When does Microsoft stop being Microsoft?

An astounding twenty years ago, my father bought Bill Gates’ book, “The Road Ahead”. A business book barely interested me at that age, but it came with a CD-ROM (contents above) that showed an exciting future, much of which will sound familiar today. It seemed only natural that Gates’ company, Microsoft, would play an integral part in this future. Who would have guessed that Microsoft would fail to be the leader of so many of today’s dominant technologies? In smartphones, they are reduced to competing for the “middle ground” with Sony, as Apple and Google innovate. In television, again, Apple and Google, as well as the likes of Amazon, Netflix. In gaming, it has lost the console crown to Sony’s Playstation 4. And its famous OS, Windows, went through significant problems in its most recent iteration when myriad complaints about the absence of a Start button and a generally perplexing UX caused a volte-face that served as an embarrassing period for the company.

Since Satya Nadella took over as chief executive last year, there has been much talk of change in the way Microsoft does business, and indeed, in which businesses it will continue to operate in. But how much should Microsoft change before it loses touch with its roots? When does Microsoft stop being Microsoft?

In an article published in The Economist last month, the newspaper detailed how any business project that seemed to operate in an adjacent or transformative area for Microsoft – and thus by implication weakened the focus on Windows – was given short shrift during the days of Gates, who was known to utter in disbelief: “WHAT are you on? The ‘fuck Windows’ strategy?”. The Economist goes on to write that many of the companies best innovations were killed at the hands of this “strategy tax”. This phrase reportedly makes Mr Nadella shudder now, and he encourages innovations in areas that interest people. This has had noticeable effects; Microsoft wares are no longer confined to a walled garden. Office programs are available on smartphones, and the company is working more closely with Linux, an open-source platform that erstwhile chief exec Steve Ballmer once referred to as a “cancer”.

This previous reluctance to embrace open-source drove initial (and hugely profitable) success. But today, as computing moves to the cloud, The Economist writes, “this model is breaking down. Software is becoming a service delivered over the internet and mostly based on open standards”. Although it innovated in the right areas – specifically cloud computing and smartphones – its reluctance to allow people to run anything on these platforms but Windows OS not only narrowed their offering but allowed for competitors, the likes of Amazon and Apple, respectively, to move in. It is thus interesting to note that Nadella’s motto for Microsoft is “mobile first, cloud first”.

It is interesting to note that Mr Nadella rose to the top via Microsoft’s cloud business (Azur), rebuilding revenues by “letting customers use their own choice of software”. Office is available as a freemium model, and he has reached across the aisle in making it available on Android and iOS devices. The company allows Office 365 users to save their files “on the servers of Box, an enterprise-software firm. ‘They used to treat us like arch-enemies’, says Aaron Levie, Box’s boss.” Importantly, the ways of working have changed there; agile work practices are now in place, with products being tested and released iteratively under the umbrella “Garage”.

These changes are evidently not merely cosmetic. It does seem to be part of a renewed focus (that may even involve the spinning off of Xbox). It is key changes like this that IBM – a behemoth once surpassed by Microsoft, which is in its own throes of evolution as it looks to consulting and a partnership with Apple – is also engaging in. There are challenges though. On the subject of clawing back the hearts and minds of mobile developers, Microsoft co-founder Paul Allen told The New York Times recently, “It’s very challenging to carve back market share”. It speaks to a larger problem around talent. Marco Iansiti of Harvard Business School commented recently “Microsoft has lost a lot of great people”. Furthermore, its cloud and mobile focus could be dangerous; while its cloud services revenue is growing, it will not be enough to be make up for losses elsewhere. In mobile, the purchase of Nokia is increasingly seen as a misguided decision. Such challenges are compounded by the fact that, as Allen says, Microsoft has “more competitors than any major C.E.O. in the world” has to deal with. Faced with such fundamental change to the business on its own Road Ahead, it should be of small comfort that Boston Consulting Group published a report in April entitled “There’s no such thing as corporate DNA”, with the subheading “Why You Have to Be Prepared to Change Everything to Endure“.

Microsoft’s ‘New Coke’ moment – On knowing when your customer is dissatisfied

Microsoft has been trying its hand at a bit of innovation of late in an attempt to raise some of its lost brand equity, and stem the larger market decline in PC sales, which has recently started accelerating. (On a side note, Deloitte have a caveat to these figures, saying the true measurement is in usage, not units).

