Microsoft and Vista: Trying To Turn Around A Supertanker

I posted on Microsoft (MSFT) and Vista way back in December 2006 and February of this year. My analysis of the Internet dialogue was very, very negative, painting an early picture of fear and desperation on the part of my friends in Redmond. Further, I identified a series of development and PR gaffes that didn't portend well for a blowout across corporate IT departments or consumer channels. This was then:

From Microsoft vs. Apple: Is Vista the Answer in the Era of Consumer Computing?, 12/12/2006

You pretty much know my view of Microsoft - a big, great, bureaucratic, confused company that has lost its way. I'd like to augment this view with some fresh data concerning Vista, how Microsoft is positioned relative to Apple (AAPL), and how we have ushered in a new era - the Consumer Era of Computing - for which Microsoft is ill-prepared. And my connect-the-dots analysis leads to painful and stark conclusion: Microsoft, for all its financial resources, intellectual capital and historic success, is at risk of being marginalized in tomorrow's world. The terms of trade have changed, and thus far they have seemed to lack the currency necessary to play. With all the brains and money at their disposal the chance of a turn-around certainly cannot be discounted, but it is the embedded cultural and market perception issues that give me the most pause.

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With the Internet, cheap storage and massive processing power, the playing field has flattened measurably. One doesn't need thousands of developers, hundreds of man-years and tens of millions of dollars in "big iron" to develop applications people want. People want to connect. People want to be able to share. People want to discover. Pictures, movies, music, email, web pages, files, spreadsheets, and more. This means that people want programs and applications that are easy to use. And fun. And open. People and companies became dependent upon Microsoft because the lack of computing power and bandwidth called for a high degree of desktop integration. However, this isn't the case any more. Big, heavy OS and related applications simply aren't necessary. Google threatens Microsoft in search and email. Apple is chipping away with consumers. And these are only two of many companies that are relentlessly challenging the Microsoft franchise. Further, I think what Apple is doing is actually pretty profound.

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Microsoft has to decide what it wants to be. "Bet the ranch" projects like Vista are not the future. While the Company can say it beta tested Vista to death, if it takes 5 years, billions of dollars and millions of man-hours to kick out a commercial product you've got a problem. What top young pro wants to be part of that? The problem is deeper than business model and who your customer really is (though these are, without question, two of the most critical issues to Microsoft's future), but how you attract, retain, excite, challenge and incentivize the best people. Without this, the battle is lost. And right now, Microsoft needs to focus on those dimensions if it wants to maintain its role in shaping the technology of tomorrow. Because we have firmly entered the Era of Consumer Computing, an era with which Microsoft has little experience and even less success. And based upon what I am hearing from the corners of the Internet, they've got a seriously uphill battle.

From Apple Envy Seizes Microsoft 2/6/2007

Microsoft on stage. Bill on The Daily Show. It's Vista time, baby. Survey says - thud. It is a hard thing to watch. A cranky, defensive and inarticulate Bill. Trends in the data that have to be massively disconcerting to Microsoft management (not to mention its external shareholders). Dripping, gloppy Apple envy coming from the top. Incredulity at the public's lack of understanding of Vista's greatness. These are not signs of a company, of a culture, of a management team doing well. They are failing. Failing to understand their customers. Failing to understand the tone of the market. Failing to understand the kind of messaging that is necessary to get people excited about their products. And yes, failing to transition into the Consumer Era of Computing, a phenomenon I had written about in a post about six weeks ago.

And I've got to say that this latest leg in the Microsoft/Apple battle bears stunning similarity to the duel (although it is hard to have a duel when one of the participants is already dead) between Sony and Nintendo in the PS3/Wii war, while a story that still needs to be fully played out looks increasingly like the nimble, adaptive, consumer-focused company kicking the crap out of the Grand Dame of Gaming. And I am sure over the ensuing months and years we will see more of this stuff happening, where the more consumer-centric, lighter, friendlier applications will dominate the legacy titans of yesteryear. It is all just beginning, and the first and highest profile casulty may well be Sony, closely followed by Microsoft. Anyway...

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We may be witnessing an historic changing of the guard, which takes place in every generation. Remember IBM? They were invincible. How could they be beat? By a couple of geeks in a dorm room, that's how. Microsoft rises. And then another snot-nosed kid with a great idea and a dorm room made it happen in the box business, enter Dell. Then others got wise and squeezed their efficiency-based margins to nothing. Apple rose like a phoenix, crashed and rose once again, by virtue of innovation and a customer-centric ethos. Sony was like IBM. Now they've been bloodied by the customer-centric and community-oriented Nintendo. And now there's Google, the poster-child for the democratization of the Internet and the ever-flattening, increasingly frictionless world. When put in this context Microsoft just seems so big and slow and old, hidebound by 30 years of culture and organizational silos that seem impregnable. And it appears that Vista - the product, the PR, the marketing approach - is the result of such an organization. At times brilliant, very heavy, complicated and expensive. This is not a product for today. This is a product for an era when the desktop ruled. And that era is long gone.

