A Lousy Job Of Embalming Microsoft

So now that Steve Ballmer has announced he’s leaving, the usual suspects – and some on-high commentators who also seem to be missing the mark – have gathered to criticize Microsoft via Ballmer.  I am no unthinking fan of Microsoft, and I have had my share of strong disagreements with their strategies and solutions over the years.  However, I have found myself in the last decade defending them frequently, simply because their critics seemed to fundamentally misunderstand them.  And now, here we go again.

Let me start by a quick thumb-nail sketch of Microsoft’s history and nature as I see it – not at all the typical view presented these days.  First of all, Microsoft started by finding itself (by virtue of a lucky contract with IBM, then dominant in PC hardware) with an incipient monopoly in operating system software.  The key word here is software – that uniquely flexible foundation for building “meta-solutions” that adapt more rapidly than anything else as technology and customer needs evolve.  Microsoft, even then, had two valuable characteristics:  it could create foundational software like Microsoft Word that was “orthogonal” – it was relatively user-friendly because the commands it offered were relatively compact and powerful – and it could keep at a solution until it got it right.  As a result, Microsoft was able to use its favored position in operating systems to create an effective monopoly in office-system suites, especially when the Windows version of its operating system led to the success of the mouse-using “graphical user interface.”  All of this pretty much happened in the 1980s.

Also in the 1980s, Microsoft took the tack of “rough and ready” versions of the operating system open to developers, and it took great pains to nurture those developers.  Here, I am talking about the ecosystem of developers in their time either outside of their employer, or in small companies dedicated to producing Windows versions of applications.  Apple, by contrast, wanted to control the “quality” of the operating system and sell hardware, so Apple’s share rapidly shrank to the entertainment and education markets, while Microsoft took a larger and larger software share of PCs that were now becoming ubiquitous and the machine of choice as cheap scale-out servers.  And so, by the end of the 1990s, Microsoft had adapted enough to the Internet via Internet Explorer to ensure a strong presence in scale-out server farms (the ancestors of the cloud), in businesses, and in the PCs usually used to access the Internet.

What followed in the decade of the 2000s was not so much the encroachment of competition from the likes of Google and Apple as saturation of existing markets.  Under Ballmer, Microsoft adapted to federal regulation by making a sort of peace with its enemies, from Sun to Apple to IBM, so that Microsoft joined the pervading “coopetition” approach to the market.  Far more importantly, Microsoft got business customers in its “DNA” by hires and investment, so that Microsoft was able to balance its customer markets with a secondary but still very important business market relatively impervious to saturation of the customer market. 

Over the last five years or so, however, Microsoft has finally begun to stop seemingly defying gravity in its rapid revenue growth.  Microsoft could see the handwriting on the wall, and has been trying to establish a strong position – necessarily, via innovation – in new markets.  It has had some success in innovating, and therefore reaping a strong market position, with video-game Kinect, and Windows 8 does represent some needed innovation in its present markets.  However, this is too little to move the revenues dramatically in what is a very-large-revenue company.  And it’s not clear what will change that.

What’s blocking Microsoft is fundamentally the hold of Apple and Google on developers of smartphone apps.  It’s not that Microsoft has lost its own developers, but if it wants a good revenue jump it needs an equal or greater mass of developers in some other market where it is a credible competitor.  And recent moves to establish its own app-development encouragement suggest that it’s not doing enough to create a relatively friendly app-dev environment in mobile smartphones/tablets.

The Usual Misunderstandings

You see very little of this in today’s commentary on Steve Ballmer.  There’s notes about how he didn’t understand Microsoft’s friction with US and EU governments about its monopolies – actually, that has died down, precisely because he did enough to defang much of it.  There’s the “dominance of iOS on mobile” – granted, Apple’s laptops have also made major inroads in the PC/laptop market, but that still leaves Windows with the overwhelming majority of sales and existing boxes, and, as noted, the non-smartphone/tablet market is saturated but not in a major decline, especially if you look at IBM Windows-PC sales compared to Unix/Linux.   There’s “it’s all about Apple design”, while a cursory inspection reveals that Samsung Galaxy based on Google Android is more than competitive with Apple design these days, and Samsung is seeing the results in its sales.  I’ve already noted the exceptions to the “Microsoft can’t innovate” mantra.

