Sunday, May 07, 2006

Gates & Microsoft In the News Again

It was a big week for Microsoft. Well, a big ten days, if you count the 11% selloff of two Fridays ago, when Microsoft reported larger than expected expenses, sending the stock's price plunging.

But this week saw two different, but, to my mind, reinforcing glimpses of a Microsoft grown overly-large and in trouble.

The first was a Wall Street Journal piece on Thursday, detailing the company's development of its "adCenter" service. This is Microsoft's response to Google's AdSense program. The WSJ piece contained this quote from Microsoft's Senior Director Joe Doran, 'Microsoft's efforts in online advertising are equivalent to building a whole new company.' This passages was paraphrased in the WSJ, and the italics are mine. Doran was further quoted, "I feel confident we are making the right investment decisions." This is, by the way, part of the $2B investment which the article notes Microsoft will spend on development next year. The so called "far more than expected," according to analysts, which sent the stock plummeting two Friday's ago.

As I wrote last fall in a post about Gates and Steve Jobs, and their respective business efforts, I believe this entire approach by Gates and Microsoft will fail to reignite the firm's total return performance. The reason is the same as I articulated in the prior post, even considering that now the subject is a clone of Google's AdSense.

My friend S, the consultant to whom I referred in my recent Intel posts, and I discussed this point. She expressed disbelief that anything could really be different if Microsoft spent the same money on a separately-organized and funded effort that was physically and organizationally removed from the parent. I remain convinced it would.

How many of us have not worked in very large corporations, and watched how cultural forces mangle, compromise and choke the life out of new initiatives?

Microsoft is primarily a desktop software company. That is where it has made the bulk of its money, and produced the bulk of its deliverables. Trying to suddenly graft "online" onto it is a mistake.

As an example of this, my partner regaled me yesterday with his tale of attempting to install the new MS Internet Explorer browser version on his computer. It wasn't pretty. Firefox installed in a few minutes, flawlessly. He told me IE took 40 minutes, with multiple reboots every time the program failed to mesh with its own firm's registry software. Can it get much more pathetic than that? Microsoft controls both the OS and the browser, to the consternation of the regulatory authorities, and still can't get them to work together seamlessly.

This type of legacy penalty is part of the reason why I see Microsoft falling way short of its objectives of stopping Google's domination of the online advertising business. The other, of course, is simply the stifling culture of a behemoth now grown large and less nimble.

Complementing this story is what I saw in the brief clips of Bill Gates being interviewed by Donnie Deutsch on Friday. Suffice to say, Bill doesn't inspire much fear or confidence in Microsoft's new objective of taking on Google. When asked what he'd tell the Google execs, were they in the audience, Bill replied, smiling nervously, "we're going to keep them honest."

Wow, talk about killer goals. He's going to 'keep 'em honest.' I'll bet Serge is quaking in his boots after that warning!

Bill went on to babble about "having fun," how all the researchers in the Microsoft labs are "having fun" working on online and advertising services. That Bill and the whole firm are still "having fun." Nary a single word about profit, growth, or total returns.

Not being a Microsoft shareholder, this doesn't really bother me. But if I were, "having fun" would not be the main objective I'd be wanting to hear from Chairman Bill. I think his billions have finally dulled his instincts for profitable competition. Now, it looks like he's just using public funding to boost his ego and settle competitive business grudges.

No comments: