November 8, 2005 7:20 PM PST

Gates memo warns of 'disruptive' changes

Aiming to stir up the same kind of momentum as his Internet Tidal Wave memo of a decade earlier, Microsoft Chairman Bill Gates has penned a memo outlining the challenges Microsoft faces from a host of online competitors.

"This coming 'services wave' will be very disruptive," Gates said in an Oct. 30 e-mail to top Microsoft employees, which was seen by CNET News.com. "We have competitors who will seize on these approaches and challenge us."

In the memo, Gates cites an earlier missive from Ray Ozzie, outlining the importance of tapping online advertising and services as new revenue sources.

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What's new:
Microsoft Chairman Bill Gates sends a memo to top executives at the software giant, citing the challenges the company faces.

Bottom line:
Memo references another memo sent by the new services chief, who cited a laundry list of missed opportunities for the software maker, citing competitive threats from rivals such as Google, Skype, Research In Motion and Adobe.

More stories on Microsoft's challenges

"It's clear that if we fail to do so, our business as we know it is at risk," Ozzie wrote. "We must respond quickly and decisively."

Ozzie's memo, which was also seen by CNET News.com, includes a laundry list of missed opportunities for the software maker, citing competitive threats from rivals such as Google, Skype, Research In Motion and Adobe.

In September, Microsoft announced that it was reorganizing itself into three units and tapping Ozzie to lead a companywide services push. Last week, Microsoft announced the first fruits of that effort--products called Windows Live and Office Live. Windows Live combines many of Microsoft's existing MSN services into an advertising-supported product for consumers, while Office Live is a set of services, some free and some paid, aimed at small businesses.

Although Microsoft had already announced those moves, the two memos shed light on the urgency and importance the company is attaching to these plans.

Ozzie notes areas that Microsoft could have led, such as Web-based applications, but where other companies are instead more heavily focused.

"We should've been leaders with all our web properties in harnessing the potential of Ajax, following our pioneering work in OWA (Outlook Web Access)," Ozzie wrote. "We knew search would be important, but through Google's focus they've gained a tremendously strong position."

In the memo, Ozzie talks about Google as the most prominent of Microsoft's emerging competitors, but also makes reference to Yahoo and Apple Computer.

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"Google is obviously the most visible here, although given the hype level it is difficult to ascertain which of their myriad initiatives are simply adjuncts intended to drive scale for their advertising business, or which might ultimately grow to substantively challenge our offerings," Ozzie wrote. "Although Yahoo also has significant communications assets that combine software and services, they are more of a media company and--with the notable exception of their advertising platform--they seem to be utilizing their platform capabilities largely as an internal asset.

"The same is true of Apple, which has done an enviable job integrating hardware, software and services into a seamless experience with dotMac, iPod and iTunes, but seems less focused on enabling developers to build substantial products and businesses," wrote Ozzie, who joined Microsoft as chief technical officer earlier this year when his company, Groove Networks, was acquired by the software maker.

He also cites smaller, emerging companies that are developing software and services that use the Internet, rather than Windows, as their base platform.

"Developers needing tools and libraries to do their work just search the Internet, download, develop and integrate, deploy, refine," Ozzie wrote. "Speed, simplicity and loose coupling are paramount."

At the same time, Ozzie sees an opportunity if Microsoft can create a Web-based development platform.

"The work of these startups could be improved with a 'services platform'," Ozzie said. "Ironically, the same things that enable and catalyze rapid innovation can also be constraints to their success. "

Microsoft has talked of a developer platform in conjunction with Windows Live, but the company has offered few details of how third parties will be able to build on top of Microsoft's work.

He also points to the fact that although Microsoft's Office is ubiquitous, it is Adobe's PDF file that has emerged as the key means of sending formatted documents on the Web. Microsoft is proposing its own rival to PDF, known as Metro, with Windows Vista, its new operating system that is due out next year. The company will also support PDF in the next version of Office, due next year.

Gates says that despite the threats, "the opportunity for us to lead is very clear."

"More than any other company, we have the vision, assets, experience, and aspirations to deliver experiences and solutions across the entire range of digital workstyle & digital lifestyle scenarios, and to do so at scale, reaching users, developers and businesses across all markets."

Details of the memos were reported late Tuesday by the Wall Street Journal.