Then there are the more global economic commentators – now that they’ve finally realized that computing software matters, although they’re still underestimating the importance of software compared to hardware.  Prof. Krugman posited that Microsoft might do OK despite Apple’s seemingly obvious and eternal dominance, because it is now focused on business.  Um, no, Microsoft’s revenues and employees are still not primarily focused on business.  Microsoft will do OK because its present markets are saturated, not defunct, because Apple’s relative “innovative” status is going away where it counts, in the actual products, and because Apple is not doing enough for its own developer ecosystem.  Hence, as the need for larger-form-factor products for the enduring popularity of longer blog posts (like this!) persists, Microsoft will get its share via not-dead-yet laptops and their hybrid variants.

Or, we can cite Alex Tabarrok as simply noting that Microsoft’s stock jumped when Ballmer announced his resignation.  Sorry, the stock market is notorious for predicting 9 out of the last 3 recessions, as the old saying goes.

Above all, commentators continue to misunderstand the ongoing global economic contribution of software to such factors as productivity and “technological” advances.  Microsoft’s commitment to a developer ecosystem and its “orthogonal” designs (in the best cases) are simply examples of how the software industry enables a welter of new applications that actually do, once the dust finally settles, produce fundamental innovation that leads to productivity improvement as measured by our economic statistics. 

Resignation?  Who cares?  I don’t.  Microsoft?  Who cares any more?  I do; and you should.  For all the reasons no one seems to be talking about.

SMR: A Miss Is As Good As Half A Mile

I am used to my favorite business magazine, Sloan Management Review, being light-years ahead in usefulness compared to many others, especially as regards the computing industry.  However, in reading several articles in a row in the Winter 2013 edition, I was struck by a strange discomfort.  After careful thought, I think I have identified the reason: it was the fact that the writers were identifying important things to consider, and completely ignoring other crucial things, without which the analysis was far less accurate and useful. They weren’t miles from reality – what they described really was there – but they seemed at least half a mile away.

So let me go through them, one by one.  I hope that at least my critique will help to close that half a mile in my mind or someone else’s.

Apple Did Not Introduce the Desktop Metaphor

The first article (“How to Use Analogies to Introduce New Ideas”) argues that using analogies effectively can be key to introducing new technologies to the market successfully, and that analogies that stress the familiar and analogies that stress “the novel” should be used appropriately, depending on the technology.

In making this argument, the authors use as their first example Apple’s use of the desktop metaphor for its Mac user interface.  While the article doesn’t explicitly say so, the implication is that its customers were unfamiliar with the desktop metaphor (with its files and folders) before the Mac.  That just ain’t so.  I was there.

I was a programmer in the late ‘70s when word processors first introduced the desktop metaphor.  And, in fact, it took a lot of hard arguing before the people trying to sell the metaphor realized that it was a bad idea to have file cabinets and files, instead of files nested within folders nested within folders.  But by the end of the ‘70s, the idea had taken, and was adopted by PC operating systems well before the Mac arrived in the late ‘80s. 

So why does this matter to the authors’ argument?  The point is that the reason the Mac succeeded was not because it used a familiar analogy to introduce a novel idea – it didn’t.  The novelty in the Mac operating system (although we should really include the Lisa in this account) was the use of object-oriented programming to rapidly produce an icon-based visual interface in which one operated by point and click, drag and drop.  Yes, analogies matter – the experience of the word processor folks shows that.  But, by the same evidence, the usefulness of the new technologies matters equally, whether an analogy is used to grease the skids or not. 

I worry that people will read this article and say, oh, all I need to do in introducing a new technology is make people comfortable with it, or attracted to it, by adding the right analogy.  On the contrary:  I would argue that whenever you do that, you should also work hard at ensuring that the technology is easy to use and useful.  Think about the introduction of the iPhone – little in the way of analogy, loads in the way of demonstration.  That was a novel technology to many – but once seen, very intuitive.  No analogy needed; but the hard work of making it usable – which, imho, was why Jobs succeeded where previous iterations of very similar technology failed – was critical to market success.

What the Future May Bring Is Not Just About Limits to Growth

The next article describes a new book making gloomy forecasts about the next 40 years based on system dynamics (I had a blog on this vs. agility a while back).  He argues that the future is primarily determined by the fact that we are overstretching our resources, and that therefore we will progressively be trying to grow more and more with less and less to grow with and thus with greater and greater starvation, pollution deaths, and other semi-inevitable results.

