Blodget Blasts Ballmer: 'Face Reality'

"It's time for Microsoft to face reality about search and the Internet," blogs Henry Blodget, CEO and editor in chief of The Business Insider, in a scathing critique of Microsoft Corp. (NASDAQ:MSFT) Friday morning.

Among many other bones to pick, Blodget blasts Ballmer for comments the Microsoft chief made to The New York Times, comparing the decade-plus development process of the company's Windows operating system with that of its search service:

"Steve needs to stop using Windows as the analogy. .. Microsoft had a monopoly in operating systems. When you have a monopoly, everyone buys your upgrades. They buy them because they're a bit better, yes, but mostly because they don't have a choice. In search, needless to say, Microsoft doesn't have a monopoly. It has 8% market share. It has a product that has a few cool features but is no better than the market leader's product and is easy to copy. And it has a vast, powerful, and talented competitor that has every incentive to make sure its foot stays firmly on Microsoft's throat. Windows analogies aren't just weak here. They're delusional."

Blodget goes beyond diagnosing the problem to offering his own remedy:

"So it is time for Microsoft to recognize that no company can do everything and that competing with everyone from IBM-and-Oracle to Sony-and-Nintendo to Apple-and-RIM to Google-and-Yahoo is just a recipe for failure. Microsoft should refocus on its enterprise business, defend itself against Apple's platform attack and Google's lame app incursions, and give up on its consumer Internet business.

"And what should it do with 'Bing' and MSN? Spin them into Yahoo, in exchange for a major share of the company. Importantly, Microsoft shareholders will benefit from this move. They'll get the same economies-of-scale advantage that they would get if Microsoft bought Yahoo's search business, and they'll get the upside in the stock. Unlike Microsoft's Internet division, Yahoo has a cohesive global brand and business that is still a credible alternative for advertisers, and adding Microsoft's Internet assets would make the company that much stronger. And given Yahoo's current share price, there could be several multiples of upside for Microsoft shareholders.

"Whatever Microsoft does, its senior executives and Board need to sit down and watch the presentations they gave about their glorious Internet future in the late 1990s and early 2000s and recent years. Microsoft's continual optimism about its chances contrasted with its 15 years of futility are the embodiment of the failure to face reality.This failure is now hurting the company's core business. And it's time the Board, if not Steve, acknowledged that."

Blodget's post adds insult to injury, as Microsoft's highly anticipated unveiling of its Bing search engine Thursday at the AllThingsDigital conference in San Diego was upstaged by a demonstration in San Francisco of Google Inc.'s (NASDAQ:GOOG) Wave, which its developers describe as "what e-mail would look like if it were invented today." - Mary Kathleen Flynn

Comments

[User 422060:]

Blodget belongs in jail!!!

May 29 01:23 PM

[SiliconVall...:]

Blodget is right. Microsoft tries to get is fingers on everything but does nothing especially well; may be the game :-). Its DOS/Windows pseudo-monopoly was formed long ago when the market had no other affordable and easy choices, not because it was superior.

It has a mountain of profit, an army of engineers, a giant installed base and yet the company seems content to sit back and copy and play second fiddle. Sad.

Of course, I dislike Windows and I dislike MSFT's business practice especially when they deal with small companies so I am rooting for Apple, Google and Palm and even Sony and other game players to continue to erode MSFT's market share. Time to cut it down to size and put it in its place :-).

May 29 02:05 PM

[CFed:]

While the criticism is justified due to poor execution, the issue MSFT faces is where to find growth, so their intent to enter these markets is really justified. Doubling down in the enterprise business, where the growth is in areas where MSFT is absent, or severely lagging just won't do it. They have an imperative to enter, and succeed, in meaningful growth markets. Unlike Sony, which finds itself in the right markets, but with poorly performing products, MSFT's key growth options involve 'eating their own babies' in huge markets that are showing themselves to be incredibly vulnerable arenas as technology is moving away from the desktop. In their core business, the choice is to embrace open source, commoditize the pricing of their apps, or (heaven forbid) liberating the OS to do well in a cloud world (see Tim O'Reilly's great piece on Google Wave bit.ly/16vpHM).

May 29 02:52 PM

[SiliconVall...:]

It is true that MSFT has to find growth. It is understandable that they need to enter certain markets to find growth. The difference is following to find growth vs. creating change to induce growth. The former is passive and relies on existing opportunities, the latter is proactive and creates new opportunities.

When MSFT enters a new market, it copies, makes something hohum, shows up at the door and expects people to buy. It has been comfortable for too long and take things for granted. It behaves like the GM of ten years ago.

When Palm, Apple, Google decide to go for a new market, they renew the market with new innovative approach to address old problems, they charge in the door, seize the opportunities and make people line up to buy or use their products. They take nothing for granted, they remain hungry and aggressive. They are the Toyota's, Honda's and Hyundai's of today.

