Microsoft vs. Apple: Is Vista the Answer in the Era of Consumer Computing?

Overview

I am back to share more thoughts about Microsoft. And Vista. And Apple. I have used my company's pretty neat tools over the past few days to do some research, collect some data and develop a view about what is up with Microsoft. This is going to be a pretty long post so I understand if you want to get off here. But there is so much to talk about that requires both historical context and leading-edge perspective that, but necessity, I will write - a lot.

You pretty much know my view of Microsoft - a big, great, bureaucratic, confused company that has lost its way. I'd like to augment this view with some fresh data concerning Vista, how Microsoft is positioned relative to Apple, and how we have ushered in a new era - the Consumer Era of Computing - for which Microsoft is ill-prepared. And my connect-the-dots analysis leads to painful and stark conclusion: Microsoft, for all its financial resources, intellectual capital and historic success, is at risk of being marginalized in tomorrow's world. The terms of trade have changed, and thus far they have seemed to lack the currency necessary to play. With all the brains and money at their disposal the chance of a turn-around certainly cannot be discounted, but it is the embedded cultural and market perception issues that give me the most pause. But see what you think.

What Did We Learn From Netscape? From Linux?

Does anybody remember the original mid-1990s Browser Wars? Old gray-hairs (or no-hairs in my case) like me do. The bottom line was that a little company called Netscape emerged out of nowhere and scared the crap out of big, bad Microsoft. And then, as Microsoft has done so well over the years, it trained its guns on little Netscape and went in for the kill. And yes, eventually IE went on to grab 96% of the browser market (which is currently under assault from the likes of Firefox). But that wasn't the point of the story. The story is that it is possible for small, innovative companies - no, entities -  with great ideas to upset the status quo. And this is what happened with Linux.

Linux essentially proved that the Microsoft OS was vulnerable, depending upon the application. This free and open challenge to ubiquity was something much harder for Microsoft to deal with. How could they simply crush something that was open source, benefiting from legions of developers from all over the world that weren't burdened by traditional platforms or corporate legacies? Answer: they couldn't. Linux has created a platform shaped by consumers for consumers, which is really the point. It represents the antithesis of the "People will buy what we build" ethos of GM, Ford and other formerly great companies. The key question is if Microsoft is now in this camp. 

The Consumer Era of Computing

With the Internet, cheap storage and massive processing power, the playing field has flattened measurably. One doesn't need thousands of developers, hundreds of man-years and tens of millions of dollars in "big iron" to develop applications people want. People want to connect. People want to be able to share. People want to discover. Pictures, movies, music, email, web pages, files, spreadsheets, and more. This means that people want programs and applications that are easy to use. And fun. And open. People and companies became dependent upon Microsoft because the lack of computing power and bandwidth called for a high degree of desktop integration. However, this isn't the case any more. Big, heavy OS and related applications simply aren't necessary. Google threatens Microsoft in search and email. Apple is chipping away with consumers. And these are only two of many companies that are relentlessly challenging the Microsoft franchise. Further, I think what Apple is doing is actually pretty profound.

Apple has control over its entire value stack, while Microsoft only controls the software. In most places I'd argue that "vertical integration" is a bad thing, but Apple has created a total user experience second to none, which is evidenced by their intensely loyal and growing following. Apple is all about the consumer, and if the Mac wasn't enough the iPod certainly drove the point home. It is this laser-like focus on the customer intersected with innovation and out-of-the-box thinking that has led Apple to the position it's in. Apple is an innovation leader - what about Microsoft?

Innovator or Follower? Has Microsoft Lost its Way?

The online edition of the Wall Street Journal 12/1/06 had an interesting discussion between Dave Winer and Robert Scoble on the topic. Says Winer:

Microsoft isn't an innovator, and never was. They are always playing catch-up, by design. That's their M.O. They describe their development approach as "chasing tail lights." They aren't interested in markets until they're worth billions, so they let others develop the markets, and have been content to catch-up. This worked well for them in the 80s and through the mid-90s, when they were a more nimble company with stock options that were attractive to bright young people, when Bill G had something to prove, and was current on the latest technology. Maybe it still does work (obviously I have doubts), but it sure isn't innovation, in any usual sense of the word.