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What about the Microsoft Partners
I keep hearing about this great move of Microsoft Live. What I want to know is how Microsoft Partners are going to make money. If the customer chooses to have his data online and managed by Microsoft, then what is the Microsoft Partner going to do for the customers? It sounds like MS is going to undercut the MS Partners. These are the same partners that have pushed their solutions and products. These partners have been very loyal to them. They have used inferior products for quite a long time, and now when Microsoft finds away to undercut them, they do it in a heartbeat. It they do not make $$, then why would they continue to push M$ products? It sounds like the M$ Partners need to find another OS to use and support. It sounds like to me that the M$ Partners need to deploy open source solutions.

If Microsoft is going to undercut the vary people that have made Microsoft great, then why should those partners be loyal to Microsoft anymore?

Am I the only one that sees it this way?

The one that controls the data is the one that controls the $$.

Microsoft can lose its partners very quickly if they do not make this transaction smoothly. There are many partners that are feeling very uneasy about this paradigm shift of who controls the data.

We all know that Bill Gates loves to compete and win at any cost. He wants to remain number one at any cost. Even if he undercuts the group of people (M$ Partners) that are responsible for 94% of their income.

Microsoft has a huge army of partners that have fought in the trenches for them. You would think that Microsoft would leverage this army to create a Win Win solution for both the partners and Microsoft.

If Microsoft does not come up w/ any win win program for the partners soon, they may join another army.

The silence from Redmond is deafening&
Posted by Panamon (12 comments )
Reply Link Flag
A few changes...
I keep hearing about this great move to Microsoft Live. What I want to know is how Microsoft Partners are going to make money. If the customer chooses to have his data online and managed by Microsoft, then what is the Microsoft Partner going to do for the customers? It sounds like MS is going to undercut the MS Partners. These are the same partners that have pushed their solutions and products. These partners have been very loyal to them. They have used inferior products for quite a long time, and fed them free suggestions to make their products better. Now that Microsoft feels the heat from Google, they come out with MS Live and Office Live. With this move, Microsoft undercuts its partners. It the partners do not make $$, then why would they continue to push MICROSOFT products? It sounds like the MICROSOFT Partners need to find another OS to use and support. It sounds like to me that the MICROSOFT Partners need to deploy open source solutions.

If Microsoft is going to undercut the vary people that have made Microsoft great, then why should those partners be loyal to Microsoft anymore?

Am I the only one that sees it this way?

The one that controls the data is the one that controls the $$.

Microsoft can lose its partners very quickly if they do not make this transaction smoothly. There are many partners that are feeling very uneasy about this paradigm shift of who controls the data.

We all know that Bill Gates loves to compete and win at any cost. He wants to remain number one at any cost. All we hear from Microsoft is how they need to make this move. We are not hearing on how the partners are going to make $$ in this new environment.

Microsoft has a huge army of partners that have fought in the trenches for them. You would think that Microsoft would leverage this army to create a Win Win solution for both the partners and Microsoft.

If Microsoft does not come up w/ any win win program for the partners soon, the partners may join another army.

The silence from Redmond is deafening&
Posted by Panamon (12 comments )
Link Flag
It is time to go back to work...
Business relationship like personal ones requires work, alot of work. The parnership I am sure you are referring to is fairly one sided by now with Bill Gates and Microsoft carrying the bulk of the load.

If you are to survive then you need to embrace change, look for opportunites as Mr. Gates is obviously doing by charging his subordinates to think outside their boxes and find new opportunites and embace change not worry that the "sky is falling" as you seem to advocate.

Business visionaries set a direction in uncharted waters, as a MS Partner you have riden the Microsoft wave, now it is time to reinvest in the partnership or become obsolete.

This may seem harsh, but it is reality. Change, evolve and grow or become obsolete in a hurry. I hope you opt for evolution to obsolescence.
Posted by ronniefussell (1 comment )
Link Flag
Different design focus.
Google tries to design products that people find useful, if they happen to find a way to make money on it later on, good.

MS seems too focused moving into this thing on generating ad hits to really build anything people are going to want to use.

The method Google is using seems more successful because (surprise!) people are more focused on using something useful than finding an ad system with features.

Maybe MS needs to put down the numbers for long enough to come up with ideas that might actually be appealing to people.

I have said before that MS should create a "freeware" group (maybe under the new network services division) and just let them go.
Posted by Dachi (797 comments )
Reply Link Flag
services developer tools
Hmmm...Microsoft releases developer tools so folks can create
service applications to be delivered over the internet.