The problem with this analysis is that he seems to completely fail to understand the science and trends of climate change.  Climate change is not a matter of overstretched resources; it is a matter of a carbon-spewing system running on its own momentum and with much of the disasters ahead already baked in, unaffected by some systems-dynamics shrinkage of population and reduction of resource usage to sustainable levels.  To put it bluntly:  You could shrink the population to one billion right now and reduce some resource usage accordingly, but if you don’t over the next 17 years shrink use of oil, coal, and natural gas by 80-90% from today’s levels and keep it there for at least 200 years, you in all likelihood will still get huge losses of natural resources like farmland from sea-level rise and drought, and billions of deaths from starvation, not to mention the possibility of poisoned air related to ocean acidification.

Frankly, I find this omission distressing, because the book’s author (Randers) is apparently an expert on business and sustainable development, not to mention a professor of “climate strategy.”  If this is what the sustainability movement is typically aiming for, then it is in serious trouble – their goal is not even “sustainable”, since use of resources adequate for the capacity of the earth will not at all matter to businesses in the face of resources such as food shrinking well below the capacity of Earth in these halcyon days.  To put it another way:  first get carbon under control, then talk to me of overstretch.  Zero carbon emissions will at the very least reduce drastically our consumption not only of oil and coal but also related resources; reduction of population and/or generic resource use from 5 billion people equivalents to 1 billion will likely have relatively little effect on oil and coal usage – because that’s not the mole you’re trying to whack.

Randers’ approach, in my strongly held view, would take the sustainability movement down a side track at the moment we can least afford to lose focus.  Please, folks, think about this hard.

Sometimes, Multiple Sizes Do Not Fit All

The next article, “When One Size Does Not Fit All”, argues that companies much choose carefully in supply chain management between focusing on operational efficiency and operational responsiveness (to customers). Unfortunately, the example they use is Dell within the last five years, as it switches from its tried-and-true non-retail consumer-customer rapid-delivery PC model to servicing several types of customer (e.g., businesses) with several types of outlet (e.g., retail) and several types of product (e.g., servers).  The authors argue that the changeover has been a success, once Dell got its act together in developing different focus for different customers and embedding it in the supply chain.

Unfortunately for their story, I had an actual experience with Dell at about the time of the changeover, about three years ago, and my experience makes me question whether Dell really is an example of a success.  Specifically, I ordered a laptop in late November, assuming that (as Dell had always consistently done in the past), I would get it well before Christmas.  On the contrary:  I believe that I got it in early January.  I was in shock.  And yet, the authors’ account seems to imply that there was nothing wrong with Dell’s traditional model at the time of the changeover.

Another example is Dell’s approach to printers. The authors do not even mention printers as a factor in the consumer business, retail or otherwise.  And yet, for a long time, the Dell approach to printers has been an irritant to me.  As I remember, at least for part of the time, Dell only offered Dell inkjets with its Dell PCs and laptops.  That’s all very well, but inkjets need replacement cartridges frequently, and Dell would have you ordering its cartridges online, instead of letting you get them at all sorts of retail stores, like HP.  And when the delivery times start going south …

The point, to me, is that doing each supply chain right as it evolves is just as important as applying the right supply chain to the right customer.  And, I believe, PC World surveys of customer satisfaction bear me out: Dell’s satisfaction ratings in the consumer market, retail or online, have gone downhill and stayed there.  So the prime finding of the article, fit the right “size” of supply chain to the customer, appears to really miss the mark.  What the Dell example tells me is that you had better evolve each supply chain appropriately and keep it working well as the products offered proliferate, or it won’t matter how well your supply chains fit the customer.

Final Thoughts

I could pick nits on the next two articles (I really don’t think focusing on “likes” in Facebook is the most productive way to do brand management, and I seem to gather the idea of “cloud” outsourcing leaves out minor [sarcasm] factors like knowledge of the market among those tapped for these projects), but they seem much less like a frustrating experience in which the authors seem headed in the right direction, only to result in a big miss.  They seem to be off by a few feet, not half a mile.

So I guess my final thought is this.  Especially if you’re focusing on past history, it’s very important to get an inclusive global picture, and make sure your real-world examples don’t tell you anything different once you look at them closely.  There’s a lot of good work in the articles I cited, and yet I’m not convinced their overall impact, if taken seriously, will be positive at all.  Folks, let’s all up our games.  And caveat lector.