Microsoft is troubled. They've grown to the size of IBM when they ran circles around them, and they behave like IBM, they even talk about themselves like IBM used to talk about themselves, showing a dangerous confidence that is very un-Microsoft. Their strength, even charm, was their lack of hubris. Gates could always see their demise, vividly and clearly, this was a picture he drew for the people of Microsoft so they would always be looking for the angle that would save them from their demise. Today they seem to believe they're as permanent as IBM thought they were in the 80s, when the conventional wisdom said that no one got fired for buying IBM. That didn't save them when the PC industry changed the rules on them, much the way the rules are being changed on Microsoft.

Further, the one thing they used to do better than most tech companies, empathize with the user, is now a weak spot. I was an exclusive Windows user myself until mid-last year, when I switched to the Macintosh, because the malware situation had become so awful on Windows. I feel Microsoft could have done something about this before it became so bad, but they didn't.

While it may seem that Dave woke up on the wrong side of the bed, his criticisms kind of ring true. But it is the last paragraph that I find most troubling. Losing the pulse of your customers is the kiss of death. Especially when you are undertaking multi-year, multi-billion dollar projects. Like Vista.

Vista: It Takes (More Than) a Village

10,000 programmers. 5 years. Building pyramids, building operating systems, whatever. Check out this recent post from a Longhorn-cum-Vista beta freak, who has dorked around with the various builds dating back to November 2002. When you consider that YouTube, Digg and literally hundreds of commercially successful, relevant services have been created, bootstrapped, funded, bought and sold for a fraction of the cost and in a sliver of the time of Microsoft's latest OS project, it is hard to imagine how the development team members could possibly have stayed close to the market when the market has undergone a sea change over the past five years. Check out these keen insights from THe.CODiST[] 12/5/06:

The development of Microsoft Vista apparently took 10000 employees 5 years. This is even more people than I would have expected (assuming it's close to the truth, estimates are usually way off). Big Bang projects always seem to attract huge budgets and massive headcount, but there are few companies out there who could even field such a large workforce and invest so many billions.

The Vista development story has been covered heavily over the 5 year period, starting off with a bang (of course) of new directions, technologies and features, and ending with a whimper of reduced expections. That it even shipped at all is a miracle, although the real test will be when people start using it for real. Big Bang projects usually fail completely.

It would be interesting to know how many actually programmers and architects were part of this horde of people. Copland's engineering team was about 500 people, but I know not all were actually programmers. The largest team I ever worked with in my entire career was about a dozen people, in two states, and even that was fraught with communications issues. 12 people have 66 potential conversations; 10,000 people have 50,000,000. I have a hard time imaging any way to effectively manage a group of people that size working on a single project in any industry.

The Manhattan project ultimately employed around 130,000 people and cost (in today's dollars) something like $20 billion; however the core team was relatively small (a few hundred at most) and run under heavy military discipline. In the earliest days it was really the work of a handful of people and this team essentially created the basis of the entire project.

I think this is the core (!) of how to organize a software project of Big Bang size, an inverted pyramid: small team of highly capable, experience folks, building (not just designing) the core of the system on which the lower, larger teams build additional functionality. I still think the size of the team needs to be as small as possible, even to the point of emaciation. When people are faced with too few resources, but are highly skilled, and most importantly, have a high latitude in their choice of technologies and tools, they will find a way to make it work. The sad part of this is that in most places, your choice of technologies and tools, and even the way you go about building a software system, is highly constrained.

In the vase of Vista, Microsoft's team at first was excited about using managed code (basically the .Net CLR) but apparently not enough of the team agreed, and ultimately they fell back to using native code (C ), which in my experience is a pain in the butt in large teams. Of course any technology they want to use either had to be in-house or developed from scratch; unlike Apple's OSX, which uses many open source technologies (BSD, Mach, etc) in the core OS, Microsoft never considered such an approach.

So why was Vista such a nightmare? Too many people, too much "must be invented here", too many new untried technologies and the ultimately difficult requirement of supporting old API's in the core OS (a fundamental issue with Copland).

