Resolve and Fortitude : Microsoft's ''SECRET POWER BROKER'' breaks his silence

by Joachim Kempin

  Having lost the legal battle partially and having paid up without depleting all cash allowed the company to take stock and regroup. Best of all her market position was unharmed. Windows and Office, the leading bread winners, were unharmed—by 2002—and so far unchallenged. The current versions Windows XP and Office 10 were solid products and had a strong following with enterprises and consumers alike. The profitable OEM business was still growing and piracy was slowly being reduced further. The enterprise server market—competitive as ever—was at least a break even business. Xbox and all online services, while not profitable, were steadily gaining momentum. MS researchers were creating more patents than ever, rivaling IBM in quality and quantity. In a nutshell, when it came to revenue, profits and product’s health, breadth and depth, the US regulatory measures had been by no means lethal.

  Was there any damage at all? Foremost the company lost a lot of talent, and second of all the public relations (PR) beating had given her a bad image. People leaving the company in droves had reasons. Not wanting to work for a PR damaged company was one, having made enough money to retire another. Salaries were now up to industry standards. But Steve had dropped stock option rewards. Correct or not it sent the wrong message. Employees interpreted his action as management having lost faith in the future of the company. In particular, developers felt that breakthrough contributions would no longer be rewarded like before. To improve pay one definitely needed to climb up in rank. With jobs on the top scarce, people believed their upside was slipping away.

  Last but not least, plenty of other attractive opportunities were available to explore. The Google start-up was making a name for itself, revolutionizing Internet search and Web-advertising methods. Something MS had been talking about for some time but had dropped the ball on. Apple was gaining strength with new innovative notebook products and ever improving OS technology making working on leading edge technology tempting even for MS developers. The open software movement was stronger than ever, and all Linux distributors were vying for smart programmers. Social network services, still in their infancy, were rumored to be developed. All of these formative enterprises were still dishing out stock options, why not try and make a second run, add to one’s fortune and once and for all secure a plentiful future beyond MS?

  As a still growing company, MS responded and created more managerial opportunities for employees. More layers, more committees and more review cycles were the result. The speed of thought once eminent slowly disappeared. To increase visibility, political standings and future advancements, career minded employees now had to make sure that their peer reviews went well. Contributions became secondary for advancements. Political correctness counted as much and sometimes more.

  I received several e-mails and phone calls from some of my old cohorts not understanding the company any longer. They complained in particular about the stack ranking method the company deployed during the review cycle. It had started when I was still around and I had ignored it, believing it was unjust and cruel for my in general well performing employees. Now it was followed to the letter and if you landed on the bottom of the stack, you had to fear for your employment. Like other employees, my ex-coworkers expressed their dissatisfaction in regularly conducted annual employee surveys. Nobody seemed to read them, get the message or appear to care. It surprised me knowing Steve’s sensitivity. I concluded the bureaucracy which had bugged me years ago had by now cemented itself so deeply that it must have become a management blessed modus operandi. MS’s wheels began to churn slower and slower. Products got delayed and influenced by designing them in committees. The company was losing her way, as Jim Alchin the head of the Windows group in ’04 remarked.

  Steve Ballmer was now fully in charge of the company. He tried to stem the tide introducing an enlarged leadership circle, promoting more people than ever to VP and making sure people got incentives in form of stock, not options—somehow restoring a little bit of faith. Before I left, I attended several of his rallies, listening to pep-talks he gave. They sounded repetitive and fell mostly on deaf ears. Even at his best the eternal fiercely gesticulating optimist was no longer the convincing demagogue he had once been. People just needed to follow the news cycle to understand reality. Attacked in the aftermath of the trial, MS seemed to be giving up the noble fight, caving in everywhere by settling the left over matters. Management rained money on winning plaintiffs while at the same time tightening long established and generous freebees employees took for granted, causing more consternation. Clear signs of weakness, and as much as Steve tried to keep his posture in internal meetings, the air smelled of mollification. The subsequent compliance scrutiny fostered a cautionary conservatism inside. The stench manifested itself. An unheard-of hesitancy took hold, slowly converting the company into a less assertive competitor. Why stay put and become a political animal, when there were way more exciting opportunities waiting outside? So the exodus continued and enfeebled MS further when tackling emerging challenges.