 

Life in a Software World

Various tech-industry “visionaries” have proclaimed that we are entering an “age of software”, pointing to the importance of software to today’s solutions and the world economy.  By and large, I agree that “all things software” is more and more a differentiator among companies, a focus of work, and a prevalent element of life outside of work.  However, it seems to me that no one has fully defined just what life in a “software world” will mean – what it has meant for those who participated in its formative stages.

Below, I lay out five things that I believe are worth considering as unique characteristics of enterprises in a “software world”.  They are my own point of view, based on 12 years in firms as a software developer informed by the business theory I learned at Sloan, plus 22 years as a computer industry analyst.  Everyone will have his or her own list; I’d just like these potential aspects of the “software world” to be considered along with the rest of those lists.

Project Management, Not Manufacturing

In a typical manufacturing firm, the norm was and is production of pieces of hardware.  In a so-called “services” firm, the norm is delivery of pre-designed service “solutions”, and therefore there is a reasonable analogy to manufacturing.  In a software firm, the cost of actually creating copies of a software program is pretty close to zero.  Instead, the focus is on creation of the next version or fixing bugs in this version.  In the manufacturing/service firm, the focus is often on optimizing the process of producing the same thing over and over.  In the software firm, the focus is on developing new features so customers don’t walk away.  And so, these firms seek to optimize new-product development – that’s the critical success factor for a software firm.  Does anyone suppose that if Google had simply cut the costs of servicing its search engine to the bone as its main focus, it would have survived, much less thrived?

But if ongoing success is a matter of new-product development, then it follows that success comes from successful development-project management, not optimization of the supply chain.  Apple grows profits and revenues while most if not all hardware/service companies achieve only flat revenues and lesser profit growth, and clearly the iPhone and iPad rather than Mac production optimization explain this. 

In fact, I believe that this changeover is also happening in so-called manufacturing and service companies.  50 years ago, it was still possible to say that the bulk of workers in a company were production workers, with support staff a poor second.  Today, pick any company and you have far more people in clerical and new-product development plus management roles, and those “clerical” and “managerial” tasks like administrative assistant, web designer, and product marketer are to a much greater degree about producing new solutions.  And so, the management of innovation projects is becoming much more important in traditional firms.

Accounting:  No Inventory, No Capital Stock

All right, that’s a bit of an overstatement, but not much.  Software requires very little if any hardware to produce these days:  just download it from a web site a small chunk of whose servers you have leased from a public cloud.  That cost is there no matter how many copies are downloaded of the single stored copy there.  What widgets of inventory?  What capital stock of hardware-producing machines and factory buildings? What FIFO vs. LIFO?

It seems to me that this software world therefore puts our favorite financial metrics out of whack.  Is inventory turnover really telling us that the firm is about to fail?  How about sales turnover?  If we are investing more in capital than in labor, aren’t we optimizing a non-existent manufacturing process rather than new-product development?  So are our metrics telling us, not that a firm is succeeding wildly, but that it is headed for failure?  And how do we tell what a successful new-product investment strategy is from our books?  For the last 20 years, since the Harvard Business Review suggested computer companies’ futures were in services rather than hardware, IBM has been focusing on both innovation and services rather than hardware, with strong metrics and some profit growth – but, especially lately, revenues have been flat overall, with only software showing strong growth over the entire period, and services effectively beginning to prosper only when IBM delivers innovative software. 

I confess that I have no strong sense for what the new accounting and the new financial metrics should be.  There needs to be some way to measure new-product development success and detect failure, and isolate it in the company’s books – but my textbooks tell me that projecting the revenues from software development is highly speculative.  Maybe so; or maybe Microsoft does have at least some handle on how many copies a new version of Windows will sell, so it’s not as bad as all that.

It’s About Growth, Not Optimization

One of the biggest shocks in the two software companies I worked in for 4+ years was the way that expectations escalated.  Every year was the baseline for the next year, no matter how good, and I was expected to do more in some way:  produce more code, do more tasks, whatever.  In fact, after the first two companies I started to assume a general curve, in which the 3^rd year was necessarily disappointing to my bosses – who, by the way, were never the same at the end of the year as they were at the beginning – and sometimes I wondered if the fourth simply laid the grounds for the end of my employment.  It wasn’t that I wasn’t producing; it was that I wasn’t producing that much more. And, in point of fact, until a change of strategy my fourth year there, it looked as if Aberdeen Group was going the same way.