Oddly enough the Big Bang project that was The Manhattan Project actually produced two successful big bangs (killing 150,000 people is a sad success) while Vista is mostly producing a Big Thud.

Ooof. Brutal.

Vista: OS X Wanna Be?

So after all the twists, turns and travails, how does Vista roll? Like the Mac OS X!?!

From Lifehacker 6/12/06:

After playing around with my newly-installed copy of Windows Vista Beta 2 for a couple of hours, the thought that kept popping up in my head over and over again like a persistent mole was: "Wow, that's a lot like the Mac."

From the emphasis on searching and not browsing (Spotlight) to the Windows Sidebar (Dashboard) which runs Gadgets (Widgets), to the built-in Windows Calendar (iCal), the similarities are striking.

From OSWeekly.com, "Windows Vista vs. Mac OS X: The Copycat Olympics" 8/17/06:

During the keynote, they presented comparison screenshots of interface elements and software from Tiger and Vista side by side. The results were eerily similar, and if I was from Microsoft, I would have been squirming in my seat right at that very moment. The composition of the elements and the color palettes used made the competing products look like twins, and since Apple was the first to get these things to the market (years ahead of Microsoft, in fact), then they have bragging rights, and they sure know how to use them. When Microsoft essentially takes an idea from OS X, copies the look and feel, and then re-brands it under some horrible name (Microsoft Windows Live Widget Maker 2.0 Edition), then they're just setting themselves up for this type of mockery.

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All of this just goes to show that Microsoft is running out of fresh ideas, and even though they spend billions of dollars each year on R&D, you'd almost think that they should just pay other companies to come up with the ideas and then decide on inclusion based off of user reaction. In my mind, I envision their R&D department consisting of a large room with one iMac on a desk in the center and chairs surrounding it. As funny as that may seem, it sure looks like that's what they're doing. I guess the rest of those billions of dollars go to fully stocking a warehouse where Steve Ballmer can go to throw chairs for therapy.

In Microsoft's defense, though, why wouldn't you want to "borrow" ideas from other successful products?  Vista, Leopard, and Linux are all competing against each other, although in reality, each one is better for a different set of users.  Apple may go on and on about the similarities between Tiger and Vista, but they're there for a reason. When innovation fails, then you need to try and learn from the best, and that's what Microsoft is doing. However, they're a little late to the game, and the competing follow-up usually isn't as good as the original.

This "me too" approach doesn't really seem like the Microsoft of the late 1980s/early 1990s, especially given the massive commitment of human and financial capital. But hey, you do what you've got to do to survive, right?

And this from the Detroit Free Press 11/30/06:

Such a feature-rich operating system could be a tough sell for PC users who may like it but aren't willing to fork over the dough to buy a PC to take advantage of Vista, analysts say. "Unless you've bought a high-end computer the past few months, you may need to buy a new (PC) or video card to take advantage of all of Vista's features," King says. "That will be a hindrance to a lot of people.

"Why upgrade from Windows XP, which is a perfectly fine OS?" he says.

Whether Vista is compelling enough to draw millions of instant converts is debatable, according to the army of consumers and analysts who have tested it.

But there is little debate it will eventually gain widespread acceptance, tech analysts say.

Forrester Research's Ted Schadler predicts U.S. homes will adopt Vista at the same pace as they did Windows XP in its first four years. Schadler forecasts 12 million U.S. households will have Vista in 2007, escalating to 73 million households by 2011. The use of XP in U.S. households surged from 3.7million in 2001 to 56.4 million in 2005.

"Most consumers follow the same path: They buy computers when old ones break, when prices come down, or when a lifestyle event triggers the purchase," Schadler says.

I guess the question is whether or not those 73 million households are a gimme. A lot has happened in the consumer market since the release of XP: the rise of the Mac Book,  the popularity of iTunes, the ubiquity of the Apple consumer experience. Analysts frequently love to base projections on previous product adoption cycles. Is Mr. Schadler correct in assuming that Vista will enjoy the same uptake as XP did when it went live? Today's world is clearly different, my friend, and woe be those who are bounded by yesterday's thinking in projecting tomorrow's reality. Even a small dent in Microsoft's OS market share would have a huge impact on its P&L (with the benefit going straight to Apple). I'm just saying it's a possibility, but apparently not to Mr. Schadler.