And this is now:

From CNet News.com 9/26/2007: Why Microsoft must abandon Vista to save itself

While Vista was originally touted by Microsoft as the operating system savior we've all been waiting for, it has turned out to be one of the biggest blunders in technology. With a host of issues that are inexcusable and features that are taken from the Mac OS X and Linux playbook, Microsoft has once again lost sight of what we really want.

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The first indication that Microsoft should abandon Vista is its poor sales figures. According to a recent report titled "Windows Vista Still Underperforming in U.S. Retail" from NPD,Vista sales are significantly behind XP salesduring its early days. Even worse for Redmond, some are reverting to XP, citing issues with compatibility and overall design. And if that wasn't enough, Macs continue to surge and with the impending release of Leopard, Microsoft may be in for a rough holiday season.

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Never before have I seen such an abysmal start to an operating system release. For almost a year, people have been adopting Vista and becoming incensed by how poorly it operates. Not only does it cost too much, it requires more to run than XP, there is still poor driver support, and that draconian licensing scheme is a by-product of Microsoft picking on the wrong people.

The road ahead looks dangerous for Vista and Microsoft must realize that. With Mac OS X hot on its tail, Vista is simply not capable of competing at an OS level with some of the best software around. If Microsoft continues down this path, it will be Vista that will bring the software giant to its knees--not Bill Gates' departure.

Of course, categorically dumping an operating system is quite difficult and with millions already using the OS, chances are Microsoft won't find a good enough reason to do it. And while I can understand that argument, there's no reason the company can't continue to support Vista and go back to the drawing board for its next OS. Even better, go back to XP--it's not nearly as bad as Vista.

Hey now, that's kind of rough talk, eh? Well, if you think this piece is bad, you should check out the chat on Slashdot in the wake of the CNet piece. Let's just say that Steve B. would have steam coming out of his ears after scrolling through some of those comments. I find it interesting that a lot of the issues I had raised early in the game between Vista and the Mac OS X have come to fruition. This simply shows the power of the Internet as a leading indicator of the Vista debacle, and the follow-through in the offline world is nothing short of remarkable. But wait, there's more...

From Macnn 9/28/2007: MS to sell XP until June 2008 after Vista backlash

Microsoft will continue to sell both retail and OEM (pre-installed) copies of Windows XP for five months more than originally planned, the company announced today. Although plans would originally have dropped both versions from stores by January 2008, the new extension will remove the OS only by June 30th of that year -- nearly a year and a half after Windows Vista's January 2007 debut.

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The software developer has encountered an unprecedented level of resistance to its Windows upgrade since its release early this year, with large-scale computer builders such as Dell restoring an XP option either due to a lack of stable hardware drivers or customer complaints relating to software compatibility and performance. Microsoft recently began offering an XP downgrade licensing option for system builders who wanted to let customers fall back to the earlier OS for systems that would normally ship with Vista. For its part, Microsoft maintained that Vista was the fastest-selling version of Windows to date and noted that far more people were choosing to upgrade through buying a new PC rather than a stand-alone copy. The firm did not say whether the shift was just evidence of stronger growth in system sales or a decline in sales of upgrade copies.

Well, CNet hit the nail on the head. XP is being kept out there longer because... drum roll please... VISTA SUCKS. The trade-off of features to brain damage just isn't worth it. Credit Microsoft for using their brain on this one, though they would have to have been completely brain-dead to have arrived at a different conclusion.

It's just sad, mostly. But at the end of the day Mr. Market rules, and the market has spoken loud and clear on the issue of Vista: too expensive, too heavy, not worth it, even after more than $500 million of ad spending and one of the biggest hype campaigns known to man.

The same cultural issues that I raised over nine months ago are still present today, with unclear prospects for resolution. It is difficult turning around a supertanker, especially one tethered to the bottom of the ocean. The real question is what will be the catalyst for setting it free - if it is even possible. Maybe we are witnessing the transformation of Microsoft into an oil well - once a gusher, today a valuable annuity, but a depreciating asset nonetheless.

The growth stock luster has long been tarnished, and Vista is only a manifestation of a larger problem: the increasing rigidity and bureaucracy of a once-great entrepreneurial titan. Google (GOOG), take heed. No firm is above the inexorable pressures of success and scale.

Comments

[Werlingdervish:]

This article is dead on truth, but most people still are not getting it. Leopard is a "Windows" minimizing environment designed specifically for small screens. With the likes of Sony's new 11 inch OLED screens--color bright in broad daylight, viewed from any angle, saving 40% on battery power-- the future for Apple's ultra-portable, touch screen technologies is assured. Hello Slim Macbooks, Mac touchscreen tablets and iPhone Extremes running Web 2 secure software from Google, Apple and many others.

