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Microsoft's measure: Bill Gates has reasons to celebrate -- his iconic company just turned 30, and its dominating software, Windows, turns 20. But with Google and Sony on the march, the tech goliath knows that it's vulnerable
Vernon, CT – There was just a lingering moment of wistfulness for Bill Gates over his Microsoft empire.
"It is certainly a dream come true in that we set a computer on every desk in every home and have the level of sales and profitability and employees we have today," Gates told journalists earlier this month.
But he avoided dwelling on the past -- looking backward will neither bolster the fortunes of his enterprise, nor hold it steady in the facing of seemingly unrelenting competition.
The company that enriched him by the billions is 30 years old now. Its flagship product, the Windows operating system, is verging on 20 years. But at perhaps no other time in its history has Microsoft faced greater threats to its dominance than now.
As invincible as Gates' goliath has appeared to be over these passing decades, its vulnerabilities are beginning to show. And Gates, its chairman and chief software architect, knows well that the mighty have fallen before.
Key to its strength and survival is recruiting -- and keeping -- top talent. Smarting from defections to search king Google and with Microsoft slipping in its status among the newest and brightest as the most coveted place to work, Gates hit university campuses earlier this month to whip up potential recruits. He even stumped at the University of Waterloo, a top Canadian hunting ground for young talent.
His speeches were aimed at rallying the troops, assuring them that the world of computer science not only needs them to push on with the technological revolution but that the work they will do will be fun too.
But after, reporters were keen to delve more deeply into what it might be like for Gates to be staring down some serious competition. In the good ol' days of decades gone by, he towered from above, either squishing the life out of a rival or buying it up. Given the quagmire he's seen in anti-trust actions and the seemingly unstoppable innovations in Google, such tactics just don't seem possible. He might just have to stay and fight.
And so in one of those post-rally interviews, Gates smartly assumes nothing, carries no arrogance and takes nothing for granted in the battles ahead.
"You wake up each day and say, wow, Google's doing a good job on this and Sony's doing a good job on that," he told reporters after dropping in at the University of Michigan in Ann Arbor. "You want to be forward-looking and always basically fearful. You better prove yourself every time."
And so Gates -- the world's wealthiest man, thanks to unparalleled success with software -- is out to prove himself again.
Open-Source Challenge
In Seattle, not far from the home campus of Gates' empire in Redmond, University of Washington professor Suresh Kotha sits in his office and acknowledges the pervasiveness of Microsoft in everyday life.
His computer runs on Windows, his e-mail is handled by Outlook, his documents are written in Word, his lectures presented on PowerPoint. If he needs to listen to an audio file or watch video, Windows Media Player serves it up. If he wants to check his e-mail away from the office, he fires up Internet Explorer to log in to his account.
Were Kotha a teenager, chances are good that Microsoft's Xbox gaming system would be a magnificent time-waster.
Every aspect of Kotha's working life is touched by Microsoft, as are the lives of countless others. But after 30 years of dominance, Kotha said, the company has significant, and profound, challenges looming ahead.
Although Microsoft is being forced to evolve beyond its old reliables, it is still heavily dependent on Windows and its Office suite. The two together account for the lion's share of Microsoft's $40-billion U.S. in annual revenue.
The growth for those products lies in India, China and Brazil, where there are billions of potential customers who just now are latching on to computers or will be in the near future, Kotha said. But it remains an open question whether the people in those countries will turn to Microsoft to run them.
"India and other places are now re-thinking whether they want to use Windows operating system as a standard. In China, of course, there are a lot of state-owned offices running computers. And the question is do they want to spend that kind of money to transfer wealth to another country, or do they want to use their own indigenously-developed system or use an open-source system?" said Kotha, a professor of management and organization at the university's business school.
"This is the kind of issue some of these countries are facing. And that's a big challenge for Microsoft -- how do you get them to adopt? Because most of the users haven't come online yet and the future is going to be in these countries. How do you become the dominant player for the next 30 years?"
For now, Microsoft is hanging back from prosecuting people for piracy in these developing markets hoping that its products catch on and they lock in users, Kotha said. But even then it remains to be seen whether the strategy will pay off, especially with open source alternatives available for free.
"They can't afford to hand over $80 for an operating system and then pay $400 for Office. The economics just don't work out," Kotha said. "So open source is a big challenge for Microsoft -- and they know it."
Peeking at Vista
In Canada, Microsoft today is celebrating the 20th anniversary of Windows -- Windows 1.01 was released in November 1985 -- by offering a sneak peek at Vista, the next generation of its operating system. The company is hosting a showcasing event at an art gallery in Toronto's distillery district where company representatives will be demonstrating the long-overdue revamp once code-named Longhorn.
David Hemler, president of Microsoft Canada, will gloss on about the next generation of computing and partners in high-tech will talk up what they anticipate with Vista.
While Vista is not slated for public release until late next year, beta versions are floating around. Reviewers who have latched on to it express letdown and frustration.