Microsoft's: Out of Step with the Market

As we have seen, the Zune has gotten completely skewered: mainstream media, blogs, product reviews, pretty much everywhere. While Vista hasn't exactly met with the same fate, it certainly isn't setting the world on fire, either. This confluence of high profile duds is weighing on the future of the stock, as well as the future of the current management team. Check this out from Rob Frankel's blog from 12/3/06:

And it's no wonder. Microsoft, one of the world's largest brands with no brand strategy, has no legions of fans eagerly anticipating its next move. In this case, its next move is actually two moves: The release of its Vista operating system and the retail launch of its so-called iPod killer, the Zune. Both of which are being welcomed into the market with a flurry of yawns.

When you read about the launch - or should I say overly-delayed, overly-announced launch - of Vista, there's not a whole lot of good news orbiting the news. Normally, you hear all kinds of spin, mainly about increased functionality or greater resources or lowering the costs of operation. Not this time. This time, the planets circling the press release have more to do with the increased hardware and testing costs of deploying Vista and speculation on the difficulty of its deployment.

That's just what you find in paragraph number one, before anyone even approaches the gossip on how few people actually plan on deploying it.

Meanwhile, in Microsoft's version of retail reality, it has launched the Zune music player, just in time for nobody to buy it for Christmas. You know that you're fighting a losing battle when the best reviewers can say about your new product is that "it could be good, if only...." Of course, there's no brand behind the Zune, so what could people expect? I'll tell you what they can expect: The usual Microsoft spin, where derivative products follow the market instead of leading it.

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Microsoft is not a brand. It's a warehouse with an identity. There's no Microsoft fan base, only hostages held in check by their accounting departments' insistence on purchasing the lowest cost items for their short-term gains. If Microsoft were really a brand, it would have its fans and defenders. As it is, nobody lines up for preview copies of Vista. Nobody rushes down to Best Buy before all the Zunes sell out.

If They Don't Want the Kool-Aid, Make Them Drink It Anyway

From IT-Director.com, 12/5/06, "Buy Microsoft, it's your patriotic duty"

That seemed to be the message at the London launch of Microsoft Vista, Office 2007 and Exchange 2007 on 30 November 2006. Gordon Frazer, Microsoft’s UK managing director, devoted most his opening speech to a gallimaufry of statistics and quotations intended to show that buying these new offerings would somehow make Britain more competitive.

Nowhere (of course) was there any suggestion that making better use of organisations’ existing computer investments might be just as effective in improving their efficiency. Nor (ditto) was there any acknowledgement that the wholesale adoption of these new products would lead inevitably to a productivity decline for a period, as it would with any large software installation.

In the dream world proposed by Microsoft, users don’t have to spend working time and ingenuity getting used to new software; systems departments don’t need to drive themselves to distraction ironing out the wrinkles in the new systems; and trading partners don’t have to run around in ever-decreasing circles trying to get their systems to work with them. These are petty details.

This isn't necessarily earth-shattering stuff. It's just the tone. The tone of defeatism. The tone of rationalization. When's the last time Apple released anything where people said "Who cares?" After five years and so much hype, how could the result be anything other than a let-down? And Microsoft's internal folks aren't helping, either, saying things that don't illustrate a whole lot of confidence in the Company or its products. And possibly the cruelest cut of all, this Forbes.com article dated 12/12/06 about comments from James Allchin, the head of the Vista development team, who said a few years back that he would purchase a Mac if he weren't at Microsoft:

Are Apple computers better than Windows PCs? The guy who led development of Microsoft's new versions of Windows apparently once thought so.

In a January 2004 e-mail to Microsoft (nasdaq: MSFT - news - people ) chiefs Bill Gates and Steve Ballmer, Vista boss Jim Allchin said he would buy a Mac if he wasn't working at Microsoft.

Allchin, who is now a co-president of Microsoft, was complaining to Gates and Ballmer that Microsoft had lost its way in developing Vista and lost sight of what customers wanted.

