How Microsoft Can Regain Tech Leadership. Step 4.....

Step 4: Win the Cloud Business War.

Sorry Microsoft, I am late in writing this. But what the heck its free advice, so a day late should not kill you.

So far, I have not talked about two de-investment areas and only one investment area. Here is another investment area. You need to win the Cloud Business War or at least a big part of it. So far the battle is pretty much all Salesforce.com. They are revenue and thought leaders with a great freaking CEO who pretty much founded the category. Amazon Web Services is rolling in their category and upstarts like Workday are also growing really fast. SAP, Oracle and IBM are buying cloud companies, but it is still a tiny part of their sprawling businesses.

Microsoft has some good assets here. After all, you run Bing and Hotmail/Outlook email services that are huge. Running massive data centres that crawl and house copies of the entire internet is really impressive. I think the scale and expertise you have here is second only to Google. You can capitalize on that knowledge and build massively scalable, multi-tenant business systems that will replace large scale on premise systems over the next ten years.

Microsoft has good enterprise DNA and can reach CIOs and LOB executives. Office 365 looks like it it generating  good revenue and is a good place to start and expand from. Windows Azure also looks like a decent competitor. Lots of work to do, but you can be a leader in this category. I would also get out your checkbook on cloud based business startups. Acquisitions make sense. The big guys are not really acquirable, but there are lots of companies that are not overpriced that can be used to round out your portfolio.

One note of caution, you need to dump the notion of porting on premise software to limited multi-tenant architectures. You need to build true cloud based systems in order to get the long term economies of scale that real cloud based systems offer. the cloud based system should be complemented with mobile applications for iOS and Android. Existing cloud vendors are moving too slowly in this area and if you move quickly, you can lead in cloud/mobile business systems.

It's a great business and it not too late, but you need to invest quickly and aggressively.

Stay tuned for Step 5.

Step 3 for Microsoft: Milk the Cow.

Step 3: Milk the Windows Cash Cow

I know this is simple advice. But unbelievably Microsoft seems to need tis. Windows is a cash cow. It has dominant share in a mature and potentially declining market. While many are calling Windows and PC dead, let us not forget that this product generated $19.2B in revenue ( 2% growth) and made $9.5B in profits for Microsoft. If it was a standlaone company it would be #140 of Fortune List of America's Companies, just above Time Warner Cable.

But Microsoft has made the most basic mistake with its cash cow. It spent a huge amount of money trying to reposition the cash cow for growth with Windows 8. And like all cash cows, the result was pretty much as any Harvard B school student would have predicted. The huge investment did not lead to more growth and in fact led to a $2B decline in profits. Its called a cash cow because you don’t need to invest in it. Let the cow out in the pasture and eat the free grass and then milk the cow. Low Costs, Low Growth, but really high profits.

The Windows 8 debacle could have been worse. The massive user interface change that was foisted on users to try and win the unwinnable tablet market, could have killed the cow. I mean, if you have to learn a whole new interface, then why not bite the learning curve bullet and get a MacBook Air.  But the Windows Cash Cow is too strong to be killed or damaged by the user interface, It survived Vista, so this Windows8 thing should be little more than a cracked hoof for this strong cow.

So step 3 is simple. Do less with Windows. Move the development teams to higher growth businesses. You can still release incremental, non jarring upgrades every 2- 3 years to goose the revenue a little. People still need to upgrade to get your support and security patches, so no worries people will adopt even if the next version is incremental.

PCs are not going away. There are about 1.5B of them connected to the internet now and all the projections are that this number grows at about GDP. People may upgrade hardware less, but they still need your software. Hire a cost cutter and economizer to run the unit and boost profits above the 2011 levels and get them up to $12-$13B per year.

Step 4 tomorrow.

How Microsoft can regain tech leadership - Step 2

Build a Huge Mobile Apps Business

In step one, I counseled Microsoft to get out to the Phone and tablet business. The operating system and device segment must be exited because there is no reasonable way Microsoft can win. But you can’t regain tech leadership by exiting businesses, only by building them. Thus Step 2 is:  Be the leader in Mobile Apps on iOS and Android. Start by taking the world’s alltime best selling application, Microsoft Office and make a great mobile version for iOS and Android. Make a tablet version and phone version. And do it fast. Don’t let all these half baked Office translator products eat into your space. Microsoft Office must be dominate on mobile, just like it is on the desktop. And don’t limit the functionality. Since you will no longer be in the Windows Phone operating system business, you don’t need to neuter Office functionality so that Office on Windows Phone is better. You can just make a  great mobile first app and people will pay for it. By the way, you need to nail the collaborative editing ting that Google Docs does so well. You need to stop Google Docs and this is the one killer feature that they have that you don't. After Office, you need to up your game with the Outlook App. Its OK now, but it can be alot better. Don’t let all these calendar and email apps eat into Outlook. You should win that category too. And How about Sharepoint for Mobile. Get that moving. Don’t loose this space to someone like Box.com.  And take Skype and Lync and make them world class mobile first apps. Don’t let Facetime or Google Hangouts win here.