  The investment community for sure judged it that way. MS was throttling back her fighting spirit, dampening her ability to compete. The mass-departures of key contributors slowly but surely hampered her ability to respond fast enough and with sufficient innovations. Bill obviously crumbling was the last sign that the community needed to make MS’s stock price head south. Fortunes vanished. Millionaire dreams evaporated. More brain trust left the company strongly doubting Bill’s and Steve’s renewed leadership efforts and MS’s future business prospects.

  Vista, the next version of Windows after XP, took five years to see the light of day. Not only was it two years late, it missed a plenty of new features like a long touted innovative file system. To Jim Alchin’s dismay, competitors introduced that feature he had long envisioned first. Internet Explorer was staid and contained more bugs and security holes than usual. A tablet version was dropped from Vista’s development schedule. A disgruntled Alchin who had supervised its development considered this release his last act in a company he no longer believed in. Three years earlier he had told Bill that he now preferred an Apple MAC over any IBM PC clone. Superior design and an advanced OS were the reasons for his frustrating opinion—sadly true and it showed up in Apple’s ever increasing share of the total PC market.

  Encouraged by Vista’s deficiencies and bloat, Google released her own Linux-based OS called Android in ’07. Having a small footprint it immediately gained a solid foothold in the rapidly evolving smart phone, tablet and netbook market, and is now poised to gain notebook and potentially desktop market share as well.

  There were other indications for MS’s falling behind. When Apple introduced the iPod in ’01, an innovative music player, and complemented it two years later with an online music store (iTunes) for MAC and later Windows PCs, MS was caught flat footed. ITunes allowed for music sales and downloads. Its launch clearly demonstrated who was ahead in exploring this new and highly profitable online service frontier. It took MS until 2006 to come up a competitive product called Zune, only to discontinue it a couple of years later. It simply crashed.

  The year ’04 brought us MySpace and Facebook. The popularity signs for social service networks had been on the wall since AOL introduced an instant messenger service in ’01. While matching it somehow two years later, MS’s management never got or accepted the real message of how much the younger generation truly enjoyed an always on chatting opportunity. The company for sure had the technical ability to show some leadership here but was seemingly out of touch because management was not convinced by the by then obvious. Over 900 million people using this service today shows how much one bad judgment can hurt a company.

  During ’04, stiff competition for Hotmail, MS’s e-mail service,55 arrived when Google entered this service segment with G-mail. One of the attributes and why people liked it was its ability to store unlimited user information in the cloud, something MS’s chairman belittled when it was announced, but had to follow several month later as users left Hotmail in droves. It took
Google some time to get her service right but she eventually cleverly cross linked it to her search engine pioneering the meanwhile infamous context advertising and accelerating her ad revenues dramatically. Today the e-mail market is pretty much split among three companies: MS, Google, and Yahoo! all retaining around 300 million customers. MS’s recent announcement to revamp her service and make it look and feel more Outlook56 like shows that the fight for member share is by no means over. While all these services are free, they produce revenues through advertising placements, which Google is the master of.

  That same year Apple added insult to injury as she improved wireless streaming of audio, video, and photos with her Airplay online services. Internet Explorer finally became competition with a browser called Firefox. There were rumors that Google was working on her own version. MS’s contribution for ’05 was launching Xbox’ second version, while she missed buying Skype cheaply from eBay. The next year another innovative service for exchanging short phone messages was born in Twitter. MS missed out on buying YouTube—Google beat her to that. Instead, MS contributed a mediocre version of a barely revamped browser IE 7, making her tremendously volatile to any new seriously contrived entry.

