Microsoft Needs To Want Change--It's Not There YetMicrosoft Needs To Want Change--It's Not There Yet

In October 2005, Ray Ozzie told Microsoft executives what needed to happen to make Microsoft a leader in Internet services. Ozzie had been at the company for about six months at the time. Now it's more than three years since Ozzie joined Microsoft. Is he making progress on this goal?In his memo, Ozzie stressed the opportunities in advertising-driven business models. Microsoft is a distant third in Internet advertising, but quite a bit of that has to be because of the lack of compelling content in Microsoft's own sites. The Yahoo bid must have been intended to jump-start Microsoft in an area it clearly thinks is important, but you have to wonder why Microsoft made so little progress on its own in three years.

Here's my reason: Microsoft doesn't yet want to change badly enough. Too many parts of the company are comfortable doing business the way it's being done today. I'm sure that there are many executive meetings where the division heads nod in agreement at Ozzie's master plan. When it comes down to implementation, though, they point out that these new ideas pose a threat to their existing products, and it's inevitable that revenue on existing product lines will go down faster than new product and service revenue goes up. Timid action, then, is the best course for near-term profitability.

Here's one quote from Ozzie's e-mail:

To at least some parts of Microsoft, this is heresy. Complexity seems part of the intellectual challenge and key to Microsoft's competitive advantage. Plus, all the pieces-parts have to be Microsoft through and through for complete and total control of their products. The job isn't done at Microsoft until it's embraced, extended, or reinvented Java, Flash, browsers, and every other technology it may need to use. Nothing needs to be taken as given in a Microsoft plan; Microsoft can tweak every piece, and every division of the company wants to be a major player in the vision. Microsoft Web sites will be built with the .Net Framework, C#, Silverlight, and other Microsoft products; thousands of Microsoft employees will be needed to support those technologies.

Google, whether by necessity or by choice, has decided to take advantage of outside work on browsers, programming languages, and other technologies. Yahoo can't force users to choose a browser, so it focuses on a Web framework and design patterns to make its sites work with whatever the user has. As a result, these companies put most of their attention on delivering content, services, and advertising. Microsoft can't do that, not even its Internet group, because those choices are constrained by what the other Microsoft groups want to deliver.

With that perspective, Ray Ozzie's vision seems to be too ambitious. It manages to include nearly every nook and cranny of Microsoft's empire, and tries to tie them together into the master plan. But that will just make things harder to change. The Internet group is the tail of Microsoft; every other part of the dog is more profitable and therefore more influential -- no matter the lip service to the Internet. The technical complexity can't be eliminated because it reflects organizational complexity and priorities. Unfortunately for Microsoft, there's no sign that the company has a plan to address that problem.