Shake-up at Microsoft: It's about time

Microsoft recently shook-up its Entertainment & Devices division in an attempt to jump start its device efforts and pose better competition to Apple and Google. Here are five suggestions as to what they should focus on next.
Written by John Carroll, Contributor

As reported yesterday and rumored since last week, Microsoft has made a top-level reshuffle of the Entertainment & Devices (E&D) division. Both Robbie Bach, a 22-year veteran of Microsoft, and J Allard, a key player in the development of the XBOX and Zune, are out.

That's a big change, but clearly, change is what the E&D division needs. Non-PC devices are the fastest growing segment of computing today. It is the base upon which Apple's incredible market capitalization gains have been built (which, obviously, are due to Apple's wild success in creating new categories of devices). Entertainment & Devices are critical to the future of Microsoft as a company. It's failure to grow into a strong source of profit puts at risk Microsoft's ability to remain influential in the coming decade.

Bloggers tend to be people with strong opinions, and I am no exception. I also used to work in the E&D division at Microsoft, which makes the impulse to express my views on this subject even keener. Therefore, excuse my boldness, but I have a few suggestions to offer to the new people in charge. This is hardly a comprehensive list, and may be unfairly tilted towards the TV space due to my former role at Mediaroom. In my defense, though, next to Microsoft's mobile phone strategy, I think television is the most important (and furthest along) of Microsoft's non-PC businesses.

These ideas don't ask Microsoft to strike off in radical new product directions, as would be the case if they were to attempt a near-term challenge to the iPad (which, as I explain later, would be wasted effort at this point). They just ask Microsoft to embrace what they do well, build on what they already have, and stay focused on the "right angle" turns (i.e. Windows Phone 7) that are critical near-term priorities.

1. Leverage XBOX properly as a living room platform

Though the XBOX 360 didn't end up the number one console this generation, it did manage to beat Sony, which given the dominance of the PS2 in the last generation's console wars, seemed an almost insurmountable task. They also have avoided a "me, too" approach in its embrace of the motion controller concept that was key to Nintendo's success. Project Natal's "controller-free" controller is an innovative way to bring motion interactivity to the XBOX, and I'm looking forward to updates on the technology at this year's E3.

It's fairly clear that Microsoft has achieved its original goal of becoming a credible presence in console gaming. It is now time to focus more intensely on growing beyond it.

Moving beyond gaming has grown in importance given recent developments. Google TV builds on the Android platform, and aims first and foremost to improve the TV experience by melding it with the Internet. Google is almost certain, however, not to confine themselves to just television services. Games will be an important component, and though they may not be the mega-productions targeted at the current crop of consoles (at least, in the near term), they may be enough to attract the casual gamer, a group of users that Nintendo has proven is larger than the "hard core" gamers that were the initial focus of Microsoft and Sony.

Google isn't alone as a competitor, however. Though devices like the Roku offers a platform for television enhancements, the growing number of DVD players offering integration with Amazon's "On Demand" video store is notable. Television-focused Internet services are finding their way onto a growing array of TV attached devices.

Fortunately, Microsoft has a strong and growing casual game story, boosted as it was by the XNA platform and an XBOX Live in-console store that enables small companies and individuals to offer gaming products direct to consumers. Likewise, XBOX hardware can reach gaming heights that it will take Google some time to match. Games, in other words, aren't the problem. The problem is that games constitute only a fraction of what is possible with that large (and now, comparatively high-resolution) display area that sits in the middle of most people's homes. Focusing on just that fraction creates a competitive chink in the armor that could give Google (among others) the competitive toe-hold they need to lever up to become something much more.

When XBOX was the upstart challenger, focusing on gaming to the exclusion of all else made sense. It was and still is, however, a bit like balancing your checkbook with a supercomputer. Someone is bound to come along and use it more effectively than you.

Microsoft has already convinced millions to pay a subscription fee just to be able to interact with other users. In fact, they have more networked gaming users than any of the other major console manufacturers. XBOX is, for all intents and purposes, the premier networked gaming console.