"After a few days' use of Vista, it's hard not to feel disappointed. Dolled up though it is, Vista still resembles good old Windows XP, only with a lot more bugs," intoned the Boston Globe. "Of course, Vista is still beta code -- early beta, at that. It's still a year away from going to market. Glitches are to be expected at this stage. But one might have hoped for a little more innovation, as well."
But Eliot Katz, Microsoft Canada's senior product manager for the Windows product group, said the reviews are based on a version that should not have been circulated outside the company. He promised Vista will make our PCs more reliable, more secure and easier to use with other devices and in networks.
"We are extremely confident it will do well in the marketplace," said Katz, who predicted people will increasingly depend on Microsoft to run the surge of devices that are washing into our lives.
"Moving forward, we feel across Canada people are going to rely more on Windows to manage their increasingly digital life. And the changes we are going to see in the next decade of computing are going to be really much greater than the changes we have seen in the past 20 years combined."
On the Gaming Front
The Xbox -- especially the new Xbox 360 model, due out Nov. 22 -- is part of the company strategy to ingratiate more of its products into our lives.
While churning out game consoles is a money loser, Microsoft aims to hook the crucial teenage market with the wide-screen, high-def, surround-sound 360 -- then pull in dad and mom too.
Family-friendly videogames and a vivid playing experience are just part of the Microsoft plan to capture more of the billions being spent every year. It is the many faces of the 360 that Gates hopes will register: the 360 is also a DVD player, it will take a feed from an MP3 player, it will rip CDs, display digital photographs and connect to PCs loaded with Windows Media Center. The 360 will be the first of the latest generation of consoles on the market heading into the all-important Christmas season, a vital coup for Microsoft. Since debuting the Xbox in 2001, it has been playing little else but catch-up.
Microsoft has been the runner-up in race for gaming domination, far behind Sony's PlayStation. While Sony has sold about 30 million of its PlayStation 2s in North America, Xbox has sold less than half that -- approximately 13 million, figures from the NPD Group reseach firm show. Nintendo's GameCube has sold about 10 million.
Gates has been talking up how he expects the 360 to catapult Microsoft into the No. 1 position. But for him, it is not really the gaming that concerns him -- it's landing his brand, once again, in the home and making it an indispensable part of family life.
Made for the Masses
Despite the company's indelible mark on the world of technology -- can we imagine where the world would be without the Microsoft engine firing up the personal computer revolution? -- some argue that the success Gates has enjoyed has more to do with luck and deep cash reserves than vision.
"His career delivers this message: It can be wiser to follow than to lead. Let the innovators hit the beaches and take the losses; if you hold back and follow, you can clean up in peace and quiet," Yale University computer scientist David Gelernter argued once in an incisive essay on the man for Time magazine.
"Gates is the Bing Crosby of American technology, borrowing a tune here and a tune there and turning them all into great boffo hits -- by dint of heroic feats of repackaging and sheer Herculean blandness."
As Gelernter and others have noted, the ideas that have made Gates rich were pioneered by others -- his genius was in catapulting them on to the masses. Three decades ago after he dropped out of Harvard to launch Microsoft, his first offering was the Altair personal computer, available by kit through Popular Electronics, paired with a form of the BASIC language that Gates and schoolmate Paul Allen adapted to run on the machine.
Five years later, when IBM was looking for an operating system for its new personal computing line, it turned to Microsoft. Gates offered up a retooled version of QDOS that he bought from a firm in Seattle.
Then when Apple started making serious inroads with its user-friendly Macintosh, Gates and Co. tinkered again, offering Windows 1.01 on Nov. 20, 1985.
And so it goes: when the web emerged big-time in 1994, Netscape offered a browser that let people troll through cyberspace. Microsoft jumped in after that with a browsing package it bought from Spyglass.
"As for Gates himself," Gelernter wrote, "he is no visionary; he is a technology groupie with a genius for showing up, for being at the right place at the right time."
Google's Inroads
His timing was off -- way off -- when it came to web search. In what Gates now freely admits was a mistake, Microsoft outsourced its online search functions. It also regarded search as a money loser and, in the process, lost plenty of ground to Google. With its clean and colourful page and total devotion to search, Google gained legions of users and then started to crank out the extras -- searches for newsgroups, images, the search toolbar, its news troller, mapping functions and plenty more. Microsoft is still scrambling to catch up.
It has been something of a rude awakening for the firm.
"Here Microsoft was spending $600 million a year in R&D for MSN, $1 billion a year for Office, and $1 billion a year for Windows," one unnamed Microsoft executive told Fortune magazine for a cover story last May. "And Google gets desktop search out before us? It was a real wake-up call. It was the first time many people in the corporation understood that Google was more than just a search engine."
Since Google is a free service supported by the advertising it sells, the magazine noted, Microsoft finds itself in a position where it can't just shove Google out of the way as it did Netscape and other competitors.
"But what really bothers Gates," observed Fortune, "is that Google is gaining the ability to attack the very core of Microsoft's franchise -- control over what users do first when they turn on their computers."