Every one of Apple's current consumer software products is designed to simplify life for consumers, to get 95 % of the complex functionality of MS office for a quarter of the effort with few crashes. Just look at the similarity of editing tools across their consumer lines (Take the Apple tours at their site) NOT to mention the WOW factors of new multi-media features built in with similar cross application support.

It is almost sad to see the Microsoft whale struggling on the beach of the Web2 world. Within 5 years it will be all over, even in the business world--see Salesforce.com for the future--they love the possibilities of the new iPhone/computers.

2007 Oct 03 07:17 AM

[Jon T:]

Completely agreed, and with the first poster too.

I'm just not sure it is possible for Microsoft to recover.

Look at its blatant copying of Apple with the Zune, on hardware, software, ecosystem and all. Badly done, poor taste, and likely going to be unreliable -again, the latter for sure when Bill Gates says it will take '4 years to bed down'!

2007 Oct 03 08:05 AM

[LJP:]

Its about time someone said it - Vista sucks. I couldn't find a new computer without Vista earlier this year. I returned two when I realized there wasn't drivers for the hardware it came packaged with. Good thing our cars don't have Vista powering anything...we'd all be ticketed for breaking down in the slow lane.

2007 Oct 03 09:24 AM

[Tom B:]

IT DOS-dinosaurs are what keep MSFT alive; when (WHEN; not if) Enterprise "bails", everyone else will follow. Vista shows what happens when you accrete decades of spaghetti code, without any re-writing and streamlining along the way. You end up with an un-maintainable mess. All that trouble and MSFT, alone, of all OS vendors (Apple, Red Hat, Sun) STILL isn't UNIX-- thus the security and performance issues. In contrast, not only has Apple delivered a world class OS, they have inherited NeXT's clean object-oriented programming environment, which makes writing and maintaining OS X and OS X apps vastly simpler than on Windows (at least, that's what I hear from developers).

2007 Oct 03 11:50 AM

[Jonathan Scott:]

If MSFT's fall was this clear, it would be just as clear how to fix. In other words, if i wanted to insult a company making 1 billion a month in profit, I'd agree with you. Most bad press of Vista is because people so like XP.

2007 Oct 03 02:06 PM

[GRiddick:]

Very interesting read, Roger.

I, too, have followed Microsoft closely for years. I also worked for IBM when they took some of these same arrogant approaches to obvious market-driven trends.

From what I've seen in the last year or so, I see nothing but trouble looming ahead for the folks from Redmond. Microsoft's only salvation may turn out to be the weaknesses of their opponents (more on this in another post).

Here are just a few of the MS activities that have gotten my attention:

1. Large scale discounting. Rarely are market leaders heavy discounters. Microsoft recently discounted the price of Works, certain Office versions, and of both the X-Box and their game software from I can see. Do you really think they will make up those profits with volume ... especially when they have already had to take a huge hit due to manufacturing flaws with the X-Box?

2. Zune. Why does the market want, or need, Zune? I personally think its branding is awful, and I've been in the technology branding business for years. Now another round of discounts for Zune as well?

3. Vista. I know several friends and business associates who have tried to buy a Dell, or other computer of their choice, only to find it only available with pre-loaded Vista. This was/is an old business model squeezed into a modern day bottle. It is not going to float. All of these changes you talk about create absolute market confusion, and market confusion leads to a lowering of profit margins ... We should all know that by now.

4. Online Advertising. What do the polls say about the average consumer's trust of Microsoft? Need I say more. Regardless of what Ballmer says he wants, major advertisers will not follow Microsoft blindly into the darkness. Advertisers react to performance, not simply hype or the FUD factor (that's Fear, Uncertainty, and Doubt ... one of the few things Microsoft did learn from IBM back in the 80's).

5. Consumer products and games. Sure Halo 3 is off to a good start, but do people really associate the Microsoft brand with consumer innovation, creative or ethical leadership, and market dynamics. I don't think so.

6. Office Suites. Most of the people I know are not shelling out any real bucks for the Microsoft Office Suite 2007. I think its sales will be too closely associated with Vista to break the bank. Let alone the new competitive offerings coming out from Apple, Adobe, IBM, Sun, and others ... and, oh yeah, Google.

7. Servers. I really think this is still a strong and profitable suite for Microsoft (FUD works on many of our IT departments these days, who use some of the same techniques when dealing with their own internal executives and management), but it also has a reverse affect to a certain extent. Server tachnologies are not exactly what I call end-user friendly. In fact, I have been in this industry for over 25 years and I have never taken the time to learn how these servers really work. Why? I find it boring. It certainly is not the same market who buys creative advertising, plays games, searches the Interent for relevant topics and world news, or listens to music. Who, exactly, is Microsoft's target market? I can't name any company that has ever become "all things to all people" when "things" change this quickly.

