5 Things Microsoft Must Do To Reclaim Its Mojo In 20085 Things Microsoft Must Do To Reclaim Its Mojo In 2008

Will 2008 be a challenge for Microsoft? That's not the message one would necessarily glean from an examination of the just-ended year. Microsoft had a solid 2007. In its last full quarter of the calendar year, sales were up 27% and profits jumped 23% percent. The company could also boast that it sold twice as many copies of its new Windows Vista operating system in the weeks following Vista's January launch than it did copies of Windows XP during XP's honeymoon period.

There were other triumphs as well. On the consumer entertainment front, the company's Xbox 360 franchise enjoyed a massive boost from the September release of the smash hit game Halo 3. In the courtroom, a judge in August overturned a $1.5 billion judgment against Microsoft that had been awarded to Alcatel-Lucent.

Microsoft in 2007 also launched a successful clampdown on software pirates and counterfeiters.

But last year was not entirely rosy for the software maker. Over the previous twelve months, a number of troubling issues emerged that, if not addressed, indicate that 2008 could indeed be a time of challenge for Redmond.

Indeed, before 2007 expired, big questions arose about Microsoft's ability to compete in the Internet-driven, Web 2.0 world of online software and open standards; the long term viability of the Windows franchise; and Microsoft's internal quality controls.

The concerns were driven by a number of events. Many businesses and governments snubbed Vista due to worries about cost and compatibility, the Xbox 360 was subject to an embarrassing and costly recall, and major, well-heeled competitors like Google launched online offerings aimed squarely and Microsoft's lucrative Office franchise, among other things.

All the while, Microsoft appeared to founder in its responses. It continues to cite reams of facts and figures to support its claim that Vista was a blockbuster launch -- even as the company, and its computer-maker partners, quietly reintroduced or extended service and support for Windows XP. It originally denied there were any serious problems with the Xbox, and it has articulated a confused online strategy while attempting to foist a new and unpopular standard on users of its desktop products.

So what do Bill Gates, Steve Ballmer and Co. need to do in 2008 to ensure that the commercial success Microsoft has enjoyed in recent years carries into the next decade?

Time To Put Windows On A Diet

First off, Microsoft needs to realize that less can be more--especially when it comes to PC operating systems--and start designing products accordingly. Surveys and anecdotal evidence suggest that many users have rejected Vista because of its bulk and resource requirements.

Windows Vista Premium eats up 15-GB of available hard drive space and requires a PC with at least a 1-GHz processor and 1-GB of system memory. Sure, those specs are within the capabilities of most new PCs on the market. And Windows Vista does feature a lot of nice touches--like its slick, 3-D Aero interface.

But many users would prefer to devote most of their systems' horsepower to running their applications better and faster. No one really buys a computer just to "use" the operating system.

Microsoft may be getting the message. Acknowledging that Windows has become "bloated," a senior company official said that Microsoft is adopting a new, modular approach to OS development that will yield more streamlined products beginning with Windows 7--a successor to Vista that's expected to be available some time in 2010. "We are starting on this path," Microsoft distinguished engineer Eric Traut said last year during a presentation at a college campus.

Microsoft needs to go farther down that path in 2008.

Wanted: A Coherent Web Strategy

One reason why users are rejecting idea of a fat OS is that an increasing number of people are starting to view the PC as mainly a conduit to a world of Web-based software and services. Sun Microsystems' chief researcher John Gage famously said that "the network is the computer." In 2008, the Internet is the computer.

Yet Microsoft has only haltingly, even grudgingly, embraced Software-as-a-Service. The company in October launched Office Live Workspace, Exchange Online and SharePoint Online—a mix of hosted offerings. Three months later, it's tough to find anyone who actually uses those services on a day-to-day basis, let alone anyone who could even explain what they are. According to one analyst, the hodgepodge of online products Microsoft offers through its Live brands are "a confused mess."

If Microsoft in 2008 is to fend off Web-based competition from Yahoo and Google (well, mostly Google), it needs urgently to develop a coherent online strategy, get everyone from senior executives to marketers and programmers fully behind it, and then stick with it.

How's this for a radical concept: Microsoft should develop just one version of its products, and let users decide whether to use them online or load them onto their hard drives. Buy Microsoft Office in a box at a store, you also get access to it over the Internet. Buy it online and you get a certificate for a boxed copy.

Muddled hybrid initiatives like Office Live Workspace should simply be ditched.