Some more advice. I think Skydrive has to go. No one likes it. Its a distant 4th in the marketplace. I think acquisition makes the most sense here. Are you really going to wait around until Google makes Google Drive good and eat your lunch here? The market leader in file sharing is DropBox. Don’t let them slip through your fingers. It can beat iCloud and Google Drive, especially when you pair it with a great version of Office for mobile. It will cost you a pretty penny, but you have money. Spend it.

Once you have done all that, you can surround the “mobile office platform” with more mobile apps that you can acquire or build. Microsoft should own the whole Mobile productivity app suite on both iOS and Android. Its a big business that will grow as smartphones reach 80%+ penetration and tablets keep selling by the boatload.

Becoming a mobile apps company is not easy. You will need different skill sets and people, but Microsoft has  track record of building great apps for a 15 inch desktop screen, you just need to build great ones for the 4”, 7” and 10” touch world that will dominate for years to come.

So, lets recap:

Step 1: Get out of the Smartphone and Tablet business

Step 2: Build a big Mobile Apps Business

Step 3 will be available tomorrow.

Seven Steps for Microsoft to Regain Tech Leadership

Microsoft without Ballmer and Gates. This seems unthinkable. Its a new era, but Microsoft does not have to become irrelevant. There are seven steps they can take to still be a tech leader. I will give you the steps one day at a time. Feel free to forward them to the incoming CEO.

Step 1: Get Out of the Smartphone and Tablet business.

I mean completely out. Just shut it down.  The tablets, the operating system, the Nokia partnership. Shut it down. Don’t listen to all those people that tell you you have to be in this space because it is the fastest growing segment. I know it is, but Microsoft can’t win, so why invest in this segment. When I say it can’t win, I may be overreaching. Microsoft can win if an asteroid hits Mountainview or Cupertino. But thats about it. Don’t listen to all that crap that  the market is still early and that there is time to recover. The market is not early. Developed countries are at smartphone penetration rates of 50% and more. The market will slow down from here and the winners have been chosen. Developing countries still offer rapid growth, but these markets will require low prices and thin margins. Is that what you want to win, the low margin countries? Don’t worry, you can’t win there either.

Asteroid Strategy?

Not convinced. Do you want another reason to get out the business? Ok, here is the big one. Smartphones and tablets are dependent on developers building apps for them, and no developer want to see a third platform emerge in this space. Let me say that again. NO DEVELOPER WANTS TO SEE A THIRD PLATFORM EMERGE. It is bad enough that they need to develop on iOS and Android and do some modifications to make them fit the various screen sizes. The last thing the development community wants is another platform. So, try as you might, you will never get the cool and new apps on Windows Phone. Uber is a great example. Awesome App and service. Press a button on your iPhone or Android and a town car picks you up. If you have a Windows Phone, you have to use some unofficial app that doesn’t really work. Worse than that. Windows phones don’t get Google’s popular mobile apps. No Google Maps? Yikes. No Native Gmail. Consistent problems with the Youtube app. No Google Search.  Please tell me what idiot buys a phone or tablet that guarantees that they will be a second class citizen on apps.

Still not convinced. Ask yourself this. And be honest. Give me one good reason to buy a Windows phone or Surface tablet over market leaders iOS or Android. ------------------- I can’t think of one. I went to Windows Phone website and it appears you are hanging your hat of some pretty thin differentiation. The Nokia phone takes a slightly better picture...maybe...depending on the conditions. There are some active tile things that some people might like, but I have never had an Android or iPhone user complain about their interfaces. The differentiation is frighteningly thin.  The Surface campaign was a joke. The commercials were nice and all with all that dancing and keyboard snapping. They seemed to say: "It’s Tablet and a PC" because its got a keyboard. Do Microsoft people not realize that you can get a keyboard for an iPAD????

