Dear Steve: An Open Letter to Microsoft’s Steve Ballmer

Dear Steve:

I’ve known you for a little over 21 years now and I’ve only felt strongly enough to comment to you strongly and vocally three timesin those 21 years, our initial meeting regarding LAN Manager, with regards to the IBM OS/2 “divorce” and, more recently, about .Net and your Internet strategy positioning.  This is the fourth, and perhaps most urgent, time.  Those other three were done during a period of Microsoft ascendancy and domination.  (I know you can’t say that word in front of the DOJ, but between us friends…)  While a $4 billion profit in your most recent quarter isn’t shabby, we both know this is an incredibly sensitive time in the company’s, and the technology market’s, history.

Everyone’s asking “what’s up with Yahoo” and asking, again, what you should do about that.  You’ve given me a good year’s worth of newspaper exposure in the ebb-and-flow of the whole thing but it’s time not only to get it done, it’s time to take a more expansive vision of what Microsoft needs to do.  Much as it’s an important war to win, search advertising is the old battle.  There are newer battles emerging and if you continue to lag in those as you have in search, your very relevance will be called into question.

So, what do I think you need to do?

  1. Buy Yahoo.  Not just search but the whole thing.  There are so many assets there that you will need to leverage that you’d be crazy not to take the whole thing.  It’s not just search advertising.  It’s display.  It’s mobile.  It’s cloud.  It’s eyeballs.  Yahoo has a lot of assets beyond search, which you need.
  2. Focus on monetizing video.  Even while you still struggle with Zune, you’re once again fighting the last battle.  Surely you remember the first video ever played on MTV.   It was the Buggles’ “Video Killed the Radio Star.”  Those who don’t learn from history are doomed to repeat it.  Video is where the excitement is today (even while that’s not where the big money is…yet).  The big studios are making progress here, Google is still feeling its way and Apple scares the studios.  Hurry up on this one.
  3. An equity investment in Facebook does not a social media strategy make.  I fervently believe that social networks will emerge some day (a few years away yet) as a dominant “advertising” platform.  We trust the opinions of our friends and people like us more than we do brands and companies.  Somewhere we’re going to figure out how to use social media to supplant “traditional” forms of advertising (and I include search advertising as traditional in this context).  I’d tell you how I think that’s going to play out, but that one’s worth of a consulting engagement, not a blog post.  I spent a good portion of the last year helping companies sort through their “Facebook for the enterprise” options.  Why haven’t you made SharePoint the no-brainer solution?  Instead, you’ve left it to a slew of smaller vendors…and increasingly Google.  Social networking is both an infrastructure play and a “user interface” play.  You’re behind in both.
  4. If you’re waiting for the inflection point at which time cloud computing becomes a compelling play, the economy has pushed us to that point.  Don’t be so totally large enterprise-focused that you miss the fundamental change that’s already taking place in small-and-medium-sized businesses.  Cloud computing economics are compelling.  Yes, yes, I understand your software-plus-services play, and even embrace it but if you start from a Windows+Office mindset rather than a minimalist cloud infrastructure basis, you risk missing focusing on what the market really wants in the longer term.  Yes, Azure was a good start.  Developers are important and letting them leverage investments will be huge.  But you risk losing relevance when you focus so much already on Windows 7 and let the Office group persist with their embarrassing (non-)approach to cloud computing.  You talked in your earnings announcement about how global economic markets are resetting.  That reset, with lower expectations, is a seminal moment for the adoption of cloud computing.  It’s going to come even faster than you’re now thinking.  This one of all you can’t afford to lose.
  5. Lastly, mobility.  This one has to frustrate you.  You had the right idea.  You were early to market.  And what did that earn you?  The right to see Apple and then Google strong-arm the carriers in a way they couldn’t have without your “failure.”  But now that they’ve done so, what are you going to do about it?  I’ve been a Windows Mobile user on phones and PDAs for a long time now and I look with envy at the Apple application marketplace.  Have you tried installing apps on one of your phones ever?  If Steve Jobs were Microsoft CEO, he’d fire the entire team responsible for the Windows Mobile application installation procedure.  Visibly and painfully.  Simply, you need to fix the user experience, galvanize the application developer community, stand up to the carriers and get ahead of the curve, with mobile video and location-based services the two areas I’d focus on.  Maybe go buy Qualcomm while you’re buying things.

