http://abcnews.go.com/Business/print?id=88655
Silicon Insider: R.I.P. Microsoft?
After Dominating the Technology Industry for Years, is Microsoft Poised to
Collapse?
Commentary by MICHAEL S. MALONE
Feb. 10, 2005 - Is Microsoft dying?
Business reporters -- like, I suspect analysts and venture capitalists --
develop over time a set of diagnostic tools for analyzing the relative health
of companies we encounter. This bag of tricks is mostly subjective, some of
it no doubt unconscious, and we constantly test it against experience, most
of it bad. That is, every time we get suckered into writing an upbeat story
about an evil, incompetent or doomed company, we swear we will never make
that mistake again -- then we scrutinize where we went wrong and what warning
signals we missed.
This can make us seem cynical after awhile. But let me tell you: there's
nothing quite like having some pensioner or widow tell you that they lost
their life savings because they based their investments on one of your
articles. You will never believe a corporate pitch again.
Needless to say, these diagnostic tools vary with the company. You don't
analyze a new entrepreneurial company the way you do a Fortune 500 giant. One
of the tools I'm best known for is Folding Table Theory of Start-Ups. It says
that when you walk into a new entrepreneurial company and you see a nice
lobby and expensive office furniture, that company has its priorities screwed
up -- either it is more interested in comfort than success or it is
over-capitalized and lazy -- and it will never make it.
By comparison, when you see the start-up team working at folding tables or old
army surplus desks, you know that it is properly focused both on getting the
job done and financial discipline -- and has a good chance of being a winner.
That's what I saw at the beginning of eBay (and Siebel, Tivo, Electronic
Arts, Atari and a host of other great companies) and it's telling that Jeff
Skoll kept that table near him during his entire tenure at the company.
The health of established firms, especially great ones, is more difficult to
diagnose. The balance sheet can give some clues, but, because it captures the
recent past rather than the near future, it can fool you. Most veteran
reporters look at more subtle clues, like the comings and goings of key
employees, slippage in the release dates of new products (or missing
features), and subtle shifts in the tone of company news releases,
advertisements and executive speeches.
But most of all, at least for me, there is the smell test: the faintest whiff
of decay that comes from dying companies.
Looks Can Be Deceiving
Sometimes this smell can surprise you. Years ago, Fortune magazine asked me to
do a story about Silicon Graphics, then one of the hottest companies in
Silicon Valley. In those days, SGI could do no wrong. It owned the graphic
workstation market. It was working with the likes of Steven Spielberg. And
its chairman, my old HP boss Ed McCracken, was being talked up for cabinet
posts and ambassadorships. I fully expected to write the latest laud on the
Valley's hottest young company.
But the instant I stepped on the SGI campus I knew something was wrong. The
place just didn't FEEL right. Sure it was shiny and new and filled with shiny
and bright employees. The products were great, and the financials were
terrific. And yet, the company didn't pass the smell test. It was the little
things: the chief executive officer that forgot the meeting with me (who
forgets Fortune?), forcing the chairman to vamp for an hour; the much-awaited
new product that arrived missing some key features; the sudden loss of some
key employees.
I found myself with a serious case of cognitive dissonance. On paper, Silicon
Graphics looked great, but in my gut it was a company in desperate straits. I
went with my gut, and to Fortune's credit, the magazine backed me. CGI raised
holy hell over the article when it appeared -- but subsequent events proved
me right.
The same thing happened at Hewlett-Packard. In some very controversial
editorials in The Wall Street Journal, I predicted that Carly Fiorina's
stewardship of HP would be an unmitigated disaster, and would destroy the
world's greatest company. Obviously, Fortune, Forbes and most of the rest of
the business press didn't agree -- and all I managed to do was make myself
persona non-gratis at HP. But, as this week's news shows, my instincts were
correct. [As an aside: If the first words out of the mouth of Carly's
replacement aren't "The HP Way is back", the board should fire him, too.]
Is Microsoft Rotting?