Microsoft should build on that. As a first effort, they need to offer more reasons for non-gamers to pay the XBOX Live fee. It took me years to get around to buying an XBOX Live subscription, because I don't play games enough to care about playing other people over the Internet (who would, frankly, destroy me, as I don't play enough to be particularly good at it). What pushed me over the edge was Netflix. If there were a lot more services like that, I would have taken the plunge years ago.

Content deals for services automatically included as part of an XBOX Live subscription will certainly play a role. I've long thought, however, that the XBOX team paid insufficient attention to the kind of thing that drove the popularity of desktop Windows - third party applications.

Yes, third parties write GAMES for the platform. Third parties, however, have a hard time making interesting non-game applications given the extreme limits Microsoft places on network access...except when you are "favored" provider like Facebook, Netflix or Last.fm. That a colossal missed opportunity, in my opinion, which prevents Microsoft from keeping pace with innovation in the "living room automation" space.

Unleashing network access to third party applications doesn't mean that Microsoft would have to erase the XBOX Live "pay gate," though growing competition might put some pressure on it. I do think people would pay an access fee if they felt they derived real value from it, and it was kept "reasonable" ($50 / year, the current price of an XBOX Live Gold Subscription, qualifies as reasonable, in my opinion). The goal should be to make the world behind that gate so compelling that people will want to pay to get into it, something that is easier to achieve in television given that people are still accustomed to paying for video services (a contrast to the Internet, where people are not). That goal is only achievable if Microsoft and a handful of favored companies aren't the only ones driving innovation atop the XBOX platform.

2. Play to your strengths

This probably sounds like the guy with a hammer who views everything as a nail (I am a developer, after all), but Microsoft plays insufficiently to its own strengths. The company spent the last few decades assembling within itself some of the most well-known software engineers in the world. Clearly, one of Microsoft's key competitive advantages lies in the creation of software platforms.

Focus on this. Microsoft framework divisions are busy pumping out powerful development technology, and yet have a hell of a time getting internal divisions to actually use it. Personally, I'd love for Guthrie and his lieutenants to have the power to force wayward managers to follow a consistent development line. As a random follow-up on that, I think there needs to be a team whose only role is to analyze the software plans of various divisons in order to prevent them from accidentally reinventing, say, Session Initiation Protocol (SIP). As I intimated in a previous article, I can't figure out why Silverlight isn't being made into a mandatory component of the product strategies of every division within the company. Microsoft benefited from the company-wide adoption of COM. Silverlight standardization would provide a mutually-beneficial fabric for user interfaces that span device categories, and can be evolved by Microsoft a lot faster than HTML, CSS and Javascript.

I was surprised when Microsoft didn't focus on third-party extensibility in Zune from very early on. Likewise, as noted, the odd restrictions in the XBOX environment have never made much sense to me. If ANY company should place a premium on third-party extensibility, it is Microsoft.

Development technology by itself is clearly not enough. If it wasn't for people like Julie Larsen-Green, now in charge of the Windows user experience, the Office franchise would have hit a wall by now, and Windows 7 wouldn't have become the revenue spinner it currently is for the company. Obviously, design has to take primary importance.

But, with every WHAT comes a HOW. Good design is the WHAT. The HOW is what people like Guthrie and his collection of top-notch software engineers bring to the table.

Give the people who understand the strategy of HOW the power to impose consistency throughout the company...after the Design people figure out the WHAT. Doing the HOW properly is something that Microsoft has spent years building the necessary competencies to do. Good companies always make it a point to leverage what they already have.

3. Stay focused on getting Windows Phone 7 off the ground

One of the smartest thing Microsoft has done in quite awhile is decide NOT to do something. They canceled the Courier before it could be released as an expensive, hard-to-understand product that didn't sell and made Microsoft look like it was yet again lured down the "me, too" rabbit hole as it chased something Apple had done first.

Okay, maybe I'm being unfair to what the Courier could have been (though since it was never released, that's like saying I'm being unfair to space cruisers that visit neighboring star systems). Maybe J Allard's team had figured out an incredible two-screen UI concept that would surprise and amaze people for its simplicity. And, maybe he would have navigated the hardware economics to build a two-screen device that was within range, price-wise, of a single-screen iPad (though a certain Wayne Campbell quote involving emergent monkeys springs immediately to mind).