MSFT has the resources to change quickly, if it so chooses. I won't count it out but right now, it is still shooting in the dark, so to speak.

May 29 04:31 PM

[Roger Knights:]

"And it's time the Board, if not Steve, acknowledged that."

The problem may be that it's the board's idea that MSFT should enter all these markets.

"So it is time for Microsoft to recognize that no company can do everything .... Microsoft should ... defend itself against Apple's platform attack and Google's lame app incursions,"

It is deliberately underfunding its Mac-Office group and letting the features in Mac's Office-2008 fall behind the PC version of Office. Perhaps it thinks this is a way of stemming the Mac's incursions, but it's mostly having the effect of driving users to Apple's iWork suite. It's petty and self-destructive.

May 29 09:13 PM

[Jon T:]

When was the last time that Microsoft moved anything forward at all? Please don't tell me Surface.

It doesn't. If innovation was left to Microsoft, we'd still be in DOS with green print on a black screen. And it would still cost $800 per seat.

Microsoft is the equivalent of the Burmese Military Junta, nothing to recommend it to anyone.

Try telling the Generals to "face reality"...

May 30 08:33 AM

[carey_jim:]

There are two problems with computer interface businesses (such as operating systems and search engines) that most other businesses don't have.

The first problem is that computer interfaces, being inherently complex, because they are so powerful, are difficult for users to master.

Therefore, whether you are talking about word processors (WORD, Word Perfect, Open Office) or operating systems (Linux, Windows, MAC OS X) it is not easy for users to change brands. A Mercedes drives about the same as a Ford but Windows is completely different from Ubuntu (a Linux based operating system.)

In the early days of automobiles, the government was asked to provide standards for the sizes of parts to make them interchangeable in all cars because, for example, it was not practical for every car to have special tires that wouldn't fit on any other car.

The interfaces used by all computer programs (such as cut, paste, delete, etc.) are similar to the nuts and bolts in cars and if the computer industry is to flourish as a competitive, capitalist model, the way the automobile industry did in the past, then these interface parts should be standardized and made available to all computer businesses, just as car parts are available to independent, car mechanics.

The real problem between Microsoft and Google is that two monopolies are fighting for complete control of a market based on their own privately created interface standards.

May 30 12:10 PM

[carey_jim:]

I don't have time, right now, to sketch out the history of how the Microsoft monopoly was formed but it wasn't formed because there were no alternatives available.

Apple was a competitor with Microsoft from the start and has always had a superior product. Commodore was an established player before Microsoft was formed, and the Commodore 64 was superior to DOS. Even IBM had a superior PC in the early days. The Amiga was the best computer available at that time (In 1983 it had a windows operating system and a color monitor) but its business model was dismal.

The story of Microsoft's rise to its present monopoly status is not pretty and sometimes I think the reason Bill Gates retired and is working hard to give his money away, is to do penance for some pretty ugly business practices. www.businessweek.com/m...


On May 29 02:05 PM SiliconValleyJoe wrote:

> Blodget is right. Microsoft tries to get is fingers on everything
> but does nothing especially well; may be the game :-). Its DOS/Windows
> pseudo-monopoly was formed long ago when the market had no other
> affordable and easy choices, not because it was superior.
>
> It has a mountain of profit, an army of engineers, a giant installed
> base and yet the company seems content to sit back and copy and play
> second fiddle. Sad.
>
> Of course, I dislike Windows and I dislike MSFT's business practice
> especially when they deal with small companies so I am rooting for
> Apple, Google and Palm and even Sony and other game players to continue
> to erode MSFT's market share. Time to cut it down to size and put
> it in its place :-).

May 30 12:26 PM

[Paco6945:]

These comments bashing Microsoft on their path to a mega-company are baloney. Microsoft had a better business plan and executed it well. They opened their processes to millions of developers -- unlike Apple, which was driven by Jobs' narcissistic belief that no one else could do it right. Commodore and Amiga were hardware companies that got caught up in a commodities business. The IBM PC had to be developed and sold almost in secret lest the big iron boys sabatoge it -- and they paid MS $ for every PC they shipped.

That was then, this is now. Blodgett is on the right track. MS will never catch up with Google in search. Google is a verb. For the sake of shareholders (I am one), MSFT needs to follow Blodgett's advice. Shift the search battle to Yahoo vs. Google -- a fight where Yahoo might be able to get to 30%-35% and generate great returns forever.

As for MSFT, move search resources to media delivery, cloud, and be more innovative integrating the desktop/communications...

May 30 01:17 PM

[SiliconVall...:]

(Carey_Jim) MSFT's rise to dominance was due to lack of "easy" alternatives. The Commodore, the Amiga and even the Apple were not easy in those days. In fact, at our Apple User's Group, we all agreed that if we wanted machines that could do anything we want, such as interfacing with an external device, we would buy Apple, Commodore or Amiga. DOS was for the install-and-forget approach. Thus my claim that MSFT came into "power" because there were no simpler alternatives for simple users. Power users used Commodore, Amiga and Apple, consumers used DOS on PC boxes.