Such an approach would help end the confusion over Microsoft's Web strategy and give it an online/offline offering that Google can't match. (Google's vulnerability is that its Google Apps package doesn't work if the user is not connected to the Internet.)

Microsoft As Standard Bearer

Beyond embracing the Web, Microsoft in 2008 needs to fully wrap its arms around industry standards, and not choke them to death. It's always been true that Microsoft hasn't been the tech industry's most ardent backer of standards and universal formats (unless they were invented in Redmond), but 2007 was a year in which the company's efforts to impose its own specs on the world were particularly overbearing.

In the process, the company alienated a lot of users and influential government bodies.

The most egregious incident occurred when local Microsoft officials in Sweden were caught essentially trying to bribe business partners into joining a committee whose task was to decide whether to endorse Microsoft's Office Open XML, the default format for Office 2007, as an international standard. It turned out that Microsoft managers in Sweden offered "joint marketing support" and other incentives to local VARs if they joined the committee and voted for OOXML.

Executives at Microsoft headquarters distanced themselves from the plan, but it was merely the latest example of how the company's efforts to impose a technology roadmap on users and the industry are becoming counterproductive.

Instead of fighting standards, Microsoft needs to get on board now more than ever. With open, Web-based office software backed by the likes of IBM (think Lotus Symphony) and Google now a viable option, users—especially businesses frustrated by Microsoft's format follies (many are discovering that OOXML is not even fully backwards-compatible with previous versions of Microsoft Word)--can now easily switch to an online product without having to rip and replace their entire desktop infrastructure.

Why submit to lock-in when you've got options?

Microsoft in 2008 could make a bold statement in support of standards by admitting that its attempt to force OOXML on the industry was a mistake and that it will work to develop cross-platform compatibility between that format and the Open Document Format—which already has approval from the ISO (International Organization for Standardization) and is backed by IBM, Sun, Google and OpenOffice.org..

Make Quality Job One

While software will always have some bugs and hardware has its hiccups, there was in 2007 a growing amount of evidence that suggests Microsoft is facing some serious quality control problems—too many of its products simply don't work properly. From a major glitch in the Xbox 360 that forced the company to institute a recall program and take a $1.1 billion charge against earnings, to the performance and compatibility problems that continue to plague Windows Vista, Microsoft products are starting to exhibit troubling reliability issues.

Thus, Microsoft in 2008 needs to have its own "Ford moment" and issue an edict that says "Quality is job 1," in much the same way Bill Gates mandated security as the company's primary focus in 2002 with his Trustworthy Computing initiative. It may be time for Microsoft to appoint a quality czar -- an executive with authority that cuts across its numerous fiefdoms and whose job it is to ensure that products don't go out the door until they're bullet proof.

That quality mission should also be extended to timeliness. Windows Vista shipped months later than originally planned, and Windows Server 2008 will be similarly behind schedule when it's finally unveiled in February. IT managers need consistent, reliable roadmaps from their vendors, and they'll start to look elsewhere if they are let down enough times.

Think Software, Not Advertising

Finally, Microsoft in 2008 should exit the digital advertising business. The company has already been steamrolled by Google, and its $6 billion acquisition of Razorfish parent company aQuantive isn't likely to help much.

The facts are that Microsoft has little experience in the advertising businesses and is making relatively miniscule amounts of revenue from it. Its Online Services Business posted revenues of just $671 million in the most recent quarter. That's less than 5% of the company's total sales. Yet Microsoft's attempts to establish itself in the field are consuming significant amounts of senior management time, acquisition dollars and research and development resources to the point where its core businesses are developing cracks (see all of the above).

Nonetheless, there's ongoing speculation that Microsoft is eyeing a buyout of Yahoo. Such a move would immediately vault Microsoft into the number two spot in the market for search advertising, but it would also take the company further a field from its software origins at a time when that business is under pressure.

In looking to extract growth from hot, tech-driven markets like digital advertising, Microsoft should steal a page from IBM. That is, it should sell software and closely related services to companies in those industries and ride their coattails, instead of diving in directly.

Microsoft in 2008 should publicly rule out a Yahoo acquisition or similar deals, and focus on its product line. In the end, the company needs to remain true to Bill Gates' oft-repeated mantra about just building "great software" if it's to navigate the many challenges ahead.

Indeed, if Microsoft sticks to its roots, embraces standards and targets the Web as a primary delivery mechanism for reliable products, then 2008 could be the year in which the company gets its mojo back.