Microsoft has just lost the services of a man who, over the past couple of years, has done more than almost any other to transform the reputation of the software giant.
This was not Bill Gates, who is giving up his executive duties at Microsoft to focus on his philanthropic activities. The ultra-competitive Gates, now 50, is the company’s founder, chairman and, until last Thursday, its chief software architect. As such, he is the embodiment of “old” Microsoft.
No, the lowly employee who helped to repair the company’s image is Robert Scoble — also known as Scobleizer — one of the best-known bloggers in the internet’s “blogosphere”.
Scoble has helped to give the company a human face — eroding, if not erasing, the long-standing view that Microsoft is an arrogant monopolist, determined to crush competitors with the aid of limitless financial firepower. News of his departure immediately generated huge debate among technology experts.
Although he had no management responsibility, Scoble was given free rein in his blog postings to describe and comment on what Microsoft is trying to do — not always positively. His willingness to criticise Microsoft, and to praise the efforts of rivals, is widely regarded as having played a role in making the company appear a more transparent and less feared organisation.
The timing of Scoble’s departure to join a start-up called Pod Tech, and Gates’s decision to hand over his executive responsibilities in the next couple of years is no more than a coincidence. Gates said he is not retiring and hopes to remain chairman “for the rest of my life”.
However, Scoble’s prominence does highlight the changing nature of the software industry, and the challenges facing the company.
MICROSOFT’S command-and-control structure, with Gates at its apex, was designed for a time when software was a top-down business. Companies would spend months or years developing their products, working toward a grand launch supported by computer manufacturers, retailers and distributors.
Microsoft prospered partly thanks to Gates’s insistence on “backwards compatibility” — ensuring later versions of, say, Word worked with earlier versions. The convenience and trust that this created helped Microsoft to get on 90% of the world’s desktop computers.
The internet and the rapid adoption of fast broadband connections have changed the game. One consequence has been the growth of the blogging phenomenon, which has made the voice and complaints of consumers much more audible.
Broadband and the rise of search-advertising have also made it easier for small firms to put innovative new software in front of a global audience.Google, the search-engine firm, is the best-known and most profitable example, but there are many more. In less than two years, Mozilla’s Firefox grabbed 10% of the web-browser market dominated by Microsoft’s ageing Internet Explorer.
That was the same time it took Skype, a London firm, to attract more than 50m users and become the world’s leading internet-telephony business, bought by Ebay for an initial $2.6 billion last year.
Flickr, a photo-sharing site, had been going for even less time when it was acquired by Yahoo. MySpace, the social networking site bought by News Corporation last year for $580m (£313m), has taken only three years to become one of the most popular destinations on the internet, with 80m users.
While all this has been going on, Microsoft has been plugging away trying to complete the development of Windows Vista, the next version of the operating system that underpins its huge success. Vista, the world’s biggest software- engineering project, is already two years late, and its launch has slipped into 2007.
Microsoft’s past success and increasing size have become a hindrance, not a help. The need to ensure compatibility with the vast number of machines running Windows, and the multitude of past software products, has greatly extended the development timetables.
In contrast, Google and others are able to launch less polished versions of their new web-based products. Even if they are flawed, the software can be quickly and easily updated — as happened with the poorly received Google Video.
The clearest sign that Microsoft understood its predicament came last October in an important memo from Ray Ozzie, its newly arrived chief technical officer. He acknowledged that Microsoft had foreseen many of the opportunities seized by Google, Skype, Flickr and others, but had been too slow to capitalise on them. “Execution has often been uneven — in large part because of complexity,” he wrote.
“We must reflect upon what’s going on around us and reflect upon our strengths, weaknesses and industry leadership responsibilities, and respond. 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.”
Last week, Ozzie replaced Gates as chief software architect. It was a seminal moment for the company.
IT is important to keep a sense of perspective about the threats to Microsoft. Its defences are gold-plated and jewel-encrusted.
Since Steve Ballmer replaced Gates as chief executive in January 2000, annual sales have grown from $23 billion to about $50 billion. This year’s operating profit will be about $19 billion, up from $10.9 billion six years ago. Even after returning $87 billion to shareholders, the company still has a $35 billion pile of cash.
Ballmer has scored some notable successes, in particular, building a $10 billion server-software business and establishing Xbox as a serious challenger to the Sony Playstation.