I know this is a lot, in a bad economic climate.  However, to fail at any of these puts Microsoft’s future relevance at risk.  To fail at all of them, and a candid assessment would probably say that’s what’s going on…well, that should be a terrifying thought to you.

Good luck.

Jonathan

Who is the Technology Bellwether?

On my news analysis blog, I posited that IBM’s strong earnings announcement this week cements the fact that IBM is no longer the technology bellwether.  On Twitter, someone asked me “if not IBM, then who is the bellwether?”  Interesting question.  To be the bellwether, I think you have to have exposure to a wide range of solutions — consumer vs. enterprise, computing vs. consumer electronics, etc.  These days, almost all of the largest companies have significant platform bets, narrow portfolios or are otherwise unbalanced when it comes to assessing the overall health of the total ecosystem.

I’d rule out Apple,Microsoft and Intelfor just those reasons.  Apple is obviously heavily consumer-focused and is at this point as much or more of a consumer electronics company than it is a “computing” company.  Microsoft has such an unusual set of arrangements, most notably its OEM arrangements with hardware manufacturers, that sometimes make its results an anomaly.  Intel is still so heavily wedded to the PC/Windows world that its results may hide the news of strength in other platforms.

If I had to pick a bellwether, I’m tempted to make the easy choice and say HP.  They have a reasonable mix of all of the above elements and are perhaps most representative of the overall health of the industry.  It’s also significant to note that they’re the largest computer company.  (I’ll bet most people, if asked, would still bet it’s IBM, but HP passed them a few years ago.)  However, let me also posit that a company like SanDisk is a good indicator.  Their storage solutions play across a wide range of devices and sectors.  Yes, they’re underweighted in the enterprise segment but that’s likely to change and, in fact, share gains they have in the enterprise would be a good indicator of a rebound in that sector because of the relative price premium you have to pay for these types of storage solutions in enterprise class.

So those are my two nominations:  HP and SanDisk.  Others?

Inauguration Day

It almost seems trivial to note this on a day otherwise marked my tremendous symbolism and pomp but we now have our first technologically-savvy President.  From his attachment to his Blackberry to the campaign’s dramatic and powerful uses of social networking, this is the very first time the country has been led by someone who understands, embraces and even demands technology utilization.

As far back as 1984, when I was working at General Instrument, I learned the power of a chief executive who understood the power of technology.  GI in those days had an email system, linking facilities around the world.  However, its utilization was spotty.  There were a not-inconsiderable number of tech junkies — this was a technology company, after all — who loved the immediacy that email offered.  There was, however, a much larger population of people involved in manufacturing and operations, disciplines that had largely been untouched by technology back in those days.  The higher up in the organization you went, the less likely they were to use the email system.  The net result was that for reliable communications, to update the “systems of record,” you had to use “traditional” forms of communications.  Fortunately, however, GI was led by a CEO (Frank Hickey) who understood the potential of electronic communications.  He decreed that certain of his key reports be submitted to him electronically.  As you might imagine, the trickle-down was almost immediate and within a matter of months, the number of users on the email system had grown several orders of magnitude and the number of messages grew even more so.  Being in charge of the PC implementation as I was, the number of PCs in the company grew in a year from under 100 to over 1,000.