Recently, I met a car salesman who, as in many traditional jobs, had been there for many years.  It was clear that he was not constantly faced with rising expectations; the fact that he continued to excel compared to others was reason enough to keep him.  Clearly, an auto dealer is not yet a software company. Why the difference, I keep asking myself? 

I would suggest that in a software world, optimization of the machines that support a process simply does not speed up software development significantly – and yet, managers want to grow both revenue and profits.  The obvious answer:  everyone must do more. No matter that it does not fit the mold of unpredictable new-software development, or that it is a one-size-fits-all approach to labor; it must focus on growth of production rather than accepting optimized production, in order to conform to the expectations of the firm.

I don’t say this is good or bad, although I have my opinions.  It does suggest to me, however, some reasons why agile software development seems so inefficient and yet produces such great bottom-line results.  That is, agile development removes the ability to demand more from each person – it changes the metric from lines of code per day or some such to customer satisfaction.  And so, the company can have its bottom-line growth without efficient, ineffective programmer optimization. Because today, more and more companies, like software companies, are thinking dynamic, not static:  seeking growth in unpredictable markets with changing consumers, not seeking to optimize the supply chain or manufacturing process in more stable markets.

It’s About the New New Thing, Not the Success

In some ways, this is a repetition of my first assertion.  In a software world, especially a “virtual” one, lack of hardware means relative lack of chains to keep the customer attached – or to make the customer feel trapped.  It amuses me to see the venom attached to Microsoft Office as a boat anchor for innovation, when in point of fact it is far more innovative than, say, the gas station or the fashion industry.  And that’s the point:  software firms have a significant amount of new content in each version of each product, because they have to.  They don’t focus on success by standing still or recycling:  they focus on adding features.

I see this as a real problem for our present foundations of microeconomics.  I believe that Paul Krugman wrote recently that static manufacturing firms producing widgets in microeconomics indeed did badly as a model of real firms and markets, but that was OK, because it captured the essentials needed for effective macroeconomics. I question whether that is still true in a software world.

Specifically, it is a recipe for underperformance of macro-economies. For example, over-investment in capital that represents the capital stock necessary for optimizing a manufacturing process and under-investment in labor that represents new-product development may show decreased costs, but it also does less well at meeting consumer needs, and hence static IS-LM curves are achieving less sales at a price than they could – the economy is under-performing not just relative to “potential GDP”, but also “potential GDP” at full customer satisfaction.  Or so I wonder.  This wasn’t a clear problem when we had no alternatives; but now we have a software world.

Flexibilists Rule

This is perhaps the most speculative of my suggestions – and I realize that’s saying a lot.  There’s been a lot of attention paid to Brynjolffsohn’s assertion that increased automation via computing has meant the loss of jobs, even including knowledge workers, and it’s not clear if and when that will reverse.  I would suggest that while that may very well be true of manufacturing and service/support jobs, it should not be true of new-product development jobs in a software world, and, in the best software firms, like Google, it isn’t true. 

For one thing, software automation is very far from replacing programmers.  This is something I’ve been arguing for thirty years:  programming is partly creation of new mathematics, and that’s something that we are not near automating (and yes, that’s very distinct from the “I get human semantics” analytics of Watson).  For another thing, programming in a software world is usually about development of new features, i.e., new-product development, and it makes sense to invest there rather than in non-existent inventory management.

I say, it should be true, but I recognize that in many firms, even software ones, programmers are thought of as disposable and capital investment as to be preferred – e.g., the offshoring of development that is still ongoing, even in areas where the supposed lowered wages are pretty much vanished.  That is partly because, I think, these firms tend to think of programmers, and marketers, and so on as narrow specialists, so that as technology and so on changes, it becomes necessary to hire someone who knows the latest language.  That is completely untrue of most of the programmers I know; in an environment free of threat to their jobs and with a little time to burn, they are the most avid consumers of new programming technologies, and a wide variety of other things.  They are flexibilists, not specialists.

The same, it seems to me, can be said of the agile marketing movement, which is – surprise, surprise – strongly associated with the software industry and software-heavy firms.  Agile marketing is more and more about flexible creation and delivery of new product – in fact, a continuous feedback loop of such creation.  And testimonials from practitioners echo those from agile programming shops:  it does better, and people stay around longer.  In a software world, or at least in a better one than we have today, flexibilists rule.

Conclusion

Them’s my preliminary thoughts.  Reactions?