After watching these Sopranos episodes, I couldn’t help but think of mighty Microsoft and its once impenetrable role as leader the world’s personal computing ecosystem. At the heart of Microsoft’s strength has always been Windows and its ubiquitous operating system which supports its own cash cow software, MSOffice and countless other programs written for Windows. Microsoft’s ecosystem is vast and has thousands of members from giants like Intel and Dell to thousands of small developers who earn their living work on or supporting Windows software.
Like Tony Soprano in episode two, Microsoft Windows would seem to be in a bit of a coma these days, and I believe we could soon see signs of its ecosystem unraveling. A few weeks ago Microsoft announced that its long awaited new version of Windows, dubbed Vista, would again be delayed until late 2006. It also said that it would restructure its Platforms & Services Division – the group responsible for Windows Vista- and place Steven Sinofsky head of Windows Live a top the group. Windows Live, currently in beta, is Microsoft’s scramble to preserve its desktop software monopoly by moving its platform in a hurry to a Web-based model.
This successful Web-based approach is being marshaled by Microsoft’s new nemesis Google which offers a host of smart Web server based software packages, from its Gmail email client, with over two gigabytes of free storage, and Google Maps, to a newly acquired Web-based word processing program called Writely. However Google is merely the biggest and most visible proponent of a revolution going on in software that is upsetting Microsoft’s ecosystem. The open source community, consisting of thousands of enterprising developers collaborating to produce new and more useful software represents the biggest long-term threat to Redmond’s power and monopoly profits.
Open source programs like alternative browser Firefox have beaten Explorer in a number of user tests including its ability to keep out viruses and spy ware. And because Firefox works so well and is freely downloaded, it hs ripped into MSFTs browser stronghold. In 2004 Microsoft’s Internet Explorer controlled an estimated 85% of the browser market, today its share has been cut to about 65%. Open source FireFox now accounts for 25%.
I suspect that many of the same developers who are now embracing and in part responsible for the open source software revolution are also card-carrying members of Microsoft’s ecosystem. Like foot soldiers and capos of the Sopranos, it is these developers that give Microsoft its power. Given the turmoil, bureaucracy and delays at Microsoft, you can bet there is unrest is growing among Microsoft’s foot soldiers. Check the most recent issue of Indutstry Week, a magazine directed at IT professionals. It’s cover is on “Champion’s of Open Source,” and it is filled with anectdotes of IT departments abandoning Microsoft software and other proprietary platforms.
I believe that Microsoft is in a real crisis now, just like the Soprano family was with Tony out of commission. Of course in these types of families, its all about money and here again there is some solid proof that the current scene is more than just a blip in MSFT’s technology dominance. One need only look at the relative stock performances of the biggest members of the Wintel cartel. Since the bull market began again in October of 2002 the share prices of Dell, Intel and Microsoft all have underperformed the S&P 500 by a wide margin. While the S&P 500 has gained 70%, MSFT and Intel are up 42% and Dell has gained only 20%.
And it is not just software where Microsoft is having “issues.” When it comes to digital entertainment and hand held productivity products MSFT’s is also under pressure. When it comes to music, Apples iTunes and iPod are the leaders. And while Windows CE still dominates PDA operating systems the over PDA market is losing share rapidly to cell phones with PDA features. Most mobile phones do not use Windows operating systems.
Then there is video-gaming, another important market for Redmond and anyone else interested in dominating our digital future. We all saw what happened during Xbox360’s launch last Christmas. Microsoft botched it. There were hardware shortages that left retailers and gamers disappointed and considerable profits on the table. Moreover, according to the video gaming trade magazines I read, Xbox360 has been a big disappointment in the bell weather Japanese market. Why? Because other than offering speed and beautiful high def graphics, there is nothing innovative about the gameplay and the variety of software (games) are still in short supply. This Chrismas Sony’s Playstation 3 will rain down on MSFT’s Xbox and Nintendo will also introduce a new innovative console.
Luckily for MSFT shareholders, Google’s sudden rise to fame and prosperity and Apple’s explosive resurgence are causing defibrillatory shocks to MSFT’s system. If the iPod revolution wasn’t hurtful enough for Microsoft, Apple is now in bed with Wintel member Intel and is making fast and desireable computers with Intel chips. And its no surprise that Apple has announced its new Boot Camp software which runs Windows nearly flawlessly on its elegant Macs.
This environment has been creating some stress on Mighty Microsoft and I wonder if its Board of Directors is beginning to get concerned. I wonder what board member Charles Noski former vice chairman of AT&T thinks. Given his tenure at Ma Bell from 1999 through 2002 he should know the tell tale signs of a company in decline. Those were the years AT&T had to spin off AT&T Wireless and its cable TV and broadband business.
If things continue to get worse the Board and shareholders will have to blame someone for the malaise at Microsoft and the buck would seem to stop with Steven Ballmer, the Microsoft billionaire who took over as CEO in January 2000. Since Ballmer took the reigns the stock has dropped about 47% compared to a 7% decline for the S&P500. Last year was not a great one for Microsoft or Ballmer. During a year when MSFT’s stock went nowhere Ballmer got caught hurling a chair across his office screaming “I’m going to F*ing Kill Google,” after the search engine company hired away one of his chief computer scientists. It sounds like something Tony Soprano would do in a moment of frustration but not something you would expect from the eleventh richest person in the U.S. and leader of the most prominent software company on the planet.