The e-mail has become public since it was cited by attorneys in Iowa who are pursuing an antitrust case against Redmond, Wash.-based Microsoft.

Allchin oversaw development of Vista, the new version of Windows. The new operating system looks a lot like Apple (nasdaq: AAPL - news - People )'s OS X operating system. This hasn't escaped the notice of Apple executives who delight in pointing out similarities.

On Monday night, after reporters began making inquiries about the e-mail, Allchin published an item on a Microsoft blog in which he claimed the e-mail statement was being taken out of context.

He said that he'd made the comment about buying a Mac "for effect," that the e-mail was nearly 3 years old and that he was trying to shake things up at Microsoft. "We needed to change and change quickly," Allchin writes. Today, he says, "Vista has turned into a phenomenal product, better than any other OS we've ever built, and far, far better than any other software available today."

Allchin has announced plans to retire from Microsoft after the commercial version of Vista ships at the end of January. Note to employees of Apple retail stores in Bellevue, Wash., and Seattle: On or around Feb. 1, be on the lookout for a white-haired man wearing a Groucho mask, furtively purchasing an iMac.

This simply isn't funny. Can you imagine Steve Jobs saying, "Hey, I can't wait for those cool whiz-bang graphics on Vista to come out" or "Man, I can't wait to zap my other Zune friends a few tunes from my device." No f*cking way this is happening. People at Apple drink the Kool-Aid and they're proud of it. People at Microsoft hear that their team leader wants to use the competitor’s product. Sorry, thought Mr. Allchin makes some interesting excuses for why he made these remarks I'm not buying. I run a company and let me tell you, that isn't something I'd joke about. Because it's not funny. It kills morale and kills team spirit. It's not right. And it's symptomatic of a much larger problem. If insiders aren't believers, how can customers possibly believe? It just doesn't add up.

And not only Microsoft's faithful are believers in the Mac - how about Intel's? From The Unofficial Apple Weblog 12/1/06:

Hexus has an interview with Pat Gelsinger, Intel's GM of their Digital Enterprise Group, in which he describes crossing "the religious boundary" by purchasing a Mac. Note how the interviewer reacts and grimaces around 1:41 when Pat drops the bomb, and how he has to interrupt Pat to announce his newfound "Mac fanboy" status. Pat also mentions he's buying a second for his wife, along with a copy of the upcoming Windows Vista and Parallels Desktop, of course.

This is a really interesting statement to hear from someone so high up on a business ladder, especially since he's specifically spending the money to buy Parallels, instead of using Apple's free but workflow-intruding Boot Camp. Pat joins other business notables - like the recent CIO who picked Mac OS X after comparing to Linux and Windows for a month - in voicing their fondness for Apple's OS, even while the big fruit seems to be spending most (if not all) of their marketing on advertising to the home creative crowd.

So, when you've got your own executives as well as those of one of the most powerful suppliers in the tech sector singing the praises of your competitors' products, all cannot be good. It also raises the interesting question that if Vista requires so much memory and processing power that current XP users would actually need to upgrade machines to properly use the new software, then why not try a Mac? Allchin likes it. Gelsinger likes it. Millions of people love it. And Steve Jobs loves it. These are not good tea leaves. For Microsoft, that is. And this from the blog Switch to a Mac from 12/1/06:

Apple's Mac operating system market share continues its upward move and data in for November 2006 demonstrates that it has risen 31 percent year-over-year from November 2005 to November 2006.  Data rounded to the nearest whole percent, actual rise is 31.1 percent.

Please note that this does not mean that Apple's market share is 31 percent.  The number represents percent increase. Data used in this post has been obtained from market research firm Net Applications (Market Share).  The total Mac OS X market share number comes in at 5.39 percent.

Based on the firm's calculations the following metrics can be calculated.

Key Percent Increases

• Up 58.1 percent since January 2005
• Up 53.1 percent since April 2005 (Mac OS X Tiger launched April 29, 2005)
• Up 28.0 percent since January 2006
• Up 3.5 percent since October 2006
• Up 14.2 percent since September 2006

The November 2006 Key Percentages outpaced the growth reported for October 2006 which were as follows:

• Up 52.8 percent since January 2005
• Up 48.0 percent since April 2005 (Mac OS X Tiger launched April 29, 2005)
• Up 23.8 percent since January 2006

While working off a low base, these percentage increases are pretty impressive indeed.