  Painfully experiencing her own weakness and outfoxed by competitors offering highly innovative online services, MS in 2005 finally acted by acquiring Groove Networks. Her CEO and founder Ray Ozzie was a well-known and highly respected software pioneer. He is the inventor of Notes,57 which Lotus acquired and which was the alleged reason why, in ’95, IBM eventually bought that company lock stock and barrel. After a short stint with IBM, Ray founded Groove. Here with some seed money from MS he developed a new product allowing multiple users to work collaboratively on computer files simultaneously. For several years Bill had had his eye on him and through the Groove acquisition he finally succeeded luring him into MS. What bugged me a bit was the way he publicly expressed his feelings about working for my old company. Asked how he felt about being employed by MS, he answered it did not feel evil and was not inconsistent with his core beliefs! Coming from him the world sighed with relief.

  Less than a year later Bill promoted him to Chief Software Architect, a mantle he had bestowed on himself six years earlier. Soon the industry was at buzz assuming that Bill’s time had finally come. A year later he indeed left the company, retaining to this day his chairman title. Hiring Ray was his last act to prepare MS for a less PC centric future. Let’s see if Ray was the resurrection and the light MS was hoping for or another fatal choice. Ray, who had been preaching for a long time the advantages of providing computing services in the cloud for a mobile society, seemed a great fit for turning MS around. Intellectually unmatched in a company relying on the continuance of Windows desktops, he did not disappoint. Shortly after his arrival in October of ’05 he published a study headlined “The Internet Services Disruption.” Inside I found a description of the historical aspect of the Internet revolution and the seamless and less complex user services MS needed to offer to stay in the game or better regain some magic. Bill had formulated a similar strategy years ago, yet the company had never acted with fortitude upon it. Who else than the ex-Chief Software Architect was to blame?

  Looking at the ’06 company organization chart one can easily spot one reason for what I call MS’s failing grade. At least seven high powered people in the company were in charge of inventing and evaluating strategies. Too many cooks in a small kitchen? Some of them like David Vaskevitch, Craig Mundie and Eric Rudder were longer time employees and were either Steve’s boys or Bill’s boys. Part of the two inside mafias who for a longtime had nurtured disagreements about how to excel! As Ray Ozzie entered the fray in ’05 he found a very difficult state of affairs to deal with. Remember he was a thinker and tinkerer with an acute sense for simple software novelties. At the time he considered himself a mercenary fulfilling an engagement that had been part of selling Groove to MS. As an outsider he had been put in an awkward situation to work through and with every sub-culture MS possessed. He soon found out that his above mentioned memo did not cause immediate traction. (It was rumored to be written by Bill with Ray only editing it—who knows.) On the other hand, a newly created small sized development team led by him charged forward, advancing and realizing the propagated vision he wanted the rest of the company to believe and follow.

  Before his efforts eventually bore fruit MS had to endure more pain. In ’07 Apple introduced a nicely designed very capable cell phone—calling it iPhone. Far superior to any other phone of that time, it took the market by storm. Ten years earlier, when I was still around, MS had entered the same market licensing Windows CE to mobile phone manufacturers but still had nothing to show for. Her phone vendors had let her down and the development team lacked the resolve and perseverance to improve the product sufficiently to get it recognized and win design-ins.

  At the end of ’08 Google finally launched her own browser christened Chrome. It took MS four months to respond with IE 8. While vastly improved over its former version, the geeks nevertheless loved Google’s speedier and leaner version much better and after a decade of nearly unchallenged leadership there was a lot of agony in store for MS. In its first year, Google’s Chrome won nearly 20 percent usage market share and has increased it ever since.

  Responding to Google’s search engine crusade, MS tried three times before she got it somehow right. First an MSN search was offered, then with Ray Ozzie’s influence Windows Live Search followed, and finally in ’09 the Bing search engine appeared. While it lacked Google’s finesse and bells and whistles in version one, it was good enough when combined with some cash payment to gain an alliance with floundering Yahoo. Today the product is feature- and speed wise pretty much on the same footing with Google’s offering. But this has come at a price, sucking six billion dollars out of the company just to be more or less an at par contender.

