Re-inventing Microsoft

How it got here, and what can be done

There has been a lot written about Microsoft in the last two months. A large re-org, the retirement of SteveB, and Microsoft’s purchase of Nokia have been the events that have focused a debate on Microsoft’s future.

The commentary has been unanimously unflattering, though it has varied in its level of vitriol. The writers, like interns debating whether a patient is terminal, dead or a Zombie, have only disagreed on Microsoft’s level of decline, not on the final outcome. Two lines of argument that come up in the discussion on the reasons for Microsoft’s decline are:

• Share of connected devices: Microsoft’s share of connected devices has tanked. This is because PC sales are falling, and because Microsoft missed the mobile boat (and hence, “Let’s buy Nokia”). This is the reason for Microsoft’s decline.
• Consumer mind-share: The four S’s — start-ups, small businesses, students and your significant others — don’t (willingly) use Microsoft products. With consumer-led, or bottoms-up, IT decision making becoming increasingly common, Microsoft will soon lose enterprises too. This is the reason for Microsoft’s decline.

In this essay, I argue that both of these are symptoms, and not causes for the decline. I also argue that Microsoft can re-invent itself, and that with one last gasp, it may still regain the crown that it once wore.

Look at Microsoft’s four big competitors: Amazon, Apple, Facebook and Google. Now, quick, which one of these sells software for money?

The answer — none of them — lies at the root of the problems that Microsoft faces: Microsoft’s DNA is that of a company that sells packaged software for a buck to users and businesses.

There are three trends from the last decade that Microsoft ignored or missed, and its competitors capitalized on and (re-)invented themselves around: free, farms and small. Let us look at each of these in turn

Free — or, non software sale business models

In a fantastic essay last year, Mark Andreessen pointed out that software is eating the world, and that every business is a software business.

In many ways, Microsoft has the opposite problem: since every business is a software business, Microsoft is being attacked by companies that aren’t in the job of “selling software for money”. They are, as we examine in the next point, being attacked by marketplaces.

In the minds of end-users, the software from Amazon, Apple, Google and Facebook are free. Microsoft is perceived as expensive. Microsoft still gets its money from selling software.

Microsoft is built on a business model that is rooted in selling software for money. This is anachronistic in the Internet age of Free.

Farms — or, the user as products in a marketplace

Amazon, Apple, Google and Facebook are like farms, where users are livestock that is being sold in a marketplace.

The way this works is: the company (Amazon, Apple, Facebook or Google) is the seller, the user & his or her behaviour and data is the product, and suppliers, merchants, developers and advertisers are the buyers.

Take a minute to grok this: those you may usually call sellers — the supplier, the merchant, the developer, the advertiser — are now the buyers of “store-fronts” in a marketplace. I will use the term “merchant” going forward in this essay, but make no mistake — the merchant is the buyer in a marketplace, and the product is you.

Of course, the user needs to be enticed to enter the farm, and should be made to keep coming back. Amazon, Apple, Facebook and Google engineer this behaviour by building:

• Singular meaning: Amazon is E-commerce. Apple is cool devices. Facebook is social. Google is search. Microsoft is ?
• Identity systems: Uniquely identify users, and track their behaviour.
• Social ties and news: Keep users coming back for more.
• Recommendation systems: Program greater purchase.
• Simple check-out and billing: Make it easy to act on a whim.
• Great analytics: Understand and target users to buy more.
• Devices: That funnel users into the farms.

Microsoft stands alone in not having a system for “selling” the user — go down the list above, and you’ll find that Microsoft doesn’t have any of these systems in place, at least in a way that is yet significant.

Microsoft believes in outmoded notions of selling software to users — instead of adopting the Internet age reality of selling users for money.

Small — or, unbundled, bite-sized value

In the eighties, we had albums, phone calls, newspapers and Microsoft Office. Today, we have singles, texts, Twitter and apps.

User value has become unbundled, and has become bite-sized.

As a marketplace — and if you have a large number of merchants — then this is great. Unbundled, bite-sized value provided to you by your merchants means that you can:

• Reach the “long-tail” of users, and meet everyone’s unique needs.
• Easily trigger purchase by users with small price-points.
• Give users “tasting trials”, to keep them coming back for more.
• Build “freemium” models, with in-app purchases for more value.

Microsoft has been unable to transform itself into a marketplace, where merchants deliver small, unbundled bite-sized value that consumers are willing to open their purse strings for.

Microsoft has remained rooted in the cold-war era of “big is better” and “let’s add more fire-power” — this is an Achilles heel in today’s world of small.

So, what must Microsoft do? The current strategy of “Devices & Services” does not go far enough — it is a statement of facts, not of purpose. I believe that Microsoft needs to re-invent itself, much like Apple did or Intel has done over the years.

This will not be easy, and the path of re-invention needs to be unique to Microsoft’s challenges. Here are six things that I believe Microsoft must do to re-invent itself:

• Find a visionary leader: Someone bold and decisive. Someone to set the direction and rally the troops. Someone who may get things wrong, but the few things that they get right — they are oh-so-right. This is what Microsoft needs now.
• Become leaner and flatter: Microsoft has many employees spread across many divisions. It will add to this with the people from the Nokia deal. Microsoft needs to become leaner and flatter, by removing the chaff, bringing together its best people and focusing them narrowly.
• Create a marketplace that users flock to: Difficult, but must do. My view: Focus on students, families & personal productivity. Bring together Office, Bing, XBox and Phone. Make it simple, valuable and connected for end-users.
• Win back developers: Become radically open. Contribute to the community. Make Azure free. Win back developers. This used to be Microsofts stronghold — it needs to regain this position of strength.
• Create a singular identity: Seen www.amazon.com, www.apple.com, www.facebook.com or www.google.com? Now go to www.microsoft.com. Why are you there? Microsoft needs to create a singular identity and meaning in the minds of its end-users. Users need to think “My Microsoft” — not “Microsoft”.

The questions that Microsoft should answer are these:

• On devices: Why did the iPod, iPhone and iPad succeed? . Why is Android winning? Why has the Kindle done well?
• On services: Why is Google docs doing well? Why are developers flocking to Amazon Web Services? Why do all businesses use the Facebook platform?

The answer is simple: money follows users. So, Microsoft needs a narrowly focused plan to win back end-users to its platform.Everything else will follow.

However, for this, Microsoft needs to jettison its glorious past of selling packaged software, embrace an uncertain future and re-invent itself as a true Internet age company.

Can it be done? Absolutely — with bold action, and a pinch of fortune.

[Disclaimer: I was employed with Microsoft for ten years between 2003 and 2013. The thoughts and opinions in this post are solely mine. I invite your comments and discussion on this piece.]