That brings us to Microsoft. The other day I had lunch with the CEO of a
mid-sized semiconductor equipment manufacturer. SEMs are the forgotten folks
of the digital revolution. As the people who make the machines that make the
chips that make the electronic products that run the world, they are at the
absolute top of the electronics food chain. They typically know about what's
coming in the electronics world earlier than anybody else. But their products
are so arcane -- who cares about automated wafer steppers? -- the press
almost never talks to them.
In the course of the conversation we talked about the coming Intel-Samsung
war, the beginnings of a slowdown in the SEM business (presaging a chip
turndown next year), and the sad fate of HP. It was in the middle of all this
that a notion suddenly appeared in my mind: Microsoft is dying.
Why the sudden thought? Perhaps it was talking about HP; maybe it was the fact
we WEREN'T talking about Microsoft (which would have monopolized our
conversation a few years ago), or perhaps it was just my instincts were
finally putting diverse bits of information together into a single
conclusion.
Great, healthy companies not only dominate the market, but share of mind. Look
at Apple these days. But when was the last time you thought about Microsoft,
except in frustration or anger? The company just announced a powerful new
search engine, designed to take on Google -- but did anybody notice?
Meanwhile, open systems world -- created largely in response to Microsoft's
heavy-handed hegemony -- is slowly carving away market share from Gates &
Co.: Linux and Firefox hold the world's imagination these days, not Windows
and Explorer. The only thing Microsoft seems busy at these days is patching
and plugging holes.
Speaking of Gates: if you remember, he was supposed to be going back into the
lab to recreate the old MS alchemy. But lately it seems -- statesmanship
being the final refuge of the successful entrepreneur -- that he's been
devoting more time to philanthropy than capitalism. And though Steve Ballmer
is legendary for his sound and fury, these days his leadership seems to be
signifying nothing.
Longhorn's Delayed Release
There are other clues as well. Microsoft has always had trouble with
stand-alone applications, but in its core business it has been as relentless
as the Borg. Now the company seems to have trouble executing even the one
task that should take precedence over everything else: getting "Longhorn,"
its Windows replacement, to market. Longhorn is now two years late. That
would be disastrous for a beloved product like the Macintosh, but for a
product that is universally reviled as a necessary, but foul-tasting,
medicine, this verges on criminal insanity. Or, more likely, organizational
paralysis.
Does anyone out there love MSN? I doubt it; it seems to share AOL's fate of
being disliked but not hated enough to change your e-mail account. And do
college kids still dream of going to work at MS? Five years ago it was a
source of pride to go to work for the Evil Empire -- now, who cares? It's
just Motorola with wetter winters.
None of this should come as a surprise to Gates. I remember in the mid-90s he
shrugged off the claims that Microsoft was unstoppable by noting that the
electronics industry was so cyclical that no company ever stayed on top for
long. In that light, Microsoft had a longer run than most. It is still a
well-run company, which argues that its fade will be long and slow, like DEC,
rather than a sudden death like Wang. And it may yet come back -- there may
already be something revolutionary under way in a back lab in Everett or
Mountain View -- but, like Yahoo! and Apple before it, Microsoft may have to
die in order to be reborn.
For now, though, none of that is obvious. Microsoft is still the dominant
company in high-tech, the cynosure of all those things people love and hate
about computing, the defining company of our time. It is huge, powerful and
confident.
But if you sniff the air, you can just make out the first hints of rot.
Michael S. Malone, once called “the Boswell of Silicon Valley,” most recently
was editor-at-large of Forbes ASAP magazine. He has covered the Silicon
Valley and high-tech for more than 20 years, beginning with the San Jose
Mercury-News as the nation's first daily high-tech reporter. His articles and
editorials have appeared in such publications as The Wall Street Journal, The
Economist and Fortune, and for two years he was a columnist for The New York
Times. He has hosted two national PBS shows: "Malone," a half-hour interview
program that ran for nine years, and in 2001, a 16-part interview series
called "Betting It All: The Entrepreneurs." Malone is best known as the
author of a dozen books. His latest book, a collection of his best newspaper
and magazine writings, is called "The Valley of Heart's Delight."
This work is the opinion of the columnist and in no way reflects the opinion
of ABC News.
Copyright © 2005 ABC News Internet Ventures
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