Clearly, there is power in a chief executive who understands, and demands, the use of technology.  Already this morning, I’ve seen stories on TV about how Obama is still fighting to retain his Blackberry and how his transition team has had to rely on Gmail prior to their .gov email addresses going live.  I hope this means that, much as my experience at GI, the country experiences a significant trickle-down effect, where we more effectively utilize technology to effectively communicate.  We have just scratched the surface of how social technologies are going to change the way we live and work.  I am optimistic that under our new President, we will embrace those changes in some profound ways not capable had another man been elected.

Tomorrow, the reality of the economy and my personal situation may temper my enthusiasm (just a little), but for today, I’m hugely excited about the future and what this Presidency means for technology, business and people.

What We Can Learn from Circuit City

With the announcement today that Circuit City has been unable to find a buyer and is therefore going to be forced to close its remaining stores, lost in their demise could be one of social media’s more significant lessons.  E-commerce is a sufficiently small piece of their business that no amount of success as an e-tailer would compensate for their shortcomings as a retailer in this gruesome economy, but don’t throw out the baby with the bathwater.

Circuit City was one of the early retailers to make what at the time was a highly controversial decision.  These retailers make big bets on inventory, stocking large volumes of products that they think are going to be successful and even going so far as to strike preferential deals with manufacturers to secure allotments of hot products.  Given these bets, you would imagine that it would be highly controversial to open up their corridors to dissenting opinions.  However, Circuit City was one of the relatively early brick-and-mortar retailers to host user opinions.

And what did Circuit City discover?  They found that people who read user opinions on their site were 2-5x more likely to purchase than those who didn’t read the user opinions.  Of course, this is a complicated equation that raises all sorts of cause-and-effect questions.  It isn’t a simple matter of getting people to read user opinions.  Those who read such opinions are probably already more inclined to purchase.  Whatever the relationship, however, Circuit City experimented with and capitalized upon the power of their user community to their benefit.

No, it wasn’t enough to save the chain but in these tough times, when retailers are questioning whether the hassle of user-generated content is worth the outcomes, it’s worth remembering the outcomes Circuit City produced.  Those would put their heads in the sand, pretending that if they don’t support engagement with their users and  buyers that it somehow doesn’t exist, are only kidding themselves.  If we all haven’t figured out the ultimate power of social networking and how to harness it in the advertising and selling cycle, early pioneers have already demonstrated that there are tangible returns to be achieved.  Let this perhaps be Circuit City’s lasting legacy.

Apple and Steve Jobs: Is There Another Emperor in the House

I’m hard pressed to come up with another situation like Apple’s.  Has there ever been a company where not only is the image of the company so closely associated with its CEO but also the company’s product strategy and even product details?  I can’t think of a remotely similar situation.

There might have been a time when you would have said “Bill Gates and Microsoft.”  Yet behind Bill was a cadre of senior executives (Ballmer, Raikes) who wielded significant product and strategy power.  It was convenient for Bill to be the face of the company — the friendly nerd — but when it was time for things to change, Microsoft was able to effect the change with minimal disruption.

Non-technology celebrity CEOs have included Southwest’s Herb Kelliher, GE’s Jack Welch and a long list, and in almost all instances, the company was able to transcend the personality of its leader, either sustaining his or her core values or seamlessly transitioning to a new stage in the company’s evolution.

So what of Apple?  Caveat:  I have long believed that many Apple products are a triumph of style over substance.  Yes, they’re beautiful products, well finished, and I perhaps consistently underrate how much that matters, even in technology.  However, Jobs has always had some huge blind spots that have influenced his product design often times for the negative.  For instance, why in the world would you design a phone/music player/web browsing/communicating device on power-sucking 3G networks without a replaceable battery?  Well, the added thickness to support a replaceable battery offended Steve’s aesthetic notions.

