Preaching From the Ballmer Pulpit


By STEVE LOHR
NY Times, Published: January 28, 2007

There was a fabulous article on one of the most successful companies of our generation, Microsoft, in this past Sunday’s New York Times. It was an extensive interview of their CEO, Steve Ballmer. I excerpted the article to point out how a very successful company struggles when faced with a major market discontinuity. The important thing is that they have recognized it and are driving change.

“You’ve got to be very realistic about where you are, but very optimistic about where you can be…..

THE DISCONTINUITY IN THE MARKET

More homes and offices are getting wired with high-speed Internet connections, a market-altering shift that is buttressed by a stream of advances in data storage, computer-processing and software. This second generation of Internet technology animates advertising-supported Web services like search, and opens the door to the delivery of online alternatives to Microsoft’s popular desktop programs like e-mail, word processors and spreadsheets…..

THEIR INITIAL REACTION
Mr. Ballmer and other Microsoft executives often scorned online alternatives to its desktop software as second-class options with no market. Internet-based software, they say, lacks the features and functions of Microsoft’s “rich client” programs. Also, what happens when computer users are not connected to the Internet, say, on an airplane?
That’s wishful thinking on Microsoft’s part, according to the Internet insurgents from Google and elsewhere. They say Microsoft’s critiques attack older, browser-only programs instead of newer software services that place some applications on PCs while also linking the machines over the Web to supercomputing data centers. New features and services, they say, can flow to users every time they tap in, instead of waiting three years for the next version of Office………

THE CALL TO ARMS
An internal memo written 15 months ago by Ray Ozzie, who has taken over for Mr. Gates as Microsoft’s chief software architect, had a different tone. It was titled “The Internet Services Disruption,” and it was a call to action. “It’s clear that if we fail to do so, our business as we know it is at risk. We must respond quickly and decisively.”

THE DILEMMA AND THE CHALLENGES IT BRINGS -- A HUGE PROBLEM FOR MOST OF US
“The dilemma for Microsoft is that it is a prisoner of its business model, and the fact that it is a gilt-lined prison makes it brutally hard to change.”
One of the evolutionary laws of business is that success breeds failure; the tactics and habits of earlier triumphs so often leave companies — even the biggest, most profitable and most admired companies — unable to adapt……..

BALLMER’S’ PERSONAL STRUGGLE
“One of the biggest mistakes I’ve made over time,” he acknowledges, “is not wanting to nurture innovations where I either didn’t get the business model or we didn’t have it.” ……
Pushing Microsoft outside its traditional comfort zone, Mr. Ballmer acknowledges, has not always been his first instinct

THE BEGINNING OF THE CHANGE
At one point, he says, “All software will become software with a service.” Mr. Ballmer emphasizes the word “with.” The clear message is that Microsoft is embracing the move toward software written by using open Web standards and delivered over the Internet, but that these software services will be added to Microsoft products instead of replacing them. We will move to the new world, he suggests, but will not cannibalize our flagship products.

THE IMPORTANCE OF RUNNING EXPERIMENTS
One subject the two have discussed repeatedly is the necessity for big companies to constantly keep evolving and trying new things, some of which will succeed and some of which will fail.

UNDERSTANDING HOW TO MANAGE ACROSS THE THREE HORIZONS IS CRITICAL (OPTIONS (HORIZON 3) , LAUNCHES (HORIZON 2), AND EXTENSIONS HORIZON 1)
“Focus is an essential thing, but you sort of want to focus short-term and be expansive long-term,” he explains. “If you really want to be a technology company that’s relevant and important and driving value for the long run, you’ve got to have big eyes.”


CHANGING THE BUSINESS MODEL AND IT IS HARD
A handful of executives attended, including Mr. Gates, Mr. Ballmer and Mr. Bach, who now leads the Xbox and Zune units....
“The real discussion came down to some very hard choices about Microsoft deciding to do something that was really not our normal model,” Mr. Bach recalls. A video game console is tailored for playing games, unlike a personal computer, which is a general-purpose system. The Xbox would run its own software. “It’s not Windows,” Mr. Bach says, “and we don’t pretend it’s Windows” — a notion that was heretical inside Microsoft when Xbox was first concocted…….
Still, despite investing billions, Microsoft has yet to show any profit from its video game venture. “Look, the jury is still out,” Mr. Ballmer acknowledges. “But I feel very confident that we’ve built a good market position with Xbox. I feel very confident that we’re on track to make money.”


THEIR CRITICAL QUESTION
Where will it find new growth as the Windows and Office businesses continue to mature? Can Microsoft navigate its way to a future that is as bright as its past?