There was once a time when Microsoft represented a vast and impregnable domain of users, software and services. To grow their impressive empire, Microsoft relied on their tremendous financial reserves to buy every competitor that excelled in the markets in which Microsoft played or wished to enter. But the Microsoft (NASDAQGS: MSFT) of today looks haggard by comparison, as years of sliding stocks have brought their share price from a dot com-era high of $56 USD to less than $30 USD. Microsoft’s yearly net revenue growth has also slipped from 29% to 18%, with an interim low of 8% in 2005. But more troubling than the loss of money is Microsoft’s loss of market authority. Microsoft CEO Steve Ballmer’s recent announcement of a cloud computing operating system is the ultimate sign of acquiescence, and a sign that the once-mighty Microsoft no longer sets the standard.
It was not long ago that Microsoft hard-lined on the value of the desktop application. Having built an empire with properties like Office and Windows, it would come as no surprise that Microsoft has been loathe to stray far from the pasture. Redmond’s masterful business model — at times an object of legal scrutiny — hinges high prices to software users cannot seem to do without. While contemporary stumbles with Windows Vista have impacted their bottom line, it’s a model that continues to turn a respectable profit.
But it is clear that the computing model is changing to move services onto the internet, enabling broad access from a variety of devices. So-called “cloud computing” is a nebulously-defined initiative that is best described as a method to allow users access to their favorite services and data from anywhere. While decentralized computing has been spoken of for many years, the saturation of broadband, the prevalence of standards-compliant browsers, and explosive growth in the robustness of interactive web languages like Java have set the scene.
Ballmer’s keynote speech at an October 2 conference in London pledged Microsoft’s continued dedication to the fledgling cloud. “We are embracing Software + Services, Cloud Computing as hard as anybody,” he said. He went on to say that Microsoft is prepared to offer more cloud services than anyone else. “By the time we finish our Professional Developers Conference this month, I think you’ll have to say that there is nobody out there with as wide a range of Cloud Computing services as Microsoft, including, dare I say it, Google,” he said.
Though Microsoft was speaking of the Cloud in early 2005, recent releases like Windows 2008 continue to demonstrate Microsoft’s love-affair with the centralized platform. Services like active directory, message queuing, and clustering have kept the focus on the desktop and the data center. Office, too, is destined to remain on the desktop. At a Business Intelligence conference in May, Ballmer rejected the idea of moving Microsoft Office into the cloud. The clamor to rewrite Office to leverage AJAX remains “the misshapen thoughts of some pundits,” he said. Ballmer also failed to elaborate on how Office might integrate with a new software+services model that relies on the cloud.
Even as Microsoft talks up the value of the cloud, it has been reported as recently as June of this year that senior Microsoft execs hope that the cloud is a fad. Microsoft’s continued subscription to the old business model with future versions of Windows and Office is tacit proof that Microsoft scorns the cloud and belies their commitment to it.
Meanwhile, Google’s meteoric rise to stardom has leveraged the power of free products in complementary markets to grow their core business of search and advertising. More importantly, Google has never offered a traditional product that occupies shelf space with Microsoft’s way of doing business. Operating entirely in the cloud, services like Adsense, Analytics, Docs, Gmail, Maps and the business-oriented Partner Pages have been outstandingly successful. Google has harnessed the cloud to produce a stock (NASDAQGS: GOOG) that trades for more than ten times the value of Microsoft’s. There’s no denying that Microsoft hungers to command that value on a revenue stream that is already six times greater than Google’s as of this year.
Given Google’s tremendous growth and Microsoft’s contradictory postures, the impending release of the tentatively-titled Windows Cloud is not a Microsoft demonstrating clear leadership. It is a Microsoft attempting to stave off increasing obsolescence as the market looks to Google to provide direction in the way they once did with Microsoft.
In the quest to unlock or enhance profitable new revenue streams, Microsoft plays second fiddle to Google on many fronts. Microsoft is second in search, second in advertisement, and — if reports can be believed about Google’s ploy with Chrome — completely missed the bus with web software on the desktop. So far behind on these key initiatives in new business, the revelation of Windows Cloud shows a conflicted product that Microsoft hopes will allow them to leapfrog Google in a market Google has cornered all by itself.
Microsoft’s insistence on anchoring its cloud initiatives to the tired model of an OS that occupies local disk space completely misses the point. Google succeeds because its services are accessible on any platform capable of launching a browser: Windows Mobile, Android, Blackberry, home PCs, office PCs, laptops, and MIDs can all access Google’s products.
Of even greater concern is Microsoft’s definition of what cloud applications actually are, which is to say that they do not have one. Regarding a question about Google Apps, Ballmer dismissed the applications as unpopular. “Well, those are not very popular products! I hope that we are not competing head on with those,” he said. Even as Ballmer speaks ill of Google Apps, Microsoft’s own Office Live web application employs rich web languages to enable the creation, management and sharing of documents. If Office Live sounds eerily familiar, that’s because Google Docs has already been doing just that for quite some time.
If imitation is the sincerest form of flattery, I’m certain that Google will forgive Microsoft’s mean words as the antics of a bully unable to express itself. Windows Live, Windows Cloud, Office Live, revamps to Hotmail, and the new appearance of Live Search should leave Google smitten with its arch rival in short order.
It is clear that Microsoft is struggling to compete in a market they couldn’t simply buy into. While the cloud is a noble goal currently thriving more on buzz than substantiation, Google has made and continues to make a successful and popular go of it.
Steve Ballmer, in quoting the book “The Innovator’s Dilemma,” said it best: “You can’t as a company that’s established miss the next major revolution.” Unfortunately for Microsoft, it’s a revolution they didn’t start, don’t appear to understand, and can only grasp with abject mimicry.
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