How will Microsoft make money here? If the application is used
through a web browser, where does Windows fit in?

Oh, right, it requires IE 6.0 or better to use.
Posted by (15 comments )
Reply Link Flag
Yeah, Yeah...
Microsoft "claims" they have competition but really they are leaps and bounds ahead of the competition.

The have to say this so that people think that they do not take their leadership position for granted but really they are laughing all the way to the bank!

They talk about Google as a competitor. What crap! As if Google is about to bring out an OS and get 90% of the computers running Windows to switch. And OpenOffice is not about to debunk Office anytime soon. Google has simply beat Microsoft in two areas - search and profiting from ads.

Microsoft after gaining almost 100% of the browser market with IE, they have stalled development of future browser versions deliberately in order to allow their .net platform to catchup and take over in terms of the ability to build powerful applications. This then allows them to attract more developers to program .net apps (which are Windows only) instead of pure web apps (with are cross platform). Microsoft understands the mind of a developer which thinks purely about which language he or she can use in order to make the best application. 99% of developers do not even consider that they are falling right into Microsoft's plans and therefore assuring Microsoft's future as THE platform (and as "little people" we really don't have much choice)!
Posted by rturner2 (125 comments )
Reply Link Flag
Bingo
This "leaked" memo has PR written all over it. It's MSFT's way of telling the market: "We're on the problem."

A company with a market cap of $300B and 90% of the world's desktops (even higher in the enterprise space) is not really competing with a Bubble 2.0 company that provides search results, email and an online map.

MS just needs to integrate their offerings better to hold onto their existing customer base. Granted a little more ad-generated web service revenue would be nice...
Posted by Betty Roper (121 comments )
Link Flag
OH, the tide is turning... Seattle Times Newspaper
READ IT & WEEP CITIZEN GATES...

Monday, November 7, 2005 - Page updated at 06:40 AM
E-conomy

"Mac takes bite out of Windows" By Paul Andrews
Special to The Seattle Times

Hardly a week goes by that I don't hear from a friend or
colleague with a monumental Windows problem.

I tell them I'm glad to help, on one condition: Next time they buy
a computer, they agree to consider a Macintosh. A year ago,
after a particularly trying week of spyware, adware, viral attacks,
lock-ups and reboots, I changed my primary computer to a Mac.
I've dabbled with Macs since the late 1980s but never felt a need
to change from Windows.

For the first couple of months after the switch, while I
transferred e-mail and contacts to Mac programs, I was firing up
Windows almost daily. Gradually, though, I found fewer reasons
to go back. It was a snap to export text and data files to the
Mac, then convert them to Mac applications. And programs such
as iTunes, iMovie, Safari and iPhoto, which came with the
Powerbook, were easy to learn and use.

The exception was e-mail and contacts. There are ways to get
the data from Windows to a Mac, but they're cumbersome and
not always successful. Gradually, though, the important
correspondents and contacts got into the Mac mail and address-
book programs simply through daily use.

When I made the switch, I thought I was a relative rarity. After
all, we're constantly reminded of the Windows desktop monopoly
and how little market share Apple has.

But what I found surprised me. A lot of techies I know, including
some former Micro-softies, have switched. Among holdouts, I
kept hearing their next computer would be a Mac.

"There's huge awareness among the general public about how
much [Windows] PCs have been compromised," said Tony Bove,
author of a new book, "Just Say No To Microsoft" (No Starch
Press, $24.95). "My mother knows about it, and she's not even a
computer user."

Note that we're talking mostly about personal use, not
corporate. Most newspaper reporters and other enterprise
workers I know use Windows because their employers supply
them with Windows.

Custom Windows applications also keep users from switching,
Bove said. But he expects many apps will become Web-based
over time, meaning any computer can access them.

How much switching is going on? Commenting on Microsoft's
recent quarterly earnings report, some analysts speculated the
Redmond giant might be losing market share to Apple.

If that's the case, it might be a historical first. I can't think of any
time Apple stole share from Microsoft (as opposed to Apple
users simply upgrading).

For now, anecdotal evidence suggests something is going on.
Bove likes to tell Windows sufferers, "It's not your fault. But it is
your problem."

The easiest fix is simply to change brands.

Seattle freelance writer Paul Andrews has written about
technology for more than two decades. He can be reached at
pandrews@seattletimes.com.

Copyright © 2005 The Seattle Times Company
Posted by Llib Setag (951 comments )
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