OK, there is one reason that you might buy a Windows Tablet. It can run a full version of Windows Office. But really that is it. And its not enough. Period.

iOS and Android have won this space. If a third platform develops it will be some kind of Android variant, like the Amazon one. It will not be Windows Phone, It will not be Blackberry. There will be Android and iOS and maybe an Android variant. And thats it!

So, I guess the Windows smartphone and tablet strategy is down to the “Asteroid hitting Mountianview or Cupertino” thing. If you have some forecasts that say that is likely, then you are golden. If not, get out. And Get Out Fast.

Stay tuned for Step 2 tomorrow.

Battling Ballmer

Google Apps could not decisively beats Steve Ballmer, but Andy Rubin and Android did.

I know a lot of people are bashing Ballmer right now and despite the fierce competition I waged with him, you won’t find me criticizing him this morning. Ballmer is a ultra competitive guy and I love competitors. And lets face it, his record is incredible. He Won. And he won a lot. Windows over OS2. Excel over Lotus. Word over Wordperfect. WindowsServer. SQLServer. Sharepoint. Exchange. And when he did not win he finished second: Internet Explorer, Microsoft Dynamics, Azure…..do I need to go on.

If he was a golfer, he would be Jack Nicklaus. Ok, maybe not as well liked as Jack, but he’d have Jack’s record.

I know how good he is because I helped start a business, Google Apps, that aimed at beating him.  He fought and fought and fought. He fought when he had no product. He fought when he had a bad product and he fought when he made a good product. And for those bashing him today, they never saw the work that he and his teams did.

So here is my unique perspective on Steve Ballmer- on my competition with him and more importantly on the one big battle he did not win.

On February 22, 2007, Dave Girouard, Matt Glotzbach and I helped launch Google Apps. Our goal was pretty big.  We prepared a plan to disrupt and replace Steve Ballmer’s office systems empire that included Exchange, Sharepoint and the crown jewel – Microsoft Office. We figured if we could pull it off, we could own the office systems space and Microsoft’s $20B division that was making $15B in profits would be seriously wounded.

Over the next 6 years, we battled Ballmer and team in hand to hand combat in the Office Systems Cloud War.  We were pitching low cost, collaborative  always up to date, secure cloud based office apps- Gmail, Calendar, Google Docs et all.  Ballmer was first scaring people away from the cloud. And then battled with us when he introduced cloud based BPOS  (I am not kidding you about this product name) and later Offcie365. I used to joke that I was battling Ballmer in accounts where he flew his private jet, while my Google Apps team and I team flew coach.

While the fight is still ongoing, the results are showing the battle was not the decisive one. We won some – City of LA, Department of Interior, Genentech-Roche, Seagate, Motorola and we did some damage in small business. But Ballmer and team won some big ones too – Hyatt, Lowes, TRW, JC Penny and of course General Motors. In the end Steve was able to defend a majority of his turf and while Google has built a big business here, it has mostly been at the expense of legacy systems like Lotus Notes. Google has not yet made a significant dent in Micrsoft Office systems cash juggernaut.

But while Steve was able to battle one Google unit to a draw, another business unit housed a couple of buildings down attacked in a different way and with much more damaging results.  Mobile genius Andy Rubin beat Steve and Microsoft at it own game and they didn’t just dent the Microsoft's business, they laid waste to the Windows monopoly and made Android the most popular operating system on the planet.

Ballmer as CEO presided over a $55B increase in revenues and yet the stock never moved. Why? Because the market knew that Microsoft was loosing the big battle in smartphones and tablets. Microsoft and Ballmer must have figured that they would run the same play against Apple in phones and tablets as it had in PC’s. Apple makes a great personal computer with integrated hardware and software, but MSFT builds an operating system that is used by a bunch of PC manufacturers who offer a broader and more diverse product line at a lower price. MSFT watches the hardware companies’ battle it out while it reaps in license revenue. Then it extends it operating systems into applications and beats Lotus123, Wordpefect and the others.

Without Andy Rubin and Android, I think the PC plan would have worked in smartphones and tablets. But Andy Rubin’s strategy and outstanding product execution kicked the crap out of Microsoft. Andy built a great operating system and he quickly and relentlessly improved it. Android not Microsoft signed up all the manufacturers to build phones and tablets to compete with Apple. And most importantly Andy had the strategic chops to sell his company to Google before the big war started. Why was that so important? Because when Android was part of Google, he did not have to charge for his operating system. He could be content with some modest revenue streams from the Android store. Android under Google did not have to generate revenue. Android simply had to secure that Google’s Search, YouTube et al would be front and center to the mobile industry. These applications are so profitable, Google can afford to run Android at a loss. Android lets people get to the Internet and Google makes gobs of money when people get to the internet.

