Steve Ballmer did as good a job as he could have yesterday in balancing optimism about Microsoft’s (MSFT) new “Bing” search service with the reality that it doesn’t have much of a chance. Specifically, he tempered his bravado of a few years ago with the admission that gaining traction in search is proving a “little harder” than he thought.
It’s possible that Steve really believes that, sooner or later, Microsoft actually will come from behind to win the search game Nothing else explains why he and Microsoft continue to shovel billions of dollars down this rat hole.
If so, however, Steve needs to stop using Windows as the analogy:
[H]ey, we’ve had some early tries [in search], kind of like you might call Windows 1, and I think there was something called Windows 2 in there, and Windows 386 in the late ’80s, but [Bing] is far more like Windows 3. People say, aha, I see the vision. It pays off but it won’t fully pay off the vision in its first incarnation…
If you stop and think about it, Windows 95 came 12 years after we started working on Windows. We’ve been working on search five years. I’m not saying it should necessarily take 12 years, but in a sense what we’re trying to do is accelerate the pace, and see if we can’t get there.
What is Steve missing here? Microsoft had a monopoly in operating systems. When you have a monopoly, everyone buys your upgrades. They buy them because they’re a bit better, yes, but mostly because they don’t have a choice.
In search, needless to say, Microsoft doesn’t have a monopoly. It has 8% market share. It has a product that has a few cool features but is no better than the market leader’s product and is easy to copy. And it has a vast, powerful, and talented competitor that has every incentive to make sure its foot stays firmly on Microsoft’s throat.
Windows analogies aren’t just weak here. They’re delusional.
15 Years Of Futility
In the Internet arena, Steve’s greatest assets–superhuman tenacity, competitiveness, and will-power–have become a liability. Microsoft’s Bing will likely prove to be just yet another in a long line of major disappointments, just like most of Microsoft’s Internet initiatives have been. And it’s time the company, if not Steve, faced up to that.
Microsoft has been telling the same story about the Internet for the past 15 years. Despite touting its come-from-behind successes on the PC platform, investing billions of dollars, having every conceivable competitive advantage (unlimited resources, exceptional technologists, 95% operating system share, 90%+ browser share), the company is still where it was at the beginning: Running a distant, unprofitable third.
Yes, Microsoft demolished Netscape’s browser lead, but that was because 1) Microsoft was able to build IE into Windows, and 2) Netscape took a wrong turn (into enterprise software). Microsoft never built the browser into an actual business, and in the past several years it has begun losing share to Firefox and Safari.
After chasing AOL for five years in the ISP business, meanwhile, Microsoft threw in the towel and started to focus on free content and search and display. Its much-balleyhooed display system, AdCenter, has fallen off the radar screen, and its search share has slowly but steadily decreased for years. Several times since 2000, Microsoft has restructured and relaunched its Internet initiative, always with the same results. While its big competitors — Google, Yahoo, and AOL — continue to print money, meanwhile, Microsoft continues to lose billions.
At the same time, Microsoft still has an AWESOME business in enterprise software and services. This business continues to provide the vast majority of its revenue and all of its profit. By continuing to pour resources and attention into its mediocre consumer Internet business, Microsoft is failing to fully exploit an opportunity that it has a much better chance of dominating: Enterprise applications, including SAAS services such as those offered by Salesforce.com, et al.
Importantly, Oracle and IBM are still making major hay in enterprise software. While Microsoft fiddles with search and advertising, Larry Ellison has bought up most of his competitors. Every dollar of revenue and profit Oracle, IBM, SAP, Salesforce, et al, generate is a dollar that Microsoft is leaving on the table in a misguided attempt to make headway in a business it has no core competency in.
In the old days, Microsoft could afford to blow billions on whatever opportunity struck its fancy because its core business was a monopoly-protected cash gusher. Now that its core business is under attack, however (Google, Apple, Oracle, Salesforce et al, mobile platforms, netbooks), it can’t.
So it is time for Microsoft to recognise that no company can do everything and that competing with everyone from IBM-and-Oracle to Sony-and-Nintendo to Apple-and-RIM to Google-and-Yahoo is just a recipe for failure. Microsoft should refocus on its enterprise business, defend itself against Apple’s platform attack and Google’s lame app incursions, and give up on its consumer Internet business.
And what should it do with “Bing” and MSN?
Spin them into Yahoo, in exchange for a major share of the company. Importantly, Microsoft shareholders will benefit from this move. They’ll get the same economies-of-scale advantage that they would get if Microsoft bought Yahoo’s search business, and they’ll get the upside in the stock. Unlike Microsoft’s Internet division, Yahoo has a cohesive global brand and business that is still a credible alternative for advertisers, and adding Microsoft’s Internet assets would make the company that much stronger. And given Yahoo’s current share price, there could be several multiples of upside for Microsoft shareholders.
Whatever Microsoft does, its senior executives and Board need to sit down and watch the presentations they gave about their glorious Internet future in the late 1990s and early 2000s and recent years. Microsoft’s continual optimism about its chances contrasted with its 15 years of futility are the embodiment of the failure to face reality. This failure is now hurting the company’s core business. And it’s time the Board, if not Steve, acknowledged that.
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