Ok, So Apple's Not Perfect, Either

This post on the Mac Observer gives an excellent critique of Apple's strategic weaknesses, centered around five principal issues:

1. High performance computing
2. Enterprise
3. Music industry
4. Entertainment industry's plans
5. iPhone's stress and meddling

There were some very interesting comments to this post, including the following:

From Tiger

Well written and thought out. Two points. Apple is making inroads to HPC. They've been co-sponsoring seminars on HPC at universities. They were at mine early this spring. The clusters are out there, being built by visionaries who see the value of cutting costs by 75%.

Second, consider enterprise a non-entity. After so many years, it should be evident that Apple doesn't WANT to go into this realm again. The margins are too small in fact for the amount of effort it takes to placate IT managers who don't have a clue about what to do with their hardware. Opportunity missed? Sure. But the time to dwell on it is over.

There is more easy money to be made in entertainment.

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Second, consider enterprise a non-entity. After so many years, it should be evident that Apple doesn't WANT to go into this realm again. The margins are too small in fact for the amount of effort it takes to placate IT managers who don't have a clue about what to do with their hardware. Opportunity missed? Sure. But the time to dwell on it is over.

I agree that Apple has long since made the decision that supplying data processing to big enterprise is not an area Apple wants to go. Apple is concentrating - and very well, mind you - on being the computer for the common folk. Their entire current ad series focuses on the difference between business computing and home computing.

Expanding into enterprise computing is not necessarily a lost opportunity. Instead Apple is in the process - again very successfully as of recent - EXPANDING their niche. Home computing is becoming more and more common, and Apple is out there grabbing a larger share of this expanding "niche". Several recent moves, such as dual boot capability, is aimed at grabbing the home computing market. Now the consumer can be compatible with work AND have all those easy-to-use FUN goodies (iPod, iLife, etc.) Apple is famous for.

Now, if Apple could get a handle on gaming, they would have the complete package to OWN the home computing market.

Tiger, I think you're on to something here. It's all about building on your core strengths, bridging the gap between those historic strength and new markets, and gradually setting your sights on new markets after you've established a firm foundation. No grand gestures. No flights of fancy. Just good, fundamental, risk managed business strategy.

There was a very interesting post on ZD Net Australia dated 12/8/06 concerning a Gartner report indicating "...that administrators will most likely have to prepare for more Mac systems in their environment even though OS X is "not a suitable enterprise wide platform." Even more interesting was a comment to the post dated 12/10/06:

From Anonymous

When talking to a Windows user who is interested in switching to the Mac I do make them aware of certain "gotchas". Every -- EVERY -- platform has them in several forms or others; some platforms' list are just longer than others, but I always end my little list of "gotchas" with the biggest one and it is this:

The biggest problem with using a Mac... is telling other people you use a Mac.

The general body of perceptions out there regarding the Mac are outdated and biased at best or just plain WILLINGLY INCORRECT at worst. While I agree that the enterprise needs to see greater commitment from Apple in order to build trust -- and such building takes time -- there's nothing intrinsically missing from the Mac platform to prevent it from being a very viable option in many IT deployments.

The conundrum for EVERYBODY (Apple and the IT sector) is... why should Apple put effort into a sector of industry that (generally) isn't interested in them? OTOH, solid research and an open mind within the IT industry would result in a growing interest... which would solve this problem of Apple's. Does a company try to sell snow in Alaska? No. No one is interested in BUYING SNOW in Alaska. But, if demand grew from within the IT industry, then Apple would sit up and take more serious notice of them. To quote Nike, just do it. Let the grassroots grow, people! You start to build the Mac IT world and Apple will come. I promise ;)

IMHO, the IT industry suffers from a bizarre disconnect from their own sense of self, that being that, if they're such technically savvy people interested in the best of tools available to them... then why do they for the most part limit themselves to existence within the Windows hegemony? Bill Gates pulled several licensing masterstrokes, and Apple's technological superiority (I'm talking even back in the 1980's) was the crown they blindly gave away (there goes that trust I mentioned, above), ceding dominance to an inferior product -- one that was under the control of someone who saw a Big Picture based on pervasive licensing... despite Microsoft's products being FAR LESS than perfect. MS succeeded on one thing and one thing only: Bill Gates' balls... and the IT industry has surrendered to them lock, stock and barrel.

