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Leaked Memos Point to a “Disrupted” Microsoft

Every five years or so, Microsoft chairman and chief software architect Bill Gates has an attack of paranoia that the company has just missed the boat on the latest technology trend, and subsequently issues a memo to rally the troops in the new direction.

The latest memo leaked to the press late Tuesday night. The topic: the explosion in “services” on the Web. Gates’ memo, which includes quotes from a second memo, this one from newly minted Microsoft chief technology officer and creator of Lotus Notes, Ray Ozzie. Both worry aloud that the company may not be able to keep up with fleeter, smaller competitors.

Ozzie’s memo – an e-mail to Gates and other company senior executives sent on Oct. 28 – is titled with the warning “services disruption.” Gates’ memo to the same company audience, dated two days later, agrees: “Today, the opportunity is to utilize the Internet to make software far more powerful by incorporating a services model which will simplify the work that IT departments and developers have to do while providing new capabilities.”

Both technology visionaries point out that the idea is not a new one. That is part of the problem. They warn that competitors have staked out areas that Microsoft “should” have been the leading player in. Among them, Voice over IP service (Skype), Internet search (Google), non-editable document distribution (Adobe PDF), portable e-mail delivery (RIM Blackberry), online business services (Salesforce.com) and music services and devices (Apple iPod and iTunes).

Now, no surprise, Microsoft wants a larger cut of those markets, and it’s time to mobilize the troops to once again become the conquering techie army of old – of the graphical user interface revolution, of Microsoft’s assault on the Web, and of .NET.

“It is now 2005, and the environment has changed yet again – this time around services. Computing and communications technologies have dramatically and progressively improved to enable the viability of a services-based model,” reads Ozzie’s memo. It continues: “The ubiquity of broadband and wireless networking has changed the nature of how people interact, and they’re increasingly drawn toward the simplicity of services and service-enabled software that ‘just works.’ Businesses are increasingly considering what services-based economics of scale might do to help them reduce infrastructure costs or deploy solutions as-needed and on subscription basis.

“Most challenging and promising to our business, though, is that a new business model has emerged in the form of advertising-supported services and software. This model has the potential to fundamentally impact how we and other developers build, deliver, and monetize innovations. No one yet knows what kind of software and in which markets this model will be embraced, and there is tremendous revenue potential in those where it ultimately is.”

Gates’ memo agrees. And given that the memos were, as in almost all previous doomsday e-mails, deliberately leaked by someone inside Microsoft to the world at large, it’s a safe bet that most, if not all, of the Microsoft execs to which the memos were originally sent, are on board.

Industry veteran and gadfly Dave Winer posted copies of both memos on his blog late Tuesday night. He commented that a Wall Street Journal story about the memos had pointed up the fact that Gates is in the process of training those who will follow him when he either retires, or lightens his load in order to focus more fully on philanthropy.

“[Ozzie] has a hard job. Turning Microsoft in 2005 is going to be much harder than turning them in 1995 [when Microsoft embarked on dominating the Web]. The company is much larger, and more set in its ways,” Winer’s posting says.

Deliberate leaks or not, as Winer notes, they show a rare look inside the company’s thinking and how that is related to the world by public announcements, like last week’s Office and Windows Live launch.

However, the companies that Gates and Ozzie cite as competitive threats are, by and large, single-product firms like Google, Skype, Adobe, Research in Motion and Salesforce.com. Ozzie didn’t bother to mention instant messaging and AOL, though Ozzie’s previous company, Groove Networks, which Microsoft bought out earlier this year, focused on carrying that technology into enterprise collaborative environments. But he does mention AJAX – a pseudo-acronym for “asynchronous Javascript and XML” – a technology implementation vision that, perhaps ironically, Microsoft was a leader in.

Central to both memos is the discussion of the Google-style advertising-driven revenue model as a viable alternative to charging users directly for services.

What does all of it mean? Microsoft is and has been already doing many of the things the two executives point to as the wave of the future. If past speedboat turns by the Microsoft oil tanker are any indication, the operative word behind both memos is “leadership.” If the past is any example, that usually translates into an across the board coordinated attack on whatever the company’s goal is perceived to be. Microsoft has not always been successful in every area that it has attacked, however – MSN is an example where the company has invested millions upon millions but has not become the dominant player in the ISP or Web portal categories.

Not surprisingly, the leader of this latest charge will be, Ozzie. “Steve and I recently expanded Ray Ozzie's role as CTO to include leading our services strategy across all three divisions,” says Gates. “We did this because we believe our services challenges and opportunities will impact most everything we do.”

Gates closes by once again rallying the troops: “The next sea change is upon us. We must recognize this change as an opportunity to take our offerings to the next level, compete in a manner commensurate with our industry responsibilities, and utilize our assets and our broad reach to reshape our business for the benefit of the users of our products, our customers, our partners and ourselves.”

But even Winer, who is known for his irascibility, seems to be rooting for Microsoft this time around. “The company is much larger [than it was in 1995], and more set in its ways . . . . But here's the thing, they're having the discussion now . . . . This is a more disrupted Microsoft. And believe me (and many of them heard this from me) they needed to be disrupted.”

Says Michael Gartenberg, a senior analyst at JupiterResearch: “Microsoft has proven that it can withstand a sea change as great as the original Internet tidal wave, this is a further extension of that philosophy and always keeping an eye on what forces of the market can potentially disrupt their business.”

About the Author

Stuart J. Johnston has covered technology, especially Microsoft, since February 1988 for InfoWorld, Computerworld, Information Week, and PC World, as well as for Enterprise Developer, XML & Web Services, and .NET magazines.

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