7. Below the "tip of the iceberg". I write about this topic frequently, Roger, so I want to tell you up front I have a bias. But I'm not wrong. I have studied this VERY closely for the past 8-9 months, and even had some discussions with senior level folks from Redmond on the subject. Microsoft supports flagrant, and willful, copyright infringements through its image serach and Windows editing facilities, as well as through AdCenter. The magnitude of the problem is almost unquantifiable. We are talking about hundreds of millions of infringements .. occurring on a routine basis ... and with full knowledge of Microsoft executives. Unfortunately, the exact same thing is happening at Google, so you won't see them testifying against Microsft up in D.C. on this issue.

Once disclosed, a time that is rapidly approaching us (did you see the recent "ethics" report on Google at nlpc.org?), these piracy issues will shake the confidence of Microsouls and Googlites everywhere. Average consumers, across all markets, will be concerned ... and negatively impacted. In fact, many of them may also become liable themselves due to their close association, and usage, of the software, content, service, and download tools provided to them by Microsoft and Google.

I could go on and on about this, but keep your ears and eyes wide open on this one. You saw Viacom fire the first significant shot, but there are many, many others waiting in the wings. Some even biger than Viacom.

Once computer users lose confidence in the leadership, business ethics, morals, hypocritical positions, and corporate scandals and greed supported by the executive teams at Microsoft and Google, who knows what might happen? I, for one, have my eyes wide open looking for the next shining stars.

Please let me know what you think. Thank you.

George P. Riddick, III
Chairman/CEO
Imageline, Inc.

[e-mail]...

2007 Oct 03 03:04 PM

[Tom B:]

"1. Large scale discounting.1. Large scale discounting." That's how they suppress LINUX. Threaten to use LINUX (or FREE OpenOffice); get a discount. Yea, their margins are getting frayed around the edges. And will continue to erode.

"5. Consumer products and games. Sure Halo 3 is off to a good start"
They hope Halo profits will help cover the 21 B AND COUNTING they've pi$$ed away on XBox.

"Most of the people I know are not shelling out any real bucks for the Microsoft Office Suite 2007" Issue 1: how up-to-date do you need your word processor to be? Issue 2: How much TIME and MONEY do you want to spend sorting out MS-XML related annoyances and incompatilities?

BTW: I've heard rumors (can't confirm-- maybe someone can?) that a big chunk of their "dragon hoard" is in sub-prime paper.

2007 Oct 03 04:32 PM

[Jonathan Scott:]

"1. Large scale discounting." I thought OPEN SOURCE invented discounting 'free software' to their glory.

"They hope Halo profits will help cover the 21 B AND COUNTING they've pi$$ed away on XBox." That was the idea all along, R&D eventually comes back in sales.

"How much TIME and MONEY do you want to spend sorting out MS-XML related annoyances and incompatilities?" XML is what
OPEN SOURCE said was their advantage over MSFT.

2007 Oct 03 05:32 PM

[Tom B:]

OK, I'm confused. It does not seem to me that you have refuted any of my points. The only tactic I see MSFT using against open source other than discounting is spreading lots of FUD about how they have all kinds of UNSPECIFIED patents and would sue people who use open source-- kind of a re-packaging of tht SCO nonsense from a few years back (which failed).

If you're long on MSFT as anything other than a value play, I think you should rebalance.

2007 Oct 03 11:14 PM

[atomic_t:]

While Apple is certainly more innovative and creative in its products and espeically its marketing, comparing OS X to Vista is a bit like comparing apples (no pun intended) to oranges. This is because Apple is a well known vertically integrated manufacturer of all its products, and has the ability to control all aspects of the end user consumer experience. Microsoft, on the other hand, relies mostly on it's partner strategy (Xbox and Zune being the exceptions), where it is somewhat at the mercy of the hundreds and thousands of hardware and software vendors that interoperate on the Microsoft platform (bad or missing drivers included). However, the benefits of the Microsoft strategy are evident - 95% market share vs 5% for Apple on the OS. If Apple really wanted to take on Microsoft on the desktop front, it would have to abandon its vertically integrated business model, but it is not feasible for them, nor are they prepared to do so. That is why Apple will continue to remain a niche play in the OS arena. Regarding Vista, did it have its share of problems? Of course - but there's no 180 degree turn now - Windows Vista is here to stay. We can only expect that it will continue to grow share as issues get resolved, and people get more confident in it after the early adopter phase has passed. Whether you like or hate Microsoft, you have to hand it to them for their drive to compete in the marketplace, win or lose. Look at who they compete with - Apple, Google, Yahoo, IBM, Oracle, SAP, Linux, Sony, Nintendo, VMWare etc... I don't think there is another company that tosses their hat into that many technology arenas.

2007 Oct 03 11:43 PM