The biggest problem with the IT community lies within itself.

Bottom line for Apple: it's not about the enterprise, it's about the user. If the user wants a platform that melds their personal and professional lives, Apple will deliver this reality. If the enterprise follows from the users, that will be their way in. But make no mistake: Apple is focused on what matters - their users. Markets, per se, are secondary. Their users will take them where they need to go.

Give Microsoft Credit: They're Trying

Giving a guy like J Allard, a hard-charging, opinionated design and development zealot a lot of rope must be hard for Microsoft v2006. But hey, they are, and he has made some real progress in effecting change. From Business Week 12/4/06:

The soul of the new Microsoft, though--its Geek 2.0--may just be Allard, the vice-president for design and development at its Entertainment & Devices unit. Allard looks and acts nothing like the prototypical Microsofty. Over the years he's swapped his plaid shirt and khakis--something of a Microsoft uniform--for edgy jackets made by Mark Ecko and other designer wear. He loads up his nine iPods, and now his Zune, with songs from hardcore bands like A.R.E. Weapons. And he's a downhill mountain biking maniac who has broken several bones after flying off his bike.

More important than his cool quotient, though, is that Allard gets things done--fast. Zune is only the latest example. At the turn of the decade, he led the software giant into the video game business with Xbox, a risky gambit that's just starting to pay off. Xbox is now a solid No. 2 to Sony Corp.'s PlayStation, and analysts expect it to turn its first profit in the next fiscal year.

Allard is one of more than 100 Microsoft vice-presidents, but he has played an outsized role in shifting perceptions about whether the company can innovate in areas other than packaged software. In June, when Gates announced his plan to focus full time on his charitable foundation, he anointed Allard, along with a handful of others, as the leaders he expects to clear new paths.

Already, Allard and those like him are having an impact. They're showing that strategies to move the company beyond Windows can emerge and be accepted by top brass as nonthreatening. A key moment came six years ago, when Allard insisted that the new Xbox video game console be developed without using Windows. In one meeting, Gates berated him for suggesting that the operating system wasn't up to snuff. But Allard argued that it wasn't specialized enough to handle video gaming. Gates eventually relented, in a decision that is widely seen today as a key to the console's success.

Even Ballmer, once pigeonholed as a micromanager, seems increasingly willing to distribute power and let those underneath him try new approaches. "I would have been hell-bent and determined six years ago to call Xbox the Windows Game Machine," he says. "My natural tendency would have been to call Zune something that was related to Xbox, since we had some consumer franchise. And yet we're really building consumer marketing muscle, and those guys are really teaching and educating us on new ways to do things."

Never afraid to speak his mind, Allard started pushing buttons way back in 1994, when, as an eager 25-year-old programmer only three years on Microsoft's payroll, he penned a sea-changing memo titled "Windows: The Next Killer Application on the Internet," which found its way to Gates. The note, now part of Microsoft lore, helped awaken Gates to the potential and threat of the Web. "I'm a pain-in-the-ass change agent," Allard says.

It is great to see this kind of passion from Mr. Allard and commitment from Microsoft. Unfortunately, there are forces working against the kind of change the Company sorely needs:

That's exactly what Microsoft needs if it hopes to again set the tech agenda. Windows and Office will deliver more revenues in coming years than the exports of many small nations. But Web spitfires such as Google Inc. and Salesforce.com have the wind at their backs. And while Microsoft continues to recruit top talent, it also continues to see key leaders move on: executives such as Vic Gundotra, a top evangelist in its developer division, who will soon join Google, and Brian Valentine, the longtime leader of the Windows server business, who now works for Amazon.com Inc.

