TELECOM Digest OnLine - Sorted: Microsoft at Age 30, Grapples With Growing Up

Microsoft at Age 30, Grapples With Growing Up

Allison Linn (
Sun, 9 Oct 2005 17:44:31 -0500

By ALLISON LINN, AP Business Writer

Microsoft Corp. promises its software will make people better workers
-- more productive, more profitable, more able, as the company likes
to say, to achieve their potential. Yet some wonder why the software
behemoth isn't taking more of its own medicine.

As Microsoft hits 30, critics reel off a list of complaints that
sounds like, well, a Microsoft commercial: stifling bureaucracy,
frustrating miscommunication, different units working on overlapping
technology without adequate cooperation. In short, the very ills
Microsoft promises to cure with its software.

Growing pains have delayed products, leaving the door open for
Microsoft to be beaten to market by younger, more nimble competitors
led by Google Inc. and Yahoo Inc. Meanwhile, Microsoft shares have
been trading at about the same level for several years.

As it gears up to release a slew of new products, Microsoft is trying
to untangle bureaucratic snags with a corporate shakeup meant to get
the best ideas to market faster and increase the company's push toward
over-the-Internet software and services.

Of course, no one would argue that the company co-founded by Bill
Gates is in dire straits. Microsoft continues to earn billions from
its flagship Windows and Office products, and the company is steadily
making inroads in markets including mobile phones, video game consoles
and server software.

But it isn't just Google and Yahoo that should worry Microsoft.

It's also up-and-comers big and small that offer products as
Internet-based services., which manages customer
relations, is a big one. Writely and gOffice, which provide Web-based
word processing, and e-mail application Zimbra are among the small.

Web-based offerings give users easy online access to products and
services, sometimes for free. The threat to Microsoft is that such
products, by their very nature, could decrease the importance of
Windows or Office.

Google and Sun Microsystems Inc. announced a partnership last week
that, while still vague, could eventually yield tools that provide,
cheaply or for free over the Internet, an alternative to pricey
Microsoft software such as Word or Excel.

"What you've actually got going here between Google and Sun is their
own personal version of the film 'Kill Bill,'" said David Garrity,
director of research for Investec's U.S. operations.

Microsoft insists it is in a strong position to fight its competitors.

Kevin Johnson, recently named co-president of a new Microsoft unit
that includes Windows, servers and its MSN online division, said Chief
Executive Steve Ballmer spoke about software as a service as long as
six years ago.

The company was forecasting some of these potential markets a decade
ago, he added.

"We've provided the vision of where these things were going."

Still, Microsoft now lags in some high-profile areas, although Johnson
said there are plans afoot to help the company to expand further and
quicker into the field.

Its competitors were the first to provide Web-based tools for finding
things more easily on Windows-based desktops.

Microsoft also has played catch-up on developing its own online search
engine, the technology that formed the basis for Google's explosive
success. And while Microsoft was a pioneer in offering free, Web-based
e-mail with Hotmail, Google and Yahoo have been quicker to improve
their products recently.

The company continues to struggle with the issue of helping computer
users instantly find what they need. When Vista, Microsoft's first
significant Windows upgrade since 2001, is released next year after
serious delays, it will initially lack a hotly anticipated data
management system called WinFS that would let people swiftly find
documents, pictures or e-mails.

Microsoft also is tailing its competitors in developing the money-making
engine behind Google -- paid search.

This month, Microsoft begins U.S. testing of its own system for
selling sponsored links next to its regular search results, which are
based on a formula that ranks Web pages according to such factors as

Microsoft currently outsources that job to Yahoo, which has a contract
with Microsoft through June 2006.

Microsoft also was in talks with Time Warner Inc. about a potential
deal with its America Online unit that could help raise Microsoft's
profile against Google. One potential option was some sort of online
advertising partnership.

It's unclear where those talks stand now.

Johnson acknowledges that the company has sometimes been slower than
some of its competitors. He says that's partly because Microsoft is
focused on "the big, bold challenges," such as folding useful
technologies into products instead of just rushing something out to

And analysts note Microsoft's track record of quickly playing catch-up
and marshaling the forces necessary to stay ahead.

Johnson says the company's reorganization -- which groups its seven
business groups under three large units -- is designed in part to
streamline decision-making and make Microsoft more agile. If
successful, such changes could help alleviate complaints that employee
productivity is being slowed by management hoops that require too many
layers of approval.

In one of the most high-profile cases, former executive Kai-Fu Lee
complained in court of groups working autonomously that should be
collaborating, and of being forced to report to too many people. Lee
defected to Google and Microsoft sued, alleging violation of a
noncompete agreement. The case is ongoing.

Microsoft also is seeing the downside of a longtime corporate culture
that allowed several groups to work on the same technology, sometimes
even in competition with one another.

That philosophy hasn't been as successful as hoped with search
technology, where despite multiple efforts many analysts say the
company still has work to do.

Johnson said Microsoft is trying to find ways to re-evaluate that
approach while still encouraging individual groups to develop fresh
ideas. "Bottoms-up innovation is a great thing," he said. But, he
added, "At a certain point in that innovation life cycle you have to
make decisions so you avoid duplicative or competitive work."

Microsoft is facing the classic dilemma that befalls a company that
grows from a small startup to a major corporation, said the analyst

There's really no way to manage thousands of employees without a strong
corporate structure, but that structure will inevitably alienate some
workers who remember the freewheeling early days.

"They're all victims of their own past success," he said.

Microsoft's reorganization appears to be an attempt to tackle the size
problem -- to teach the elephant to dance, said Garrity, alluding to a
popular corporate problem-solving book by James Belasco.

"I don't know if we can teach the elephant to dance, but they certainly
look as if they are getting their tutu on."

Copyright 2005 The Associated Press.

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