  Windows 7 followed the same year, signaling to the world MS was getting serious yet again by delivering quality goods like this leaner, faster and rock-solid OS release—yet it still missed a tablet version. Adapted for cell phone use one year after, it allowed MS to build an alliance with Nokia and reenter that market with quite an impressive product. Two other vendors including Samsung followed suite. Together they conquered only 4 percent of the smartphone market. Hardly making a dent! Four month later Windows 7 was followed by the solid and streamlined Internet Explorer version 9, putting it finally back on par with competing browsers. In 2010 Apple stunned the IT world by announcing a computing tablet christened iPad, powered by an ARM CPU. This was Apple’s second entry in this category after her ’93 tablet, called Newton, had miserably flopped. While MS and her OEMs had more or less given up on this category by 2005, Apple had seized the opportunity by taking advantage of vastly improved ARM technology. State of the art miniaturized semiconductor components and the availability of new plastic materials allowed her to create a very powerful, slick and visually appealing product accompanied by a sexy and cool looking software interface.

  Despite judging Apple’s tablet entrance a significant setback for MS, I conclude that after 2007 the company was seriously aiming to get her groves back. MS was still not considered cool enough for many but at least she was losing less ground. With Windows 8 ante portas there is even more hope. By 2010, after having been five years with the company, Ray Ozzie was still unconvinced that MS was on a path to recovery. He expressed this on stage, contradicting Steve in a widely publicized dialogue and left MS one month later. For him, Google’s open source and free of charge Android and Chrome OSs guaranteed a better future. Today he is in the process of hiring programmers for an undisclosed product based on Google’s flagships. He might regret it this time around.

  Reasons may be found in the departure of several other key MS execs. One is Jeff Raikes and the others are David Vaskevitch and Robbie Bach. With no more Bill-leaning girls or boys around, Steve’s authority was bolstered. Combine this with Bill’s decreasing interference leaving MS’s destiny mo
stly to her CEO, and you understand what has beyond doubt cleared up Steve’s command center. No doubt he won the power struggle manifesting his control. People now follow his orders to the letter There is one further indication for this. When comparing the current org structure on the top to the one existing in ’01, Steve has effectively cut his number of direct reports by two third. This could mean two things: more autonomy for the ones he appointed or more hierarchical command layers for the troops. The former might mean less micromanagement, the later could mean decision making will take longer. I, the ever hopeful, tend to believe it signals an attitude change and an expression of trust for his underlings because now he simply can—they are “his” guys.

  Today the retreat of MS’s aging chairman seems nearly complete. How did this ever happen? When I met Bill first he was an energetic, imaginative and inspiring young man. I adored his uncanny ability to cut through the chaos and to the chase, attracting—undoubtedly with Steve’s help—excellent people while inspiring and directing them to get the right things done to propel the PC industry. With Bill cultivating the art of expressing paranoia over competitive threats, emphasized by his alter-ego and mouthpiece Steve, employees were kept on their toes in the early days. But as the company proceeded, the claims repeated themselves too often. Making a mountain out of a mole hill each time a paradigm shift could be vaguely spotted like a shooting star on the night sky signaled his intellectual pump was running dry—the pool shallow. Parading out the self-same scare tactics over and over became less credible and suggested he was in fact feeling genuinely threatened about losing power, visionary guru status or both.

  The label “richest man in the world” had always counted less for him than being a recognized industry leader. The Feds stamping monopolist—the scarlet M—on his forehead was a monumental humiliation for him. His desire was to be honored as savior from proprietary IT chains and for causing a personal information appliance revolution for the masses. This was what was written on the revolutionary banner he held high. As he pursued his destiny with resolve and fortitude, unyielding counter forces awoke. Not willing to dance to his tune, the establishment felt threatened and pushed back hard. Struggling desperately and with perseverance to achieve his objectives and win the glory and the rewards he desired, he answered their fighting forces with extra lethal powers of his own, surrounding himself with acquaintances obsequiously applauding and buttressing his callous aim. They rubbed off on him and because failure was never an option for him personally, I spotted a megalomaniac trait. And so did the suspicious Feds who nailed him on the cross for relentlessly trying to achieve what they considered high-handed supremacy of the IT universe.