Microsoft has been largely dead to Silicon Valley because for the past decade they struggled in — or completely missed — the last five major technology movements. Those five movements, and who they lost to are:
1/open source (to Linux, MySQL, etc.)
2/search (to Google)
3/mobile (to Apple)
4/social (to Facebook)
5/cloud (to Amazon)
In this piece: why MSFT failed (dividends), why they’re back (Satya) & what 7 things they can do to be as important to the future as Apple, Google, and Facebook.
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Why Microsoft “Failed”
When I came into the industry in 1990, Microsoft was Apple and Bill Gates was Elon Musk. We hung on everything Bill said and did. Windows and Office were juggernauts, and his dabbling in news (MSN, MSNBC, Slate), watches, wallets, personal assistants, CD-ROMs, and tablets were the stuff of legend — even if they were clunky by today’s design standards.
Steve lost the 80s and 90s to Gates, but he won the new century — before losing his life.
[ Total aside, how much do we miss that guy? Can you imagine Steve around today to demo the Watch? To negotiate a partnership/merger with Elon Musk? Such a huge void up to this day. Losing him early is starting to sink in as deep as losing John Lennon, John Kennedy, and Kurt Cobain: we’ll never know what he would have done with those last 20-30 years. ]
Microsoft failed to be a major player in social, open source, search, mobile, and cloud because Steve Ballmer optimized Microsoft around sales and a bizarre financial innovation called ‘a dividend.’
In the cradle of innovation — from the San Francisco Bay down to the creeks in Palo Alto — ‘dividend’ is roughly translated as ‘capitulation.’
World-changing technologies are advancing so fast that they are only being outpaced by consumers. Those consumers are so willing — heck, desperate — to have their lives reorganized by this technology that they are flying drones over their kids’ heads, wearing dorky Google Glasses, and tweeting instead of talking to the people they’re having dinner with!
On top of all this, the world is now one giant marketplace, in which you can sell anything to almost anyone instantly — App stores!
Oh yeah, there is an unlimited amount of investment dollars available to anyone who has skill and huge brass — well, you know — and who wants to take on the world.
In a market like that you don’t give money back to shareholders — you invest it!
Importantly, if you’re optimizing for a dividend like Ballmer did for so long, you have to make largely short-term decisions that maximize revenue. Like say, building closed systems or limiting the number of people who use your product so you can charge a few people a lot of money.
Microsoft printed money, but they made a bunch of bad calls, too. If you were to give Ballmer a grade it would be a solid B — they made money and didn’t die like AOL and Netscape! However, Microsoft was, and still is, in a race with Zuckerberg, Page, Musk, Jobs/Apple, and Bezos.
Why Microsoft is Back
Something interesting has happened with Microsoft since Satya Nadel took over: they’re making aggressive, disruptive, and long-term decisions again!
Now, in fairness, a lot of what Satya is doing is based on work that was started years before, but it is impossible to not take notice:
- Microsoft is going to put all their Apps on the Samsung 6 — which could be the best-selling phone of all time — for free. Samsung & Microsoft working together is a fascinating pairing — especially with both of them getting kicked by Apple and Google so often.
- Microsoft is going to invest in Cyanogen, an open source forkpetitor (I made that word up) to Android. Could this be the start of something bigger? If Android & Cyanogen both run Android Apps perfectly, and Cyanogen doesn’t have to come bundled with Google’s suite of services….well….hmmmm…do the math.
- Microsoft’s Azure cloud computing unit is giving startups from YCombinator $500,000 in cloud computing. This is a lot of money, and back in the day when Amazon Web Services gave the *winners* of LAUNCH Festival $50,000 each, it was considered stunning — now 300+ yearly YC companies get $500k? What?!? That’s called COMING OVER THE TOP in poker. This is a huge brilliant play and I’m thinking, “Hey, maybe I should get Microsoft to give LAUNCH Incubator companies $500,000 in hosting!”
- The Surface 3 tablet is actually loved and making over $1b per quarter because Microsoft didn’t give up. They seem to have gotten it right after three swings at the bat.
- Microsoft Office is now available on Android and iOS — they are not holding it hostage.
- Windows 10 is going to be free for the first year for folks with older versions of Windows — this is super savvy because it gets people excited about their old computers and Microsoft…which will make them buy a new computer when the license runs out, or just because they love Windows 10!
- Microsoft is making Windows 10 free for device makers who make products with screens that are under nine inches. This means that your mobile OS is free if you make phones, which is kind of the right price if you make handsets.
- Microsoft recently made its data science tool PowerBI free. This is a huge statement since MSFT is in the business of making money from software, and it’s going to have a big impact on folks like Tableau Software.
- Microsoft .Net is now…wait for it…an open source project! This programming framework has fallen out of favor on the web because things like Python and Ruby get better faster because so many folks are working with them. I’m not sure if it is too late for .Net, but this is another sign that Microsoft is not going to sit around and be made fun of for “not getting it.”
- Microsoft just bought Sunrise, a beloved Silicon Valley calendar software. It’s literally the best calendar App in the world and it kicks the ass of Outlook, Google Calendar and whatever the frack Apple calls their sh@#$y calendar software. So, Microsoft bought an App company to kick their own ass!
- They bought MINECRAFT for $2.5b, which is just a crazy, awesome powerplay to keep themselves cool with teenagers — and keep XBOX relevant in the mobile world.
What Microsoft Should Do Next:
a. Microsoft Ventures should take Google Ventures head-to-head: Give a team of crazy investors $500m every year, year-after-year, to invest in whatever they want to — independent of those products that matter or not to Microsoft. Why? Because you might hit an Uber like GV did! And you will be seen as part of the ecosystem, instead of “the folks up north who don’t make it down here too often!” No more months to figure out if they want to invest in something, just hire 10 smart folks and give them $50m each to invest.
b. Build or sponsor a startup incubator in San Francisco. Bing did some interesting things with a startup incubator, Techstars has done work with MSFT, and clearly they are cozying up to YCombinator with the Azure deal mentioned above. At this point Microsoft should simply open 200-500 seats of co-working spaces in San Francisco, Los Angeles, Palo Alto, New York, and Boston and let interesting startups who use Azure get 50% off rent. Total no brainer, and would cost $25-50m per year (which is known as “nothing” on Microsoft’s balance sheet).
c. Buy 100 App startups: I wrote this 18 months ago … it still stands: buy 100 Apps, let them grow outside of the Microsoft ecosystem — then leverage them 12 to 36 months after you make them free and hit scale.
d. Twitter: Buy it now, leave it in San Francisco, and let it operate as an independent subsidiary. Just give the management team big bonuses for hitting usage and user goals, and don’t worry too much about advertising revenue. If they make it to 1b monthly active users you are now a huge player in social — for like $50b (cheap!).
e. Yahoo & AOL: do not touch, do not double down! Huge distractions, no upside in catching a falling knife!
f. Netflix, HBO & Hulu: Invest in these if you can by giving them cash, and six months free on XBOX, Windows 10, etc.
g. Move a couple of major brands (maybe Bing or XBOX) to San Francisco. Major statement, major upside in partnership.
OK, this is getting really long and I need some feedback on what I wrote. I’m not an expert on Microsoft but I’m fascinated by Satya.
In fact, my three top fireside chat targets for LAUNCH Festival next year (or last-minute this year) are Elon, Satya, and Reed Hastings from Netflix.