Andy Rubins’s strategy, product and execution were damn near perfect.  Ballmer would not admit it, but it was checkmate before Windows Phone operating systems ever hit the market.  How was Steve going to beat Andy. Steve had to charge for his operating systems because Microsoft does not make any money when smartphones let people access the Internet. In fact Microsofts’s Bing and other Internet properties lose about $2B per year. And since Andy beat Steve to market by several years, the hardware manufacturers and mobile application developers were in Andy’s camp long before Windows Phone was ready. Steve doing a “Developers, Developers. Developers” pogo dance was not going to work in mobile.

Steve tried a long shot with Windows8. He took a PC based OS and tried to stretch it to tablets and do a product line extension to Windows phones. But it was too late and lets face it, it never really had a chance. A $900M write down is pretty freaking incredible isn’t it?

Think about what Steve Ballmer record is if Andy Rubin did not enter the picture. In my humble opinion, Google does not likely make Android the run away success that it is now. Apple would have remained dominant for longer, but Windows Phone likely becomes the #2 platform and then inherits the worldwide crown as Apple fails to win worldwide share at the high prices it charges.  Windows Phones and tablets gets a killer version of Microsoft Office that Apple does not have and they start winning tablet share. Don’t laugh, this likely would have happened if Andy Rubin had ben hit by a bus in 2007.

So Microsoft and Steve Ballmer have beaten a lot of people, but Andy Rubin and Android kicked their ass and now the technology leaders for the foreseeable future are Apple and Google and probably Salesforce.com

So as Steve steps down, he’s not cursing Apple or Oracle or Facebook. He is still upset about Google Search versus Bing and Google Apps. But he must really be cursing Andy Rubin. I would venture that the mention of his name should generate a chair toss or two.

From a personal perspective, I’d like to think that Google Apps has contributed to customers and to the office systems environment. We forced Microsoft to the cloud in this area, improved functionality and drastically lowered the cost of running office systems. But Google Apps was not the decisive Google/Microsoft battle that I had thought it would be. In fact Google Apps turned out to more of a diversion while Android stabbed Microsoft and Ballmer in the heart.

But what the hell, I will take that.

And maybe some time in the future, I will find a moment to blog or write about my Google Apps/Microsoft competition – I will be called: Battling Ballmer. Seems fitting.

Cars of the Future - Open Systems will make them Better and Safer

Everyone should really check out this GigaOM article about GM creating open systems within their future cars. It is really important because if GM or others can pull it off, our cars will be much better and safer in the future.

The automotive industry has done a great job with automation within the vehicle – collision avoidance, camera based parking, navigation systems, entertainment systems. But the cars computers are like early 1990’s PCs. They are powerful, but not connected to the internet.  As such the car only takes advantages of local computing power and data. It gets no benefits from the cloud. Another problem with this is that smartphones can’t be easily integrated into car and this has led to some pretty massive safety problems as drivers try to connect to cloud based systems. Its not just texting and driving. We check Twitter and Facebook and email or use Google Maps which generally provides better navigation than the $3000 standlone system in your luxury car.

GM’s bold plan can change all that.  If car manufacturers open up their telematics systems to developers, a wide range on cloud based apps could be connected through the driver's smartphone and be integrated into the car’s telematics and onboard infotainment systems. These apps can be disabled or voice enabled to ensure that driver distraction is minimized when the car is moving.

The car has to be the last sophisticated computing environment that does not connect to the Internet. This vision can change all that.

During my eight years at Google, I had the chance to do a lot of neat things and while everyone equates Google Enterprise with Google Apps, we also built a very good business licensing the Google Maps API to companies.  It was in that capacity that I found myself with Eric Schmidt at GM headquarters with their executive team. The conversation was wide ranging, but when it turned to in car systems, Eric’s advice was simple. Open up the telematics operating system to developers! My recollection was that the advice was not met with universal applause and I understand why. The traditional approach for the company, who makes the most vehicles in the world, would be to stay closed and try to do everything by themselves. Opening up takes courage and guts. If this article by GigaOM is correct, then GM is taking the right path. Open always beats closed.

If GM can get this right, I think they can produce better and safer cars.  I have only ever owned one GM car in my life, but if they pull this off, I will be buying more.