Distraction, however, is one of Microsoft's biggest problems, particularly given the current size of the company. Take the Kin. Microsoft probably felt the need to release the Kin because they had just spent a billion dollars buying Danger, maker of the former teeny-bop star Sidekick, in a quixotic attempt to buy their way into a consumer mobile strategy. Unfortunately, rolling the Kin out based on a still in-flux Windows Phone 7 base was a mistake, in my opinion. I think the concept was good, and I like the notion of all your media being instantly available online, but when you get an Engadget review that is as frighteningly bad as it was, it's a sure sign that you have pushed something out too early.

It would have made more sense to release something like the KIN after Windows Phone 7 had carved a place for itself in the fast-growing consumer smartphone space. How many resources were spent integrating the Danger acquisition or preparing for the KIN release that could have been aimed towards making Windows Phone 7 ready for roll-out this Fall?

Focus on making Windows Phone 7 the best platform for mobile applications. Given the core competencies Microsoft has constructed for itself in its 35 years as a company, this is something that should be achievable (and, personally, I think Microsoft is on that path, as Silverlight is a great base for mobile applications). Getting customers on board is a different issue entirely, as few consumers will buy a platform for its great developer APIs (though they might if the applications are better because of it). At the very least, however, the product should be reflective of Microsoft core competencies. Put your best foot forward, in other words.

One thing Microsoft definitely should NOT do, however, is try to compete with the iPad...at least, not yet.

iPad has shown that there is a natural glide path from mobile phone operating systems to tablet PCs. So, focus on the basics first. Make a phone interface that is easy to use in the 2-3 minutes the average phone user interacts with their phone before moving on to something else. Build the touch-enabled Silverlight applications that are important to that form factor, and if you run into any platform kinks, fix them (something that is a lot easier to do if all internal Microsoft divisions are firmly on the Silverlight train). Once you get those things right, you are better positioned to build a platform that makes sense on a Tablet form factor.

Remember, Apple was first with a mass-market graphical user operating system. You were the first software company to take a stab at the mobile market. Being first is great, but being second can be a lever up if you have clarity of purpose, a strong product concept and the resources to make it all happen.

4. Give your TV strategy proper focus

In spite of my previous article detailing how Microsoft could lose the TV space rather quickly, that outcome is far from a fait accompli. Microsoft has no choice but to perform a system reset on its mobile business given competition from iPhone, Android and Blackberry. TVs, however, still provide a bit of breathing room for Microsoft.

Apple TV is a mostly orphaned product. Though Jobs would never admit this, I think Apple would have a hard time making Apple TV truly fly. Yes, they have great content relationships due to their success with the iPod. Content companies, however, will get into bed with anyone who helps them sell more media. Further, Set-Top Boxes are designed to be unobtrusive and ridiculously cheap, two things that don't play to Apple strengths.

That isn't the case with Google TV. Google is a service company, and as such, has more skills that can be directly applied to the TV space. Plus, Google TV devices will be as low-cost as it is physically possible to be. Android is free, and Linux is free. Customers will only pay for hardware and any software services that run atop it. Borrowing a page from Microsoft's playbook, Google relies on third-party OEMs to build the supporting hardware, thus generating the kind of competition that drained costs from a PC market oriented around the Windows operating system.

Granted, the free nature of Android-based Google TV will put downward pressure on per-unit licensing fees (the traditional way Microsoft has made money). Windows, however, has yet to be displaced by free desktop alternatives, and the single biggest competitor to Windows isn't Linux, but higher-cost Macs. Clearly, Microsoft can't expect anywhere near the licensing revenue from an embedded OS. Microsoft's goal, as it was with Windows, is volume, and there are a LOT of Set-Top Boxes in the world. Even if the per-seat license isn't zero, it will still be relatively small, particularly if you have other means by which to derive revenue (i.e. common application store, tie-ins with things like XBOX, etc).

On the applications front, Microsoft's years of effort offer considerable advantages, particularly as they bring Silverlight to bear on the TV experience (never underestimate the power of consistency across platforms). What is needed is someone with a clear vision of where things should head, and the power to drive teams in a common direction.

