Microsoft's Mistakes
Proving Costly

The wizards of Redmond turn thirty this year. Officially founded in 1976,
Microsoft appears to have lost its edge as it enters its third full decade.
At one time, not so long ago, Gates and Co. drove the machine, setting
standards that everyone else conformed to. Virtually nothing could stand in
their way and competitors who did seriously threaten their dominance could
be effectively diminished in one way or another.

Over the past few years Microsoft has gotten slower. Key product releases
have been delayed, upper-management has been reshuffled several times
in two years, defining initiatives such as the .net strategy have been virtually
abandoned and worst of all, Microsoft has lived in reaction mode for the
better part of the 2Ks.

To complicate things, their chief rival, Google, opened the year by signing
a last minute deal with AOL, one it suddenly snaked away from MSN Search.
The company is not on the leading edge anymore and to a staff member, they
know it.

At times it feels like they have adopted a "fake it till you make it" public
face. Bill Gates and Steve Ballmer parrot each other's speeches about
facilitating the pending digital lifestyle while demonstrating product ideas
that other firms have already developed. Both have been talking about "...
beating Google in six months", for over a year now but the search division
of Microsoft doesn't even seem capable of bettering itself. They are so
scared of Google that both have stated they don't see Google as competition,
and they still don't have a functional pay-per-click search advertising

They are trying to develop a new search engine in Windows Live. The product
is in its beta phase and its interface feels experimental. One interesting
personalization feature they are testing is user controlled search macro
commands. Basically, users will be able to create personal information
buttons that will be added to a search toolbar running across the top of the
Windows Live screen. The buttons are used to narrow or focus search results,
the example offered by MSN being actual recipes as opposed to results full
of advertisements for cookbooks. A detailed explanation is provided at the
MSN Search WebLog.

The future of Microsoft depends on the web. It can still exercise a great
deal of power and influence by controlling the core operating system of most
PC machines but the shell surrounding the OS has been breached by web-based
services and software and Microsoft's long term dominance is obviously

The latest rollback on the delivery date of Vista, their first OS upgrade
since XP, shows how difficult it is for Microsoft to evolve into an age when
the desktop computer is reaching its obsolescence. First expected in early
2005, Vista, (formerly known as Longhorn), is now expected to be ready for
release in January 2007, a full month after the Christmas season.

Microsoft earned everything it has today by establishing control over the
basic user interface that everyone uses, the operating system of most PC
computers. To observers, the development of its new one has spiraled out of

Pulling on its core historic strategy, the plan to deal with Google and
Yahoo has been tied up in the OS. Microsoft wants to make the experience of
working on one's desktop computer and across the greater Internet, or an
internal Intranet, virtually seamless. Since late 2004, the plan was to
bundle a number of web services into something they could control, the OS.

That is why Vista is such an important milestone for Microsoft and for the
various industries that work around Microsoft's massive sphere of influence.
Vista has been pushed back year after year and actually placed on Wired
Magazine's list of vaporware products for 2004 and 2005. Computer makers and
retailers most recently expected the product in November 2006.

The problem Microsoft faces moving towards that future, and the reason the
Longhorn/Vista initiative has been so difficult is they have fallen behind
the curve when it comes to servicing consumer expectations over the web.
They have been a constant third in the race for search supremacy and
frequently trail behind their rivals when it comes to introducing branded
products typical consumers use over the web. That, in part, is because
consumers are using the web differently than they use the XP driven
they access the web on.

There are, of course, exceptions to this rule that tend to fly below the
radar screen of daily users. Windows Media Player is a good example.
works directly with online information sources to provide a richer
multimedia experience. Users don't need to turn to Google to learn the
recording date of the CD or to receive other information about a piece of
media. It is simply provided by the product. Hundreds of millïons of people
use the product everyday but few think about Microsoft while they do it. It
is a subtle product that is taken as granted by North American XP users.

Other examples are abundant. When they do lead, as in the case with MSN
Messenger, Windows Office, and other branded, daily use products, they
simply don't generate the buzz that keeps consumers thinking about their

The problem for Microsoft, unfortunately, doesn't revolve around creating
more buzz for their products. Their problem is that other companies are
creating the products that people want to use.

While Windows Media Player is a multi-functional product, smaller digital
music storage and replay devices have replaced its daily use. Google is
poised to introduce an online word processing suite. Firefox has taken a
significant share of the browser market.

The crux of the problem is that when servicing a general web based audience,
the only large-scale profït model is found in advertising, not subscriptions
or purchase pricing. If users aren't looking at a Windows Media Player
screen when listening to their MP3s, they aren't looking at, or following up
on any commercially sponsored information. Similarly, with Internet
Explorer, users could be subtly directed towards other Microsoft products,
properties and advertisers.

Microsoft has made some costly mistakes over the past few years. Its
long-term dependence on the OS as the tool in its fight to dominate the
online experience has put it behind its competitors in terms of product
adoption and loyalty. The door is thus open and several other entities are
walking into the room. Regardless of management shuffles and realignments,
the delays of today will haunt Microsoft long into the future. The delay of
Vista will have a palatable affect on PC salës over the Christmas season.
Take your local PC dealer or manufacturer to supper sometime. He or she
could probably use a good meal.

Jim Hedger


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