of times I've found myself correcting Microsoft misinformation that's starting to take root.

Until recently, Microsoft had been under so many tech watchers' microscopes that almost nothing about the company was left unanalyzed. These days, the opposite seems to be true. Have you noticed any product or strategy areas where market watchers have it all wrong about Microsoft?