Steve Ballmer: Killing Apple and Google With Kindness?
by Kara Swisher
Posted on July 24, 2008 at 1:48 AM PT
BoomTown is flatly fascinated by the rather incredible memo Microsoft CEO Steve Ballmer penned to his troops yesterday, with news of the reorganization of its massive Platforms and Services Division and the departure of its president, Kevin Johnson.
In the memo, in a very rare public airing of its less-clean laundry, Ballmer actually casts Microsoft’s two major rivals, Apple and Google, in a somewhat positive light, while still vowing to best them.
It is not often that Ballmer or even Microsoft Founder Bill Gates mentions either company in public. More to the point, what neither typically does is acknowledge that they do anything right.
But Ballmer did so yesterday in the memo, perhaps a sign that Microsoft (MSFT) realizes it has trouble on its hands and needs to publicly declare tough enemies to pump itself up to fight.
The memo should be Topic A for financial analysts, who are gathering at Microsoft’s Redmond, Wash., headquarters today for their annual meeting with company leaders.
“It’s going to be a rocky day,” said one Microsoft source.
And how! Especially given the need to explain the memo in more detail, including plans for beating back incursions by more nimble companies like Apple (AAPL) and Google (GOOG).
Ballmer took a baby step in that direction in the strategy email to employees.
About Apple, for example, Ballmer wrote:
In the competition between PCs and Macs, we outsell Apple 30-to-1. But there is no doubt that Apple is thriving. Why? Because they are good at providing an experience that is narrow but complete, while our commitment to choice often comes with some compromises to the end-to-end experience. Today, we’re changing the way we work with hardware vendors to ensure that we can provide complete experiences with absolutely no compromises. We’ll do the same with phones–providing choice as we work to create great end-to-end experiences.
It is, for longtime Microsoft watchers, an interesting way to put it, actually framing the fight on Apple’s strengths–an end-to-end computing experience–rather than on Microsoft’s.
While Ballmer is entirely right about the sales figures, he is leaving out perhaps the more important fact that Apple–using its iPod and now iPhone juggernaut–has captured the consumer imagination and owns the tech zeitgeist, which is all about a deeply integrated and entirely Web-focused computing experience.
His mention of the phone issue is especially interesting.
Why? Because no matter what Ballmer says, the ancient cell phone software in Windows Mobile is under assault from Apple, Google’s Android and the upcoming new RIM (RIM) platform.
Ballmer’s longish comments on Google were just as important to pay attention to:
We continue to compete with Google on two fronts–in the enterprise, where we lead; and in search, where we trail. In search, our technology has come a long way in a very short time and it’s an area where we’ll continue to invest to be a market leader. Why? Because search is the key to unlocking the enormous market opportunities in advertising, and it is an area that is ripe for innovation. In the coming years, we’ll make progress against Google in search first by upping the ante in R&D through organic innovation and strategic acquisitions. Second, we will out-innovate Google in key areas–we’re already seeing this in our maps and news search. Third, we are going to reinvent the search category through user experience and business model innovation. We’ll introduce new approaches that move beyond a white page with 10 blue links to provide customers with a customized view of their world. This is a long-term battle for our company–and it’s one we’ll continue to fight with persistence and tenacity.
While it would be hard not to acknowledge Google’s overwhelming lead in search (and, of course, its position as the other key zeitgeist leader of the moment, in tech), Ballmer is laying out the challenge–which was, in essence, formulated by Johnson–as one that can be won by innovation.
He is entirely right, except for the fact that Microsoft is not a company well known for being innovative or for pushing boundaries.
More importantly, Microsoft cannot really do so from a search position of under 10 percent (check out how well Ask’s innovative efforts worked).
That’s why owning or controlling Yahoo is so critical, since its mid-20 percent market share gives Microsoft the leg up it needs to make these still-unknown innovations a success.
On a visit to Microsoft recently, I did see some really cool ideas and efforts in its Live offering, for example. But to move the needle, Microsoft needs scale to make consumers sit up and pay attention.
That’s why Ballmer’s comments about Yahoo rang especially false to me.
He wrote:
Related to Google and our search strategy are the discussions we had with Yahoo. I want to emphasize the point I’ve been making all along–Yahoo was a tactic, not a strategy. We want to accelerate our share of search queries and create a bigger pool of advertisers, and Yahoo would have helped us get there faster. But we will get there with or without Yahoo. We have the right people, we’ve made incredible progress in our technology, and we’ll continue to make smart investments that will enable us to build an industry-leading business.
Maybe so, but Yahoo is actually a strategy and not a tactic–which is to get there faster and with less of an uphill slog.
Microsoft could get where it wants to go with Yahoo. Without it? Not so easy.
Please see this disclosure related to me and Google.
Comments
What these comments demonstrate more than anything else is how bad it is for innovative thinking to work inside of an echo chamber like Microsoft for so many years.
Sloganeering and hollow promises are too little too late.
Microsoft doesn’t sell 30 to 1 compared to Apple. Microsoft sells ZERO to 1. Why? Because they don’t sell computers. They have no way to force hardware makers to give them the integration that Macs have by controlling both hardware and software in one package.
I know enough IT people to know that Microsoft’s user base is not used to innovation, or adopting innovative ideas. Mention the iPhone to most IT people and the deer-in-the-headlights look in their faces will tell you everything you need to know.
Posted by Eric Welch at July 24th, 2008 at 8:14 amI remember telling my friends about a cool search engine over at Stanford. But they were hardcore Altavista and Excite users.
If Microsoft makes a search engine that does markedly better than Google’s, they’ll win the market in a couple years on the merits, no need to buy Yahoo. But they don’t defend against Zimbra with that strategy…
As far as them doing tight hardware integration like Apple – great, but are they going to cut off every vendor who’s not in the top 10? Even with just the top 10 they’ll have hundreds of models to support every year. And if they think they can push the job down to the vendors – remember how well that worked for Motorola and DEC to maintain their ports of NT?
Posted by Bill McGonigle at July 24th, 2008 at 2:46 pmYou have a bad link for his memo in this post
Posted by Mrinal Desai at July 24th, 2008 at 3:34 pmIt’s hard for Microsoft to compete with the web because they are adverse to buying early stage web properties.
When I asked Microsoft’s CTO David Vaskevitch a few weeks back whether or not it was a mistake for Microsoft not to buy Flickr he responded that those kinds of acquistions were complicated.
In fact, Flickr was a homerun for Yahoo.
The problem is that Microsoft does not do well in the early small web acquisition game.
Is Adsense a homerun for Google? Of course. But don’t underestimate the significance about early small acquisitions like Blogger that help propel adsense even further. An acquisition that cost peanuts compared to Microsoft’s recent $100 million purchase of Powerset or their $270 million investment in Facebook.
If Microsoft was smart they would set up a small VC fund of about $500 million and give its managers a charter that it is ok to fail on 9 out of 10 investments as long as one turned out to be a Flickr, Blogger, etc.
As long as Microsoft won’t play in the early stage web game it will be tough for them to find interesting new ways to innovate in search and other areas.
Point in case, rather than wasting time and money on Powerset, MSFT should be courting FriendFeed which is far more promising as the next generation of search engines. But this is a property that Microsoft probably does not even know exists.
Posted by Thomas Hawk at July 24th, 2008 at 8:02 pm