Perhaps only Jobs could pull this off.  He was truly a master showman without equal.  I had the interesting opportunity to speak immediately after him one time.  This was at the Gartner PC conference around 1990, when Jobs was at NeXT.  He was our lunchtime speaker and gave this amazing product demonstration.  Of course, large portions of it were smoke-and-mirrors but that didn’t really matter.  People had seen the future and wanted it now.  The only way I could get people in the room back paying attention to my session — which was about PC operating systems — was to ask two questions.  First, “how many of you want one of those?”  Virtually every hand in the room went up.  OK.  “How many of you are ready to standardize your company on those right now?”  Hands went (mostly) down and point made.  I hated to be the buzz kill but someone had to point out that the emperor had no clothing.

I’m sure Microsoft in particular but a lot of other players are hoping this is their opportunity.  Not that they’re wishing ill of Jobs, of course, but this is the opportunity to start the drumbeat “the (new) emperor ain’t the old one, and this one has no clothing.”  Can anyone continue the string of hits that Jobs has championed at Apple?  I’m not even sure Jobs himself could maintain this record.  Is COO Tim Cook the main to seize the mantle?  I don’t know Cook.  He’s clearly well regarded.  But to paraphrase Lloyd Bentsen of all people, “I know Steve Jobs.  I’ve been up on stage with Steve Jobs and Tim, you’re no Steve Jobs.”

This is clearly a pivotal time in Apple’s history.  They’ve been able to sustain above-market pricing in large measure because of the “Jobs factor.”  If their products receive greater scrutiny and are unable to sustain those price-premiums post-Jobs, it’s a new world.  And this, to me, is the likely scenario.  Welcome, competition.  Microsoft makes some inroads.  A few consumer electronics players (Sony?) are newly reinvigorated.  And we consumers benefit from new competition, more choice and freedom from the “Steve knows better” overhang.

Apres Idol, La Deluge: Text Spam Goes Mainstream

The New York Times today reports of a mini-uproar over AT&T’s decision to send a (free) text message to a large number of its subscribers, promoting American Idol (of which it’s a prominent sponsor).  Welcome to the next advertising battleground:  mobile devices.

This is a hugely attractive field for advertisers, offering key advantages over desktop-centric ad models (and I include laptops in that desktop-centric universe for the most part).  First of all, AT&T targeted the large number of people who had previously texted an Idol vote (along with “heavy texters”), thus obviously reaching a highly qualified group of people based on previous behaviors.  While it wasn’t the case here, mobile advertising increasingly offers the potential to exploit awareness of the user’s location and, particularly on SmartPhones, context (e.g., knowledge of calendar and contacts).

This is going to be an intricate dance.  Users treat their mobile devices differently than other computing platforms, considering it more “intimate.”  Thus, intrusions via spam-like communications, even if they incur no cost (as was the case with the AT&T case), are viewed more seriously than spam populating your email inbox.  Thus, the burden to deliver value is much higher on the mobile platform lest you risk offending users, not benefitting them.  On the other hand, users are increasingly going to have to understand that their value to a large portion of their personal “value chain” is predicated on someone’s ability to monetize the relationship.  In AT&T’s case, if they can’t increase your propensity to text message, you’re less valuable to them than someone who they can reach, and that ultimately will reflect how much you’ll pay for services (and products) and even what range of offers will be presented to you.

Welcome to the “ubiquitous eBay” world, one where we will be buying and selling privacy and information explicitly and implicity.  This AT&T dust-up is little more than a harbinger of things to come.  No one likes intrusions.  The challenge going forward will be how advertisers and merchants figure out how to turn these new customer outreaches into true value propositions for the user.  All it requires is a whole new approach to advertising, one with benefits to all parties.

What is a “Media Company” Anyhow?

With all the discussion of Yahoo’s next CEO, the question has arisen:  is Yahoo a technology company?  A media company?  Both?  Is there a distinction?

I’m still not sure I buy into this distinction.  The modern media powerhouse has to have its fingers deep into technology.  Perhaps there’s an argument to be made about the need to own technology vs. being an aggressive exploiter of the technology but I think this artificial distinction has gotten many companies, Yahoo included, into trouble.  Terry Semel tried turning Yahoo into a media company and by turning his back on a lot of the technology Yahoo had in development or practice, started Yahoo’s diastrous path to this point.

