I started the week posting why I thought MSFT wouldn't be trading in 10 years. It is a dinner wager started at last week's Open Source Business Conference. A few friends publicly chided me, and with good reason. It is a rather bold statement. This week's leaked memos from Ray Ozzie and Gates give me hope however that I may get dinner sooner. Let's look at the developing discussion.
Matt Asay tackled the US$60B war chest angle, and pointed out the survivability of IBM, HP, and Apple to counter my DEC example. Stephen O'Grady outed himself as one person on the other side of the dinner wager in his del.ico.us links for 9 November, but in the same collection includes pointers to the ZDNet story on the Ray Ozzie and Bill Gates "leaked" memos, as well as this excellent news item on the French tax agency (Direction Générale des Impôts) moving 80K desktops to OpenOffice on Windows to considerable cost savings.
I responded to Matt in comments on his post, but collect that response here:
I agree that a $60B cash reserve of shareholders money sure looks like a lot for a company with a market capitalization of $260B depending on the phase of the moon. Of course when the market starts correcting the stock price down, that $60B looks more like an asset than a war chest.
I would also point out that each of his examples survived for different reasons:
- IBM is a much older corporation that has transcended its original product brands and has rolled over multiple executive management teams, so as a corporate culture they can withstand new executives and they're not trying to tie all their new advances to the Selectric typewriter brand.
- HP is a collection of companies flying in a general direction under a brand, similar to a GE. It can rapidly "buy" and "sell" divisions to change the mix of offerings to customers. While this might prove a little hard on the employees in the divisions, it is a viable way for a corporation to survive.
- Apple has focused religiously on its customers and their brand from its inception. They focused on profitability over market share. They are laser sharp in their drive for design. Without the extreme pressures for growth, they had a chance of maintaining the cult of the customer and customer focused design within their culture.
Microsoft has much more in common with Digital Equipment Corp. than any of those three companies.
The two memos from Ray Ozzie and Bill Gates are actually timely demonstrations of why I think MSFT won't be a trading stock in a decade. Robert Cringely does the best job of tearing the memos down here. Most damning was the simple business observation that:
Remember that for Gates and Ballmer to be happy, Microsoft will have to maintain $2.5 billion per month in revenue and $1.5 billion per month in profit. That's FIVE TIMES the size of Google without Google's ad expertise or ad infrastructure. It simply won't happen.
Even Matt took umbrage with the Ray Ozzie memo's focus on advertising for the simple reason that we as customers are looking for ways to avoid advertising, not embrace more ways for it to become central to our existence to support their business. I'm a happy TiVo user because I can watch television the way I want to watch it.
I would point out a couple more things in the leaked memos:
- Once again Microsoft is focusing on the competition as an aggressive follower, rather than focusing on the customers to deliver new solutions to problems they want to buy. Hint: Focus on customers. That's where the money is.
- Ozzie paints this bright new world then says: "But in many areas we have 80% of the product and technical infrastructure already built – we just need to close the 20% gap." What's the message for the team here? If you work just a little harder we'll win? We might move the stock and be able to reward you the way we rewarded employees in the end of the 1990s?
- It's not about tightly integrated innovation. I don't want to be beholden to a single software vendor. I don't care if my TiVo doesn't run the same software base as my Linksys router. The successful companies are disintermediating the big companies.
The complete failure in Ozzie's memo to recognize open source as a development tool or community as a customer engagement mechanism is stunning at this point in the industry. So many of the things he wants to enable and compete against were precisely enabled through open source community developed software. He observes:
The ratios we have been unable to escape in decades of software development are how few lines of bug free code a good developer can deliver per day, how many bugs an excellent software process will still deliver (~1:1000 loc), and the cost of maintenance over the history of an application in deployment (~80%). Every new strategy around architecture and re-use (modules -> objects -> components -> web services) and every new programming paradigm (object oriented, little languages, dynamic languages and scripting) has been focused on beating these ratios by reducing the amount of code we write and maintain. Software (just like I talked about business execution the other day) is hard work. Collaborative development is proving to be the best way to develop high-quality re-usable components.
Jason Matusow gave an excellent talk on open source at Microsoft at the Open Source Business Conference last week. Clearly Jason "gets" it. And I know for a fact that there are others at Microsoft that also understand the business tool open source represents. I have certainly written about their trials and lost opportunities in this regard before. But the executives in these memos effectively just told the world that open source is not core to the mission. Their loss. But the company also just told all their employees that open source is not core to the mission. As I observed before, executive bandwidth is one of the rarest of resources at Microsoft. Getting executive sponsorship for projects that might save the company depends upon such bandwidth.
The nice thing about this dinner wager is that if I'm wrong and I lose, I won't have to pay for ten years. On the other hand if I'm right, I'll be able to collect a lot sooner if this is the way the company is going to execute.