Media Center needs to be set free to inhabit Set-Top Boxes and TVs (which they are doing; they already have the PC side, which will be useful once it can be found in TVs and STBs as well). Pull Mediaroom into a tighter orbit around the interfaces offered by Media Center, and make the Mediaroom back-end compatible with all the other media consumption technologies within Microsoft (and no, I don't mean just build the current Mediaroom client into other Microsoft devices...that was and is a crazy notion).

To summarize, Microsoft needs to make all its television-focused media efforts spring from a common conception of the future of media streaming in the home. There seems to be some awareness of that within the company. Efforts in that direction can't have ended with the deparature of Mr. Rodriguez.

5. Find your device muse

As intimated above and in past blog posts, Microsoft needs to find a person with a coherent vision as to how the software giant can stitch together its disparate device businesses. I've complained about how fragmented Microsoft's TV strategy is. It's not fragemented because they are trying to attack from a PC, Internet TV and Cable / Service Provider standpoint, as those are all valid endpoints for consumption. Rather, it is fragmented because the products that focused on those segments initially have been allowed to become empires unto themselves instead of letting a single core become the base into which everything hooks.

Imagine what would have happened if some politically-ambitious manager with visions of Microsoft empires dancing in his head had tried to build an alternative to Windows. After laughing hysterically for about half an hour, Bill Gates would have smothered him with a large, fluffy pillow.

For some reason, nobody saw the way straight to make a common platform within Microsoft for TV. In TV (and devices in general), Microsoft needs the metaphorical guy with a fluffy pillow (an analogy which sounded a lot better in the previous paragraph).

A common platform that spans a particular product category isn't a silver bullet. Clearly, Windows Mobile was a common platform, and ran smack into a giant, pleasingly-backlit Apple logo (and increasingly, a large smiling green robot). But, irrespective of the problems faced by Windows Mobile, it doesn't alter the simple reality that different teams moving in incompatible directions blunt the force of Microsoft's efforts. Consistency, where it isn't derived naturally (as Windows was) is created by individuals with a central vision of how things should work combined with the political power to make it happen. I have no idea who that person with a central vision is at Google. It's clear that Steve Jobs fills that role at Apple.

POWER, however, is a critical component. Unfortunately, Microsoft can't duplicate the power of a Bill Gates, as life isn't an Aldous Huxley novel where historical photos are edited to create "founders" who never existed. But, they have found ways to put the right people in power in some divisions. I don't think it is an understatement to say that Steven Sinofsky and Julie Larsen-Greene saved Microsoft's core product franchises.

The experience with Windows and Office was a clarity born of a survival instinct, to be sure. It reveals, however, that Microsoft can pick and enable the right people when they put their collective minds to it.

In Conclusion

Though I may be accused of sounding a bit Pollyanna-ish, Microsoft has managed to turn the corporate ship on a dime before. In the 1990s, Microsoft almost managed to miss the dial-up Internet boom. Gates managed to navigate the company through that, and did so in a way that secured Microsoft's role as the dominant operating system ever since.

Today, it's not so much that Microsoft is ignoring markets, but attacking them in a strange and haphazard way. Microsoft isn't lacking for bright people with good ideas from a design and software engineering standpoint. I saw them, up close, during three years working at the company. What they lack is focus, and that comes from putting the right people in a position of power to impose it.

I fully support the recent E&D reshuffle, even as I concede Joe Wilcox's point regarding its unfortunate timing. I do think they chose well by making Joe Belfiore the point-man on Windows Phone 7. Joe is the originator of the Media Center concept and a person, I think, who understands the need to leverage Microsoft's existing skill sets (Media Center was always a proper platform, however limited it was from a living room standpoint by being tethered to desktop Windows).

At the end of the day, Microsoft has very little to lose from a dramatic shake-up. A "mere" $169 million profit last year on $7.76 billion in revenue is slim excuse for timidity given the size of Microsoft as a business. Change has to happen if Microsoft's TV efforts are to meet their potential, and if their "right turn" on mobile phones is to gain any traction.

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