I think media companies can survive without owning technology but they’d better have a deep understanding of its capabilities and how that technology is changing the relationship between advertiser, media outlet and consumer.  I’m wrestling with taking this argument a step further and making the argument that the leading media powerhouses of this next era must own key technologies, that they are sources of key differentiation and enable greater control of the monetization process.  I’m not prepared to make the assertion now but I do believe that’s where we’re headed.  Note that I am not positing that all major media companies must also be technology companies but I think the long-term biggest winners combine the two (or more).

I know this sounds like AOL TW, and that gives me pause…but we’ve seen lots of combinations over the years that were wrong at the time not because the idea was fundamentally flawed but that the timing was disastrously off.

New Yahoo CEO?

UPDATE:  The story has been confirmed, and I got mention in the USAToday story.

Strong indications are that ex-Autodesk CEO Carol Bartz is going to be named Yahoo’s next CEO.  I find this an interesting choice, along these lines.  To get someone of this stature (appropriate or not; more below) probably required a commitment to let her come in and make a (quick) determination about whether to double down on search or finallly sell to Microsoft.  She’s a good candidate in either scenario, which is not true of many of the other names that have surfaced.  If they decide that search remains an opportunity for them, she’s got great technical chops.  If on the other hand a deal is to be made with Microsoft, she has a long history of “co-opetition” with Microsoft, and is a well-respected commodity there, particularly with Ballmer.
 
Whoever ends up in charge, if they don’t come out punching with a cohesive story about how not only Yahoo doesn’t get enough credit for what it has done, what it’s still doing and, critically, what it’s going to do, they’ll be trying to roll the boulder uphill, and that’s not a sustainable communications position.  That said, the challenge here has always been “what are they going to do.”  Lots of interesting things at a micro level which have never come together as a coherent, integrated strategy when viewed from the top.  Is Bartz the person to pull that together?  I’m hard pressed to find another candidate who has her combination of Yahoo familiarity (at least with executives), Microsoft relationships and technical chops.  Yeah, the lack of media/advertising background is glaring, but that was the case with Schmidt too.
 
I’m frankly surprised they were able to come up with such a strong candidate.  I thought to get someone this strong, they were going to have to resolve the Microsoft search deal.

New Beginnings

They say a recession is when your friend loses their job but a depression is when you lose yours.  By that definition, it’s now a depression.  Yes, I lost my job as VP of Disruptive Technologies at AMR Research.  Paradoxically, however, this now lets me begin blogging as I don’t have to worry about a byzantine approval process but instead have only to ask myself “do I have the time and energy?” 

The time:  most certainly.  Right before the new year, I ruptured my quadriceps tendon and underwent surgery on January 5.  For at least another month, I’m largely confined to the house with my leg in a hip-to-ankle brace.  Every hour or two, I’ll get out of bed and hobble around on a walker to get the blood flowing, but beyond that, I’m not going anywhere so I do have the time.  The energy?  As you might imagine, it took me several days to get my head around the double whammy of surgery-and-rehab and losing-my-job.  OK…it’ll take more than a few days to get my head around that.  But I’m optimistic about the future, mine and the technologies I’ve been looking at for years now.

And so I begin to blog about disruptive technologies.  Those of you who are familiar with my research for the last year know that I defined four pillars of disruption:

  1. Social networking and other community-based technologies,
  2. Mobility,
  3. Cloud computing, and
  4. Alternative (typically ad-supported) business models.

This is certainly a broad agenda and I’ll try to do justice to it here.  If you want to join the conversation, by all means please do.  If you need someone to look at your business and help with strategy, messaging and positioning, I’m your man (and for now, I’ve got the time).  Thanks for joining me here and let’s all survive the beginning of 2009 and thrive as the year goes on.