However, increasing size, and the slowing expansion of Windows and Office, has caused sales growth to fall below 10%. This is a far cry from the explosive growth of the 1990s, when Microsoft was Wall Street’s wonder stock.
The shares have traded sideways for years, but have recently fallen heavily, driven down by worries about Ballmer’s plans for greater investment and the disappointing performance of MSN in a booming internet advertising market.
MSN, which competes with Google, is one of several weak spots. Apple’s iPod has completely trounced digital-music players that use Microsoft’s media software. Windows Mobile has made some progress with “smart phones”, but nothing that compares with the success of the Blackberry.
This has reinforced the impression that Microsoft, for all the talk of innovation, is struggling to compete in newer, more exciting markets. Meanwhile, Windows Vista lumbers forward, sucking up thousands of developers and tens of millions of dollars.
On a Microsoft blog, Philip Su, a Windows developer for five years, last week gave a fascinating insight into the scale of the problems. Su complained that Windows is hugely complicated, with 50m lines of code and 50 layers of interdependency that few engineers can comprehend. Decision-making is slow and confused because of the involvement of 2,000 developers and 11 layers of management, extending all the way up to Gates.
Worst of all, perhaps, is a reluctance to confront awkward facts. Su wrote: “Deep in the bowels of Windows (the business), there remains the whiff of a bygone culture of belittlement and aggression. Windows can be a scary place to tell the truth.
“When a vice-president in Windows asks you whether your team will ship on time, they might (as) well have asked you whether they look fat in their new Armani suit.
“It’s certainly true in some sense that they genuinely want to know. But in a very important other sense, there’s really only one answer you can give.”
There have even been suggestions that Gates, and his enormously revered status within the company, had become part of the problem — an unintentional bar on frank discussion.
According to Fortune magazine, Ballmer barred Gates from a key meeting of Microsoft’s 15 most important executives at which Ozzie laid out his analysis of the challenges.
Ballmer asked his friend and boss not to attend “because he was worried the founder’s presence might keep people from freely expressing doubts”. In always looking to Gates for leadership, senior managers had stopped thinking for themselves.
Without Gates, Ozzie, a distinguished programmer who was responsible for Lotus Notes, was able to lead a “cathartic exercise of venting about every negative thing” in the company’s recent technical and organisational strategy. It was this that created the foundations for Ozzie’s promotion.
Microsoft is keen to play down the significance of the change. Gates spoke of a transition, the continuation of a process that had been under way for several years. Alastair Baker, head of Microsoft’s UK business, said: “This will allow us to take advantage of what Bill has to offer going forward. The DNA won’t change. It’s not just about Bill.”
Yet it’s hard to believe that Microsoft is not about to undergo a fundamental change. With 60,000 employees, the problems of Vista suggest the company has become ossified, its business model out of step with the broadband age.
With Gates taking a back seat, it has freedom to change — making the move from ossified to Ozziefied.
Gates focuses on his £16bn charity
IT was Bob Geldof who, at last year’s Live 8 concert in Hyde Park, introduced Bill Gates as ‘the greatest philanthropist of our age’.
This view of Gates looks set to become increasingly familiar, as the world’s richest man spends more of his time on his health and education charity, the Bill and Melinda Gates Foundation.
Gates is already bracketed with Standard Oil’s John D Rockefeller, having given his foundation assets now worth almost $30 billion (£16 billion). With U2’s Bono, Gates and his wife Melinda were last year named as Time magazine’s ‘Persons of the Year’.
It must make a pleasant change from being the uber-geek, the popular impression of Gates since he founded Microsoft as a bespectacled 19-year-old.
The foundation is spending its money to reduce the spread of Aids, and to find vaccines for this and other infectious diseases, including malaria and tuberculosis.
It has also spent $1.2 billion to improve secondary-school education in America, including the creation of more than 1,500 schools. Another major focus is tackling the problems of the poor and disadvantaged in the Pacific northwest, the region that is home to Microsoft.
The foundation is overseen and managed by a staff of about 240. To help, Gates has recruited high-ranking executives such as Tachi Yamada, until recently head of research and development at Glaxo Smith Kline.
The foundation’s enormous wealth has even raised fears that it could distort research priorities.