Adds Danny Sullivan, internet consultant and founder of Search Engine Watch: "Google is a very strong player and Microsoft is doing a lot of catch up in all of this. I don't expect Google is going to suddenly roll over. This isn't just a replay of Microsoft versus Netscape where they can give away a browser for free by integrating it into the operating system. Microsoft has for years been pointing people to its own search engine and, despite that, people go to Google."
The battle, it seems, is just heating up.
Google this month announced a partnership with Sun Microsystems that will see the search engine distribute Sun's free OpenOffice software, opening a new distribution channel and a new volley at Microsoft Office. Meanwhile, Microsoft and RealNetworks have reached a deal that not only will improve MSN's search for music files but wards off the anti-trust action RealNetworks had launched over Windows Media Player and shores up Microsoft in its rivalry with Apple.
A Web-Based Future
There is a surge of excitement and anticipation over web-centricity with the Sun-Google partnership. While precious few details were offered when the deal was announced earlier this month, it is widely anticipated that the two companies are aiming to make operating systems virtually irrelevant by hanging software off the internet instead. Google, which continues to insist it is in the search business, is always developing handy new software tools while at the same time continuing to amass fibre for its network. And Sun, of course, has OpenOffice -- the freebie rival to Microsoft Office which has been downloaded some 49 million times in the last five years. The speculation is that the two firms are ganging up to provide a web-based way of running applications and providing services so you no longer have to rely on Microsoft software.
Microsoft saw this concept coming years ago, developing its Passport platform to lay the groundwork for web services. Initially rolled out as a way of identifying users logging on to its Hotmail and MSN chat service, the idea behind Passport was to allow user information to be carried across a wide array of services on the web without having to log in each time.
Microsoft's enthusiasm for Passport is waning, though. The system evoked stern criticism from privacy advocates and even fell under the scrutiny of the Securities Exchange Commission in the United States, which three years ago determined that Microsoft made deceptive claims about Passport and misrepresented its security and privacy features. Microsoft made changes to the service and updated terms of use to restrict what it was allowed to do with the information collected. The authentication scheme never seemed to take hold, though, with online retailers or others. Today Microsoft is using it only with its sites.
Interestingly, Microsoft and Sun forged a 10-year partnership last year to develop together ways to manage online identification, security and storage for users. What will result from this partnership now is unclear, especially under the new reality of Sun's alliance with Google.
Microsoft also created the .NET framework, software released three years ago that allows developers to build tools for web services. But even in that arena, it faces solid competition in Sun's Java. Sun CEO Scott McNealy has bragged that the partnership with Google is meant to drive technologies for Web 2.0 -- the tag name for the web-services revolution. Exactly how or with what remains to be seen, but Google CEO Eric Schmidt hinted at a fruitful alliance ahead.
"Google and Java are two of the most widely recognized technology brands because they provide users with online tools that enhance their lives on a day to day basis," he told reporters at the announcement for the partnership. "We look forward to exploring other areas of collaboration."
There is plenty of other interest out there in growing the web services way of computing -- AOL and eBay and Yahoo! are all expected to make big forays into the frontier.
There is talk, too, of Google or Microsoft forging a partnership with AOL and, of course, there is the high-profile lawsuit Microsoft launched over the defection of executive Kai-Fu Lee to Google. Documents filed in that case reveal just how furious Microsoft is getting with the dominant search engine.
Mark Lucovsky, another former Microsoft executive, swears in an affidavit that he had a tempestuous meeting with Microsoft chief executive Steve Ballmer as he left last year.
According to the document, Ballmer threw a chair clear across his office when Lucovsky revealed he was off to Google and declared: "I have done it before, and I will do it again. I'm going to (expletive) kill Google."
Observers expect the war to move from the desktop -- the domain where Microsoft has long reigned as king -- to the web and that the computer will feed off services available online rather than run off software.
"Computers are now accessories hanging off the Internet. I think the Internet is still in its infancy. And the companies that are more focused and web-centric -- that is where the innovation is going to come out of," says Jeffrey Cohen, a frequent critic of Microsoft and the president of ImageWorks, a web design outfit in Connecticut.
And whether Microsoft can succeed in that kind of arena depends on what business models it can come up with and how it goes about implementing them, Cohen said.
"If it is truly innovative product, people are quick to respond. And because of the Internet, everybody knows about it in a matter of days," he said. "But Microsoft has a history of not being first to market and actually sluggish. I know Bill Gates has been criticized many times for that. He has even been quoted at the beginning of the Internet as not being very interested and then realizing, oh, we're missing something -- coming late to market and then blanketing everything with the Microsoft product and taking control of it."
At the University of Waterloo, Bill Gates pumped up students about the decade ahead, heralding it as "the golden age of software" and promise that software is "where the action is."
He predicted that there will be more breakthroughs in the next 10 years than there have been in the last 30.
Gordon Cormack, a computer science professor in the audience, went away thinking how good Gates is at projecting that he is both an ordinary guy and a man with some vision of the future.
But did Gates win over many converts to the cause? Cormack isn't sure.
"I think that remains to be seen," Cormack said. "I think it is too early to tell whether he actually changed any minds or acquired any disciples."
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