The Internet Services Disruption

It is an exciting time, as we’re at the beginning of the biggest product cycle in the company’s history. In a week we ship new versions of Visual Studio, SQL Server and BizTalk Server. Later this month we ship Xbox 360. Next year we have a double barreled release of our two largest products with Windows Vista and Office “12”.

[ … ] Not shown: Earlier shifts: the GUI, the web, then .NET.

It is now 2005, and the environment has changed yet again – this time around services. Computing and communications technologies have dramatically and progressively improved to enable the viability of a services-based model.

[ … ] Not shown: Broadband, wireless and businesses buying on subscription.

Most challenging and promising to our business, though, is that a new business model has emerged in the form of advertising-supported services and software.¹ (Fact note 1)Fact · 1With hindsightOn 18 May 2007 Microsoft agreed to buy aQuantive for about $6 billion in cash, saying it was “intensely committed to creating a thriving advertising business”. On 2 July 2012 it wrote down about $6.2 billion of Online Services Division goodwill, which it said was mostly related to that purchase, adding that the acquisition “did not accelerate growth to the degree anticipated”.SourcesMicrosoftMicrosoft to Acquire aQuantive, Inc.18 May 2007MicrosoftMicrosoft Announces Non-Cash Accounting Charge2 Jul 2012 This model has the potential to fundamentally impact how we and other developers build, deliver, and monetize innovations.

Just as in the past, we must reflect upon what’s going on around us, and reflect upon our strengths, weaknesses and industry leadership responsibilities, and respond. As much as ever, it’s clear that if we fail to do so, our business as we know it is at risk. We must respond quickly and decisively.

[ … ] Not shown: Ten years of connected computing, and Microsoft’s internet products.

But for all our great progress, our efforts have not always led to the degree that perhaps they could have. We should’ve been leaders with all our web properties in harnessing the potential of AJAX, following our pioneering work in OWA. We knew search would be important, but through Google’s focus they’ve gained a tremendously strong position.² (Editorial note 2)Editorial · 2Known at the timeA plain admission from a new executive: Microsoft saw search coming and lost it anyway. The memo blames focus, not foresight, which sets up its later argument that Microsoft’s problem is execution across its own seams.

[ … ] Not shown: RSS, PDF, Skype and BlackBerry: more ground others took.

And while we continue to make good progress on these many fronts, a set of very strong and determined competitors is laser-focused on internet services and service-enabled software. 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.³ (Fact note 3)Fact · 3With hindsightOn 22 February 2007 Google introduced Google Apps Premier Edition, hosted communication and collaboration “designed for businesses of all sizes”, at $50 per user account per year, with free editions alongside. That is a paid product for businesses, not an adjunct to search advertising. The release does not mention Microsoft.SourceGoogleGoogle Introduces New Business Version of Popular Hosted Applications22 Feb 2007

[ … ] Not shown: Yahoo, Apple, startups, and the first of three tenets.

Online advertising has emerged as a significant new means by which to directly and indirectly fund the creation and delivery of software and services. In some cases, it may be possible for one to obtain more revenue through the advertising model than through a traditional licensing model.

[ … ] Not shown: How products are now found and tried online.

Products must now embrace a “discover, learn, try, buy, recommend” cycle – sometimes with one of those phases being free, another ad-supported, and yet another being subscription-based.⁴ (Fact note 4)Fact · 4With hindsightMicrosoft launched Office 365 on 28 June 2011 in 40 markets, as “a predictable monthly subscription” priced from $2 to $27 per user per month. Its productivity suite moved to the subscription phase of this cycle, not the ad-supported one.SourceMicrosoftMicrosoft Launches Office 365 Globally28 Jun 2011

[ … ] Not shown: Experiences that “just work”, and seven “seamless” opportunities.

In assessing where we are and where we need to be, some new efforts will surely require incubation. But in many areas we have 80% of the product and technical infrastructure already built – we just need to close the 20% gap.⁵ (Editorial note 5)Editorial · 5Known at the timeThe line reassures the groups that must change, and it costs something: it invites each group to treat its current plan as 80% right. A memo that calls the shift a disruption here describes it as a top-up.

[ … ] Not shown: Faster release tempo for Windows experiences.

SERVICES PLATFORM – Through years of experience, the MSN team understands the methods and practices of building ‘internet scale’ services. The Platform team understands developers and has deep experience in communications and storage architectures. These teams must work together, benefiting from each others’ strengths, to develop a next generation internet services platform – a platform for both internal and external innovation.⁶ (Fact note 6)Fact · 6With hindsightOzzie announced Windows Azure in a keynote at Microsoft’s Professional Developers Conference on 27 October 2008, with a limited preview for developers. It became generally available in 21 countries on 1 February 2010. When Ozzie stepped down, Steve Ballmer credited him with “conceiving, incubating and shepherding Windows Azure”.SourcesMicrosoftMicrosoft unveils Windows Azure at Professional Developers Conference27 Oct 2008InfoWorldMicrosoft Windows Azure cloud reaches general availability stage1 Feb 2010IT Brief AustraliaRead Steve Ballmer's email on Ray Ozzie's resignation21 Oct 2010

[ … ] Not shown: Enterprise servers and internet services; lightweight development.

RESPONSIBLE COMPETITION – We will compete energetically but also responsibly and with recognition of our high legal responsibilities. We will design and license Windows and our internet-based services as separate products, so customers can choose Windows with or without Microsoft’s services.⁷ (Editorial note 7)Editorial · 7Known at the timeServices will still plug into Windows, but through documented interfaces that rivals can use too, and Windows can be bought without them. The memo gives up an exclusive tie to Windows and leaves each service to win on its merits; it does not say how Microsoft’s services will find users without that tie.

[ … ] Not shown: Questions for each division, and reasons for optimism.

Complexity kills. It sucks the life out of developers, it makes products difficult to plan, build and test, it introduces security challenges, and it causes end-user and administrator frustration.

[ … ] Not shown: Simplification tools, from release cycles to shared workspaces.

We’re off to a great start with many initiatives already under way – from efforts occurring now within MSN, to the IW services being launched imminently.⁸ (Fact note 8)Fact · 8With hindsightFour days later, on 1 November 2005, Bill Gates and Ozzie previewed Windows Live and Office Live in San Francisco. Microsoft said Windows Live would “primarily be delivered free to users and supported by advertising”, with subscription and transaction-based services beside it, and that Office Live would start as an invitation-only US beta in early 2006.SourcesMicrosoftMicrosoft Previews New Windows Live and Office Live Services1 Nov 2005InfoWorldUpdate: Gates, Ozzie go ‘Live’ with Microsoft services1 Nov 2005

[ … ] Not shown: Scenario owners by 15 December, and an internal blog.

The most important step is for each of us to internalize the transformative and disruptive potential of services.

-- Ray