One of the ways this innovation has come about is in the release of its Surface product, which has interested many but earned the ire of erstwhile manufacturing partners as Microsoft has pursued its own path, making the product in-house. Its new operating system, Windows 8, has struggled to gain traction with consumers. The president of Fujitsu, one of Microsoft’s partners, declared interest to be “weak” back in December last year. The most obvious step-change from previous iterations is the slate screen that greets users upon booting up. On proceeding through this, users then come to a more familiar Windows layout.

In yesterday’s Financial Times, Microsoft said it was preparing to “reverse course over key elements of its Windows 8 operating system”. Envisioneering analyst Richard Doherty was quoted as saying it is the biggest marketing fiasco since New Coke. The only difference being, Doherty comments, that Coca-Cola acknowledged their error three months in, whereas Microsoft is pushing eight months now since launch; Coca-Cola conversely paid more attention to what its customers were saying about the product. “The learning curve is definitely real”, said head of marketing and finance for the Windows business, Tami Reller.

IDC research tells a discouraging story for businesses relying on PC sales

Today’s FT featured an editorial entitled “Steve Ballmer was right to gamble on change”. Opening with a quotation by Bill Gates, saying that to “win big you sometimes have to take big risks”, the editorial cites Kodak as a primary example of a company that refused to take risk, and ended up succumbing to creative destruction at the expense of trying to protect legacy revenue streams. We’ve written before about Kodak and creative destruction. The editorial calls for a revival of a “climate of creativity” at the company, and certainly that is what Ballmer is trying to instill, very nobly and with good reason. Zeitgeist’s bone of contention is with the following, seemingly logical statement,

“…disruptive innovations are disruptive precisely because the new technology does not appeal to traditional customers. Instead, it appeals to the customers of the future.”

We would argue that Microsoft’s customer base is made up overwhelmingly of what might be considered “traditional” customers. Users who find familiarity with a long-established incumbent, who have no interest in OS alternatives like Linux, Apple, Android or Mozilla. They are not looking for a revolution. By all means change your product, but it must evolve, not look like a completely different way of computing when you switch it on. This point is confirmed nicely by a recent piece in Harvard Business Review, which details how to get customers to value your product more. The author, Heidi Grant Halvorson, describes the importance of knowing the right emotional fit for your customers’ mindset. The article elaborates,

“motivational focus — whether he tends to view his goals as ideals and opportunities to advance (what researchers call “promotion focus”), or as opportunities to stay safe and keep things running smoothly (“prevention focus”). While everyone has a mix of both to some extent, most of us tend to have a dominant focus.”

We would argue that users that prefer Microsoft Windows OS to other systems would strongly fall into the latter category. Change is perhaps inevitable, but Microsoft are choosing a precarious path with such radical changes aimed at a group little interested in such fundamental alterations to the way they interact with such an integral device.

The Pitfalls of Brand Personification

In a quest to be all things to all people, brands can sometimes lose their way. They become lost in a miasma of dilution as they try to stretch their brand equity to appeal to every consumer, or branch out into new markets. Some, like Virgin, have managed this fairly successfully – let’s forget for the moment about Virgin Brides – while others, such as Cisco (which we wrote about recently) have fared less well. Virgin’s equity relies in part on the man behind the company, Sir Richard Branson. His affable qualities have appealed to both consumers and investors. The balance he maintains is a delicate one, driving the essence of the brand without ever overwhelming it.

In the world of luxury, companies have often used brand ambassadors. The watchmaker Breguet has long claimed that luminaries such as Napoleon, Churchill and Marie Antoinette wore their brand. Each of these characters had their flaws of course, not least the megalomaniacal Frenchman. However, when the person personifying the brand is also at the rudder of the ship, the situation can prove more complex. This was evident in March this year when master designer John Galliano was fired from his creative directorship at Dior, as well as from his role at his eponymous label.

Similarly affected by ramifications at the top has been Lagardère Group, run by Arnaud Lagardère, who inherited the company from his father. As well as owning a range of media assets, it also has a 7.5% stake in the defence contracting firm EADS. Recently the 51 year-old has taken up with a 20 year-old model by the name of Jade. A cutesy video for a glossy magazine shoot made its way online (see below). Any semblance of dignity the man maintained – already in question prior to this video – was lost. This may decide future business directions at the company. Arnaud is a keen sports enthusiast, at one point mulling a bid for the rights to the Tour de France. Any such wishful thinking must now be considered just that as shareholders are keen to refocus on existing assets. His overt publicity has cost him dear; Arnaud may now be at risk of losing some of his control over the company. Writes The Economist,

“Executives at EADS are dismayed to see their future boss behave like a nincompoop. “In Germany any manager who shot such a video would be finished in business,” says a person close to the company.”