This gets back to the issue of culture, giving people the ability to do exciting things and grow. And Microsoft has not demonstrated, on a wide scale, that it can offer these types of opportunities to today's young technology visionaries. And its lackluster stock price doesn't help, either. Question: if you don't have the structure to support rapid decision-making, creativity and innnovation, and you don't have robust stock price prospects, either, what do you have? Answer: an uphill battle.

Conclusion

Microsoft has to decide what it wants to be. "Bet the ranch" projects like Vista are not the future. While the Company can say it beta tested Vista to death, if it takes 5 years, billions of dollars and millions of man-hours to kick out a commercial product you've got a problem. What top young pro wants to be part of that? The problem is deeper than business model and who your customer really is (though these are, without question, two of the most critical issues to Microsoft's future), but how you attract, retain, excite, challenge and incentivize the best people. Without this, the battle is lost. And right now, Microsoft needs to focus on those dimensions if it wants to maintain its role in shaping the technology of tomorrow. Because we have firmly entered the Era of Consumer Computing, an era with which Microsoft has little experience and even less success. And based upon what I am hearing from the corners of the Internet, they've got a seriously uphill battle.

The author does not hold a position in this company's securities.

Comments

[Innocent bystander]

now Mac and Windows are fairly equal, but being a gamer i prefer the Windows system. Alot of games are tuned to run from Windows so its really up to the preferance of the user than to the overall performance of the machine. I love windows becasue it feels like its a game machine where as Mac feels strange, alien, unnatural but as I said each to their own. Windows has alot of problems but Mac has problems as well. Personal opinion is very liberating and my choice is Windows.

[Michael Linehan]

"an overpriced (because of anticipated demand) PC with the new Vista OS or a Mac? My budget: 1,500 or 2,000."

Hi Sammy,

As I like to joke, over the years I have supported, educated, cajoled or blackmailed many people into switching to a Mac. EVERY single one has been kiss-the-ground-I-walk-on grateful. One client said, "I feel like I just got out of prison." One colleague said, "I am SO pissed at all the years of wasted time dealing with crashes, viruses and clunky software."

I think too, once you use a Mac for a while, you'll likely be amazed, and you will not look back.

Excellent article. Thanks.

[MR]

Hi Sammy-

You wrote:

Excellent, well written and balanced.
Now, who can answer the following question for me: In the next month, should I buy an overpriced (because of anticipated demand) PC with the new Vista OS or a Mac? My budget: 1,500 or 2,000.

In short,

Why limit yourself with a Dell or HP that can't run Mac OS X, iLife, Front Row, etc.? Only Apple's Intel-based Macs can run Mac OS X along with Windows and Linux.

Get yourself a MacBook or spring for the 15" MacBook Pro if you can and you won't look back.

[Sammy]

Excellent, well written and balanced.
Now, who can answer the following question for me: In the next month, should I buy an overpriced (because of anticipated demand) PC with the new Vista OS or a Mac? My budget: 1,500 or 2,000.

[Yaser Anwar]

Apple has recently sold off a little. If you go back and look at AAPL's trading pattern you will notice it usually sells off before its about to report earnings.

I've traded 6 AAPL earnings, and if my memory serves me right, 5/6 of them some analyst has come out saying AAPL can't sustain the edge, yet each time it kicks ass.

Even though AAPL is my key holding I would prefer if it didn't release the iPhone next month. Why? It will result in a shake-out. All those investors who got in for the announcement will dump the stock and people who really understand AAPL will get to scoop it for discount prices.

Either way it pays to be positioned. If you bought it before 70 hold on to it- if you bought it after its always good to hedge a little (do a long straddle- buy calls/puts 3 months out). If you're looking to buy, position yourself with a 25-30% stake in it now, if it drops you get to buy a majority of your position at a cheaper price and if it releases the iPhone you won't miss out.

[remel]

Great article!! Please keep them coming.

[RobM]

Very nice article! Well balanced and well argued. I have read many articles on the MS:Apple battle, all saying the same sort of thing, but this is the best to date. MS's big problem will be that Vista needs new hardware, and consumers can just as well buy a Mac and get 'the real thing' that 'just works'.

Apple's strategic shift to Intel has created a level playing field, so I would be interested in your views on the time-line of Apple's strategy in relation to MS's problems in finishing Vista.