Microsoft’s Challenges

Business Week has a cover story on Microsoft’s midlife crisis: “Threats abound: Linux. European trustbusters. Key product delays. Can Gates & Co. restore growth?”

With a market cap of $279 billion, its valuation is the second highest in the world after General Electric Co. And it remains the most profitable company in the $1 trillion tech industry, pumping out $1 billion a month in cash.

But Microsoft just isn’t the phenom it used to be. After 29 years, the software giant is starting to look like a star athlete who’s past his prime. Growth is tepid. Expansion is stymied. Bureaucracy is a concern. And a company that used to be so intimidating it attracted antitrust suits on two continents seems, well, vulnerable.

The threats it faces are among the most serious in Microsoft’s history. For starters, there’s Linux, the software dubbed “open source” because the code is shared freely by developers around the world. With grass-roots and government support from Finland to China, Linux has become so popular that it’s challenging Microsoft’s core business as no rival ever has. Europe’s trustbusters are coming down hard, too. On Mar. 24, they smacked the company with a ruling aimed at preventing Microsoft from leveraging Windows to gain ground in new markets, which could keep the giant tied up in court for years.

But most worrisome are delays of the new operating system, the very heart of Microsoft’s business empire. Code-named Longhorn, the next version of Windows is an ambitious attempt to fundamentally change how people use computers. But critics have taken to calling it Long Wait. Already, execs concede that it won’t debut until 2006, three years after researcher Gartner Inc. (IT ) originally expected it to ship. That means Longhorn will come out five years after the last operating system, the longest gap ever between major Windows updates. And BusinessWeek has learned that to hit even that target, Microsoft is lowering its sights for the product, cutting back on key features such as an innovative way to store and search information on PCs. “Schedule is a priority for the release,” wrote Microsoft Vice-President Joe Peterson in a Mar. 19 e-mail to employees on the project. “[We] expect teams to scale back features to meet target dates.”

All this has Wall Street’s best and brightest penciling in estimates for Microsoft that would have been an insult a few years back. Never mind 30%, or even 20% revenue growth. The optimistic forecast is for 11% growth over the next few years, shown here as the best-case scenario…In other words, after nearly three decades of outracing the market, Microsoft is expected to be a middle-of-the-pack performer.

My take: Microsoft’s biggest challenge is in the next markets (the 500 million non-users of technology today). This market needs affordable, whole solutions, priced like a utility. It calls for a fundamental change in thinking.

You are Your References

Seth Godin writes:

Your references are everywhere, all the time, whether you want to share them or not.

Wherever we go, we leave electronic footprints. When you post a complaint on Epinions.com, a review on Amazon, or a comment in a newsgroup, your opinions are shared, with everyone, forever. Buy a house, default on a credit card, switch jobs a few times–it’s all there, online, for everyone to see.

If a friend tells me a play is no good, I don’t go. A friend’s recommendation will also determine my choice of lawn-care service or an island to vacation on. My publisher just sent me an email asking about a potential author–and if I don’t back up the author’s version of our relationship, he won’t get the contract.

No person or company can escape their past. You can no longer change your prices with impunity, because the old price lists may be cached at The Internet Archive’s Wayback Machine (www.archive.org ), which regularly takes snapshots of Web sites and stores them forever. With a little care, you won’t hire a manager with a history of abusing his employees, because the lawsuits are all in the public record.

So what should we do? Should we fret and live in fear of our past actions and words coming back to haunt us? I don’t think so. There’s a bright new opportunity just sitting here, waiting for organizations and individuals to take advantage of it: Spend your future creating your past, starting right now. Live your life out loud, well aware that everything you say can (and will) be used against you (or for you). Treat every customer as though he could turn into a testimonial. Treat every vendor as if she could give you a recommendation. And then, when the time comes, the seeds you’ve sown will pay off.

Blogs, newsgroups, professional organizations, and all the rest are perfect for someone who wants to leave a vivid, positive trail. You can choose to use the new tools or to become a victim of them.