Steve, go big or go broke

January 21, 2010

Microsoft’s new strategy under chief software architect Ray Ozzie has been “three screens and the cloud,” the three screens being mobile, desktop and living room, and the cloud being Microsoft’s actual cloud infrastructure, Azure, and presumably the web, i.e. Bing, Hotmail, MSN and Microsoft’s other web properties.

How are these doing?

Obviously, Microsoft is still dominant on the desktop, and will remain so for a while now. Even though web apps are a long term threat to Microsoft’s desktop software, at the high end (Macs) and the low end (netbooks), right now they’re safe, because software can still do a lot of things the web can’t do, especially in the enterprise, where Google can’t get a foothold.

In the living room Microsoft has a very strong beachhead with the XBox, which is fast turning into a social multimedia entertainment center, which is how it should be.

In the cloud it’s too early to tell. Amazon is clearly the dominant player in cloud infrastructure, but it’s much too early to tell who will end up with the biggest slice of the pie, and Microsoft seems to be doing the right moves so far.

When it comes to mobile and web, though, Microsoft is foundering.

Bing is a strong effort, and has been picking up marketshare (largely through deals and not organic growth, though), and if and when Bing becomes Yahoo!’s search engine, that should give them enough scale to really refine their product. Microsoft’s search leader, Qi Lu, is a scarily talented executive. That being said, so far, it’s practically impossible for Bing to present a credible threat to Google search. It is marginally better in some respects, but in order for people to change their entrenched habits, you need more than marginally better. You need remarkably better. And Bing isn’t that, by a long shot.

Meanwhile, in mobile, it’s a disaster. Windows Mobile 7 is a long ways off. Even if it’s a tremendous product  — and while it will probably be better than previous efforts, it almost certainly won’t be as good as Android or OS X — mobile OSes are a platform game. To win in mobile, Microsoft needs tons and tons of apps — developers, developers, developers — and for that it is very, very late to the party. Plus, how does it make money from mobile? Apple makes money on hardware. Meanwhile, Android is free — in fact, less than free: Google offers revenue share on advertising revenue to mobile operators who use Android. Microsoft wants to charge Verizon to put Windows Mobile on its phone, meanwhile Google is paying them to use a  product that is so far superior, and by now proven.

My point is this: these are two crucial markets where Microsoft can’t win through incremental improvements. It must go big or go broke. In search, it must introduce a new paradigm — so far the most promising looks to be what Mahalo is doing. In mobile, some have recommended that Microsoft buy RIM. The two have tremendous synergies from their strength in the enterprise and BlackBerry’s software. That would be a start. In fact, they should also buy Palm, which is struggling in the market, but has better software and hardware and more apps.

I have a few ideas on how precisely Microsoft can win in search and mobile, but they’re beyond the scope of this post. The point here is: Microsoft must go big or go broke. The only thing they have left is their huge size. They should use it.

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