Alas, poor Microsoft … you used to be so interesting
In 2003, Microsoft’s problem was that it had gotten boring.
By Stewart Alsop
Author’s note April 6, 2015: Microsoft is 40 years old today. I’ve been involved in the technology business for 35 of those 40 years. I used to cover Microsoft as THE key player in the industry. I wrote this article 12 years ago, shortly before I stopped writing my Fortune column (because it was more fun to be a full-time venture investor!). Since Fortune (and Time Life) still haven’t figured out how to deal with the internet and format archival material, I decided to post it here in my Medium feed; Steve Ballmer could have figured out that irrelevancy was a real, strategic problem and done something about it. He didn’t. (And thanks to Jim Aley for reminding me that I wrote this then!)
July 7, 2003
(FORTUNE Magazine) — A tech-savvy friend of mine casually said something the other day that’s been bothering me ever since. “Microsoft is in trouble,” he said. It’s not unusual to hear people in Silicon Valley flip Microsoft the bird, saying stuff like “Microsoft is evil incarnate” or “Microsoft must be neutered.” But “Microsoft is in trouble”? That’s a new one. How could my buddy possibly believe that Microsoft — Microsoft! — is in trouble?
Right after that, I noticed in some magazine that Microsoft’s total shareholder return has actually been negative over the past 12 months. You have to put thoughts like those in perspective, of course. Shareholder return depends heavily on timing. And despite Microsoft’s size, its revenues continue to grow at a healthy pace — not to mention the fact that nearly 30 cents of each dollar of revenue is profit. If this company has a financial problem, it’s figuring out what to do with all the cash it generates.
So it’s not that Microsoft is in trouble in any conventional, fiscally urgent sense. It’s a really well-managed enterprise. It is a major contributor to the U.S. economy and to America’s rarefied place in the world. Yet despite its best efforts and billions of dollars spent on research and development, Microsoft can’t seem to break out of a mold forged in the fires of the personal-computer revolution 30 years ago. Microsoft’s problem is that it has gotten boring.
What has always worked for Microsoft, of course, is to sell personal-computer software. The vast majority of Microsoft’s business today (and all its profit) comes from selling operating systems, tools for writing programs, and applications. What has not worked very well for Microsoft is pretty much everything new that it has tried to sell in the past ten years. The most visible of these efforts has been its incredibly expensive quest to sell game machines under the Xbox brand. It also has been trying to sell PDAs in the Pocket PC family, cellphones in the SmartPhone family, set-top boxes in the WebTV and UltimateTV families, and Internet services such as Expedia and CarPoint. Did you know that Microsoft also makes a Wi-Fi access point, a TV Photo Viewer, and several kinds of keyboards and computer mice? If I were to guess, I’d say that this frustrates Bill Gates, the founder, chairman, and chief software architect of the company, no end.
The really basic question for Microsoft is this: How can it be more successful than it already has been? Microsoft can’t make itself much bigger on the desktop because it already provides the operating system (and virtually all the word processors, spreadsheets, e-mail programs, and other key applications) for some 95% of the PCs sold around the world. The market for PCs isn’t growing very fast simply because it’s already so big.
So Microsoft has spent the past decade in a very successful effort to make its operating systems and tools more important in the enterprise, running on servers managed by the information technology staffs of large corporations. The company has had growing success selling to small and mid-sized businesses too. Still, it’s going to be increasingly difficult to keep up the momentum. Using a free version of Unix called Linux, IBM and Hewlett-Packard have built platforms that provide a viable non-Microsoft-controlled alternative for large companies. (Whether Linux keeps its status as the “free version of Unix” depends on the outcome of patent-infringement lawsuits by SCO Group, which owns the Unix source code.)
Microsoft’s greatest hope for growth is the next version of Windows, called Longhorn, which the company sees as its competitive response to Linux. More than that, Gates, who is pouring his soul and the bulk of his worktime into Longhorn, sees it as a revolution: an easy-to-use operating system for normal (i.e., non-computer geek) people. There’s a lot about Longhorn that Microsoft isn’t telling yet, but the company’s most ambitious goal is to build into the software a kind of universal file system that organizes all digital information — spreadsheets, e-mails, digital pictures, home videos, MP3s, all of it — into one big, user-friendly database.
Will Longhorn rock the world? I don’t think so. For one thing, the computer industry has dreamed of universal file systems since the days of the Nixon administration or even earlier. Microsoft won’t be any better at achieving that dream than IBM, Digital, Xerox, Hewlett-Packard, Sun Microsystems, or any other company that has attempted the same thing.
Even if Longhorn is a big improvement over Windows, it still won’t ignite a revolution. Why? Because — and believe me, I never thought I’d say this in a million years — Microsoft’s software is good enough. We all bitch and moan about one shortcoming or another, as I’ve often done in these pages over the years. But there’s not a whole lot Microsoft can do to make its programs so much better that they justify the suffering we have to endure any time we upgrade to something new. Longhorn might get geeks all sweaty with desire, but to the rest of us, it’s still just an operating system.
It’s impossible to get worked up over this stuff. Gates and his minions are no longer the zeitgeist-setting titans we loved to hate — they seem more like coupon clippers now. It all makes a polemicist very sad. It saps the soul. To be bored with Microsoft is to be bored with life. It makes me want to … drop by that Apple Store in Palo Alto.
Whew, I feel better already.