It is instructive that Ozzie is always talking about and thinking in terms of services. From an IT investment research perspective, as outlined in my review of the Microsoft 10K, one of the major issues investors face in valuing Microsoft is deciding whether Microsoft will be
• a technology products supplier, or
• a "consumer" services provider
The choice Microsoft faces between provider vs. supplier is crystallized in Ozzie's sentence: "...the opportunity really is only fulfilled if we have a services platform upon which to build these services at dramatic scale." The multiple meanings of the word 'services' in one sentence illustrate the issue. 'Scale' is also an important word in the sentence because scale matters most in services delivery (in the business or IT services sense, not in the services oriented architecture sense). Scale in technology product supply is less of a requirement. Another sentence sums up the functionality challenge Microsoft faces: "The opportunity writ large in our industry and for Microsoft is not just to try to copy or duplicate the PC-based experience, but to envision new sharing scenarios and other scenarios...."
A key to deciding which approach Microsoft will take next is understanding the consumer in entertainment, productivity and business/enterprise computing. The term "consumer" is not meant just in the P&G definition of the word but in its broad services meaning. Roles will merge in the experiential phase of the market, which will last through almost the entire next decade. Technology user roles as they relate to IT will change throughout the day but IT- and business-service 'consumer' will want that role change to be "seamless," a single user interface to use an old-fashioned term. Ozzie talked about how the environment changes throughout the day but it is more than that; the user's role constantly changes.
Here is where Microsoft lines up against those trends:
• No one is better positioned to take advantage of the merging of functions and roles than Microsoft if Microsoft decides to be an IT-based 'consumer' services provider. Microsoft is almost always behind the technology curve, which is the right place to be if going for scale and high service levels. In IT-based services provision, you can hide a lot of technology issues with workarounds (as I have written elsewhere, Microsoft can even adopt Linux in its data centers).
• Microsoft is powerful in technology product supply but not as well positioned to be a leader in the experiential wave. It has tended purposely to be a laggard in technology (Ozzie says that is because Microsoft always tries to add new dimensions as it catches up in a particular technology area.) But if Microsoft chooses to be a technology products supplier, it will be dealing with commodities (all the various types of software). And these commodities are merely a piece of the provision of the services (along with hardware, communications, people). This means Microsoft gives up a lot of market control. Still, Microsoft has the resources to peel off commodity segments and absolutely dominate them.
Basically, Microsoft has to decide whether it wants to be a utility, or just be the guy that makes the dynamos. Or the electric motors. Or the circuit breakers. It is important to remember that Ozzie's plans are still not necessarily Microsoft's plans. There is also a Ballmer plan and Bill Gates hasn't 'retired' yet. I think in deference to the others Ozzie uses the term "software and service" rather than software as a service, even though that would be a step back to the 1990s. If Microsoft tries to straddle that fence (be both a service provider and a technology supplier), its investors will be the ones that feel the pain in the middle.