And so we turn to Apple, which has been recently hit with the news that Steve Jobs will be stepping down from his current role. He will remain at the company as chairman of the board, and his ideas and personality will affect the company’s direction for several years still, but after that the company’s direction, and its brand equity, will be at a crossroads. The company has, even relative to its own stellar performance, recently been enjoying great success, briefly becoming the world’s largest public company. In managing this feat, it overtook Exxon Mobil. As The Economist pointed out, however, “oil remains a vital raw material” (though not for a great deal longer, admittedly), whereas Apple’s appeal is in “delighting customers”. A company that serves such a fickle master so directly is in danger of losing said appeal at any given moment. Last week, an editorial in the FT pointed out that an Apple without Steve Jobs at the helm will be a less irascible but also a less happy place, and hence perhaps less appealing to customers. The New York Times echoed such sentiments that weekend, with an article headlined “For Apple fans, departure of Jobs is personal”,

“…[P]eople love Apple products in a way that they do not love other products they use every day. And Mr. Jobs as chief executive has been uniquely connected to Apple’s creations.”

The article details personal consumer reactions to the news, which range from tearful incredulity to concern over future business inspiration and product innovation.

All of which goes to show that having an impresario at the top can benefit a company hugely for decades. Could Steve Jobs have made Apple as popular, while taking a slight back seat, a la Bill Gates, Howard Stringer, Howard Schultz or Jack Welch? Probably not. If he had, Apple wouldn’t be the company it is today. But one thing’s for sure, what it is today will not be what it is in the future, when Jobs’ influence has left and the company has to decide which path to take.

Cisco’s Internet of Things

Cisco is an interesting brand that Zeitgeist has briefly had the pleasure of working on regarding its IPTV offering. What’s that you say, Cisco are planning an IPTV offering? Well, yes, they were about 18 months ago; who knows now? One of the interesting things about the behemoth is that most lay consumers have probably heard of the company but couldn’t tell you what on earth they do, other than that they might be in the technology sector. The Economist bluntly assessed recently that Cisco had “vastly overdiversified”. This opacity has led to declining, if stabilising, stocks.

That doesn’t stop it from putting interesting infographics together, however. Spotted on integrated agency MBA’s blog, this lovely picture illustrates nicely the importance and ramifications when devices we use everyday are increasingly connected to the Internet and hence to each other, other seamless integration and communication. Nice one, Cisco. Of course this is the kind of thing that Bill Gates was writing about when he published The Road Ahead, when Zeitgeist was but a weedy 12-year old. We do finally seem closer to those imaginings now.

Microsoft and Google

From the August Zeitgeist…

Tensions between Microsoft and Google have long been simmering; here we look at Microsoft’s recent moves and effects they are having on its brand.

On 29th July, Yahoo! and Microsoft announced a search deal in an attempt to compete with Google, though it seems a fair bet to say the latter will benefit in the short-term as the two companies spend time integrating. Microsoft is talking up its upcoming operating system, unimaginatively titled “Windows 7” and promoting its new Internet Explorer with a graphic commercial, that anyone watching won’t soon forget, although it’s unclear what Microsoft is trying to say about its brand or audience here.

Windows Vista has proved a disappointment; Reuters reported that many companies thought it “unstable”. The newswire service now reports that according to a recent survey, 60% of companies surveyed will not be upgrading to Windows 7.

On July 8th, TechCrunch led with “Google drops a nuclear bomb on Microsoft. And it’s made of Chrome”. In 2010 Google will launch an open-source, lightweight OS – at first on netbooks – in an “attempt to re-think what operating systems should be”. Google pointedly note that current Oss “that browsers run on were designed in an era when there was no web”, makes it even more painful. TechCrunch points out, “What Google is doing is not recreating a new kind of OS, they’re creating the best way to not need one at all”.

The ever-impartial Bill Gates is quoted in Brand Republic saying the Chrome OS is “nothing new”, noting that the fact that Chrome is both an operating system and a browser shows how broad the term ‘browser’ has become.

“The more vague they are, the more interesting it is… It just shows the word browser has become a truly meaningless word… In large part, it’s more an abuse of terminology than a real change.”

Perhaps product differentiation rather than pedantry would have benefitted Microsoft’s brand more? The battle of browsers, operating systems, and words, continues.

The new search deal means that strategies for digital campaigns must now increasingly be thought of in the context of Bing/Yahoo! algorithms and SEO, as well as Google. It also gives clients more choice and flexibility, as Sir Martin Sorrell noted: “It is very welcome for our clients as it brings more balance to the search marketplace and may moderate pricing.”