Gate, unlike what many think, is no engineering or technical genius. He is a good businessman (Paco6945) who knew to take advantage of all that IBM would give him and created a pseudo monopoly. So MSFT in that regard did execute its business plan brilliantly. It was all about being dominant as a business, it was never about integrating technical innovation with the business model. Whenever possible, they used their position to outright steal from smaller companies. The weaknesses inherent in MSFT's approach while under Gates, are now coming home to roost.

MSFT often stab smaller software makers in the back. Such practices left sour a lot of relationships and left a few bitter ones. I have little love for MSFT as it is today. The better that Google, Palm and Apple and even Sony, Nokia and H-P and IBM all gang up to shred MSFT down to size and put it in its place.

As for Jobs' unwillingness to license the Apple OS (Paco6945), Jobs was right that no one could do it right. I was already building software applications when punch-cards were still in use. Even when Windows came out, the UI policies were downright stupid. While Apple paid attention to precisely how people used their machines and strived to streamline the task flows, Windows' policy was to open up as many dialog boxes as possible. It was a well-known problem back in the days and it continues to exist today.

There is NOTHING wrong with Apple wanting to control its OS and hardware. I have asked this before, so do you think IBM should license its AIX OS to run on Sun hardware? Boeing should license its flight system software to run on AirBus? Answer these before you criticize Apple's approach.

Apple has made mistakes in its history but keeping Mac and its OS tightly bundled is NOT one of them. At least not yet :-).

May 30 01:51 PM

[Tom B:]

MSFT is GM; MSFT is dinosaurs vs. mammals; MSFT is Rip Van Winkle and the world has passed them by. In the 90's, LINUX brought cheap UNIX to server geeks. MSFT: no response. In 2000, Apple brought UNIX to the masses. MSFT: no response. Now it's too late for Redmond-- even Win 7 is just warmed over Windows NT-- no real advances. I think even Enterprise is fed up with Windows' poor performance; poor security; margibnal stability; weak UI; and weak development tools.

May 30 02:47 PM

[redwine44:]

MSFT is still a one-trick pony, and eventually, buggy whips, and now their successor, General Motors, go by the wayside. Gates was a very successful businessman, not an engineer or designer.

It would do Ballmer well to look at the names of the Dow 30 in 1980, in 1960, in 1920. Giants don't live forever, they just make a bigger dust cloud when they fall over.

May 30 02:53 PM

[Novista:]

'Back in the day' ...

I remember the birth of CP/M and that it was offered to IBM in 1972. Their response? "Haha, a passing fad that will be dead in five years."

And yet, in a post-WW2 business conference, the notion of a computer industry building on wartime developments was soundly thrashed by RCA and other major companies. And Thomas J.Watson reckoned it might be a loss but was willing to have a go. Even he could not envision more than perhaps three giant mainframe machines crunching numbers for the business community.

Unexpected success led to hubris, when the first minicomputers raised their heads. I believe Perkin-Elmer was first and IBM shrugged that off. Then when the micros arrived in various guises, they still couldn't see the handwriting on the wall.

By the time they decided to get into the game, the first prototype was based on 8-bit chip, even though the 8086 had appeared on the scene, so it was Plan B. Then, for whatever reason, IBM decided to farm out the hard yakka of writing an OS.

Gary Kildall was approached, and there are several variations of that little story, take your pick.

Then someone thought of Microsoft. According to one story, Gates initially had not interest -- but a Japanese friend, young tech publisher suggested he should give it a whirl. And lo, it was discovered that the bloke at Seattle Computer Products had already written (reverse engineered) a 16-bit variation of CP/M.

A deal was struck ... and the rest is history ... warts and all ...

May 30 07:43 PM

[Alex Filonov:]

Yahoo won't pay for MSN. It won't take it for free. If Microsoft to outsource MSN to Yahoo!, they'll have to pay. Billions.

As for MSFT management, company is managed by control freaks. Maybe real managers can do something about it, but I'm not sure.

May 30 10:46 PM

[brewer:]

Microsoft has never been about technology, only about making money via the monopoly IBM so foolishly handed them (and they helped themselves to everyone's ideas along the way). They have never had the best tech in any area, but Gates understood the power of the OS monopoly very well (he was good at business, not technology).

Gates was at least an interested proponent of the microcomputer, and saw the value of the desktop as much as Jobs and Wozniak before him. IBM quickly lost the market they didn't want to begin with because they were really only interested in the mainframe.

It's not clear to me that anyone at Microsoft really wants to do anything at this point. I think management has stifled any talent that ever once existed or driven away all but the dead wood.

It's painfully obvious that Ballmer's only qualification was being a friend of Bill. This is not leadership. Probably every engineer there feels (and rightly so) that they understand the business better than Steve Ballmer.

Jun 01 10:37 AM