Microsoft Goes Forward Into the Past

Last Updated Jun 30, 2008 2:14 PM EDT

With the departure of Bill Gates, it's tempting to call it the end of an era at Microsoft -- except it isn't. There is no real past at Microsoft. For all of its more and less successful forays into game consoles, PC games, the TV industry, online communities, advertising and mobile devices, the software giant still stands in much the same space it's occupied for a long time.

Microsoft logoMicrosoft's third-quarter earnings release had a revenue breakout by segment. The client, server and tools, and Microsoft Business Division segments -- otherwise known as Windows and Office -- represented 79.8 percent of its nine-month revenue of almost $44.6 billion. In the previous year, those products accounted for 82.2 percent of revenue.

Now look back ten years. In FY98 (according to the 2000 annual report), there were three segments: productivity applications and developer tools; Windows platforms; and consumer and other. The first two segments, taken together, totaled $13.32 billion -- or 87.3 percent of the total $15.26 billion revenue. A decade later, roughly 80 percent of their total revenue still rests on two product ecosystems.

Over at Computerworld, Eric Lai offers a list of Gates's 5 biggest mistakes -- among them, letting Windows and Office become straitjackets. Every company matures and must protect its revenue. But to stay relevant, they also have to welcome the future. This is even more critical in high tech, where disruptive innovations can make winners and losers overnight.

For all his faults and the degree to which so many people dislike him, Gates did a remarkable job shifting from entrepreneur to CEO to chairman. But when Bill goes, Steve remains, and Microsoft still suffers from Reform Regret Syndrome: I'd be happy to change, if only it didn't require so much change.

Not all of that change would need to be internal or organic, if Microsoft had a proven mechanism for acquiring and nurturing innovative ideas from the outside world. Unfortunately, it doesn't. As Microsoft blogger Don Dodge wrote a few years ago, Microsoft's idea of its technology-acquisition "sweet spot" includes companies costing $50 million to $200 million -- and those purchases "typically fill in holes in our product roadmap." Translated, that means the focus is on using acquisitions to bolster existing corporate planning, which isn't much help when and if the world decides to head elsewhere.

Here's more from Dodge that's even scarier from a business perspective (emphasis his):

One thing to remember about Microsoft...the product groups run the company, and they all work largely independent of each other. They make the decisions about what to acquire and when. There are acquisition teams but they tend to be called in to execute the deal after the product groups have decided what they want to do. So, there will not necessarily be a high level strategy that all these acquisitions fit into, but they make sense on an individual basis.
No kidding. It's a recipe to stay where you are. Last year, Dodge told us much the same thing: "The top 5 growth areas are all in Microsoft's traditional Windows, Servers, and Tools businesses."

I have a suggestion for Ballmer & Co.: Keep the existing engines of commerce humming as you have, but go forward differently. Of that $44.6 billion you would have spent on Yahoo, take out $500 million. Run a contest to find the hundred best ideas in high tech. Forget Windows add-ons or new Office features; you want big, bold, innovative, and daring. People submit their ideas and your panel chooses the top hundred. Each becomes a start-up with $5 million funding and business help. Out of that hundred, maybe a few will turn into something enormous, like the next Facebook or YouTube, and dozens that will become solid companies. Microsoft as VC -- they could do a lot worse. Oh, wait, they already have.

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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.