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Dueling Memos

Posted by: Steve Hamm on November 10, 2005

Microsoft has many core competencies, but one that doesn’t get much notice is memo writing. In fact, they have some damned effective memo writers. They also have effective memo leakers. So, it turns out, does one of the software giant’s pesky rivals,

First, the Microsoft memos. Two days ago, (This is an educated guess), Microsoft leaked two especially fine memos from Chairman Bill Gates and CTO Ray Ozzie to the Wall Street Journal and the New York Times. The memos, authored Oct. 28 (Ozzie’s) and Oct. 30 (Gates’), had a common theme: Internet software services. This came one week after Gates and Ozzie held a press conference in San Francisco laying out in broad brush the company’s strategy to developing next-generation Internet Services.

The memo leak serves the purpose of communicating internally and externally that Microsoft “gets it” when it comes to the importance of Internet services. These memos harken back to other memos in the past that signaled turning points at the company, most notably Gates’ famous “Internet Tidal Wave” piece of 1995. While the importance of last week’s press conference wasn’t clear to everybody at the time (The Journal ran an advertising column about it), these memos send the message loud and clear: Microsoft gets it and it’s going to turn the ship.

This is one of Microsoft’s cherished stories that it tells about itself—the turning-the-ship thing. When Bill Gates gets something, and when he decides to turn the ship, the message is, you’d better believe it. Bill Gates got the Web in 1995, and turned the ship, and, eventually, Microsoft had dominant share in browser market share and Web pioneer Netscape was no more.

This new redeployment of this story may assure Microsoft employees and investors, but I have a feeling it doesn’t send a shiver down the spines of its Internet services rivals, such as Google, Yahoo, and (Though maybe it should. Netscape didn’t think it would get caught, either) has its own root story. It’s the pesky upstart that brings down giants. Most notably, it helped hasten the decline of onetime customer-relationship management leader Siebel Systems. The troubled company, which primarily sells packaged software, is being bought by software giant Oracle.’s CEO, Marc Benioff, is former Oracle, and, like his former boss, Larry Ellison, he’s expert at delivering a quote. Also good at memos.

Read on for Marc’s memo, which was obtained by BusinessWeek through deep, intrepid reporting—translation: somebody sent it to us.

From: Marc Benioff
Sent: Wednesday, November 09, 2005 8:58 PM
To: All
Subject: The Business Web

Today, I woke up to read on the front page of the Wall Street Journal how Microsoft is reorganizing to take on companies like Google and—building a new generation of products called Microsoft Live. The article is below.

And just last week, Bill Gates gave a speech about the end of software that could have been a page out of our play book. His rhetoric sounding as it was he who was picketing software companies and calling for “The End of Software” --- our mantra since 1999.

The speech was an amazing bracket to his famous Tidal Wave speech on December 7, 1995 about how Microsoft would own the internet. But over this 10 year span, what has Microsoft done for business on the web besides cloning a slow browser? The answer: nothing.

For example, Microsoft says one day that customers in our industry should upgrade from Microsoft CRM 1.2 to Microsoft CRM 3.0 (they lost 2.0 on the way), and, unfortunately, the two versions are not compatible with each other --- customizations will not upgrade, they have different user interfaces, and they require lots of different Microsoft software. It’s an old Microsoft game that ends in failure for customers, but generates their mafiaesque upgrade revenues.

The next day, Microsoft has a new version called “Live.” It’s the new on demand offering that will not be compatible with the current product line. So, perhaps they should rename their entire Microsoft software product line, Microsoft Dead. It’s the analog to Microsoft Live, the new on demand offering that does even exist.

What is going on? This is a time of seismic shifts in our industry. The internet is disintermediating the status quo, and old models of software cost and complexity are being replaced with new models of affordability and ease of use.

Last month, our number one competitor surrendered, and decided to take its place beside several former competitors at software’s Shady Pines Rest Home, also known as Oracle. It was a merciful outcome for shareholders, but a time of con’”fusion” for customers.

The software industry is going through a transformation that is unlike anything it has seen in two decades, and the emergence of the PC itself.

This transformation goes by many names: On-Demand, Web 2.0, Software as a Service. But they all point to the same conclusion: The era of the traditional software “load, update, and upgrade” business and technology model is over. It is time for “The Business Web.”

New Internet-based companies are showing how services will replace software for both consumers and corporations. Sand Hill Road venture capitalists are no longer funding software companies; they are only funding service providers.

Exciting new companies have emerged like and Google who have real businesses that can challenge and win against the old guard companies, and are. Customers love these new services, and are finding tremendous success as never before.

A new range of start-ups are showing how this is just the beginning of the business web --- that there are new technologies coming to replace traditional word processing, spreadsheets, and other staples of business with Internet services. Companies like Writely, Numsum, Zimbra, and Goffice are breaking Microsoft’s hypnotic trance that the Microsoft Office, and its myriad of clients and servers we are installing today, it is simply a dinosaur.

Would these companies have existed ten years ago? Five years ago? Probably not. But, new widely-accepted technology standards, like Ajax and others, make them possible, and consumers and businesses impatient with the current pace of change at Microsoft make them necessary.

Just as mainframe companies struggled for relevance in the client-server era, Microsoft finds itself in a worse position today facing not just the obsolescence of a technology model, but a business model as well. They have no position today in the business web, for example.

Now is our time to demonstrate the next level. New technologies like AppExchange, Mirrorforce, and our Winter 06 release further demonstrate the next generation of the business web, and we will all continue to lead this important movement.


Do your own comparisons of the three memos. Ozzie seems to have a real grasp not just of the big picture but of what Microsoft can do to respond to its new wave of challengers. Gates is potentially the most impactful. When he speaks, Wall Street and Microsoft employees listen. Benioff's is the most fun. Proving once again that being David is a lot more fun than being Goliath--assuming David wins, of course.

Reader Comments

Kip Meacham

November 10, 2005 12:45 PM

I believe the battle for this space is going to be a bloodbath with many companies being eaten or dying along the way. Microsoft is going to go through some MAJOR culture shock responding to these memos. If their corporate cultural arteries are too hard, a massive stroke and ultimately a long, slow death may be the result.

Kip Meacham


November 10, 2005 2:09 PM

It looks like MS had missed the point.

Their problem is not that they have missed on this or that segment of the market.
They have missed on a new business model.
They still live in the world where there is certain demand and "our" company needs to get into satisfying it. The way is to convince everyone to use "our" product and to capture the major market share.
But the market is saturated. The only way to go is to create a product that will generate a *NEW* demand. If you can do this you'll be paid by those who are interested in this new demand (not necessary the consumers of your product).
The trick here is to create a working and usefull product, that key users will like. Next step is to identify them and to give your product to them *FREE* of charge.
This is working not only in software industry. This was the way the movie "Lord of the Rings" was marketed.
Microsoft is still living in "democracy" world, one where Demo-versions rule. They keep creating semi-working software and keep forcing it on us.
Most important they have means to force it into large buisinesses. It's done through business executives who make decissions to purchase products that they never use themself.

It's quite clear that this kind of market is saturated and the opportunities here are shrinking. Beside, there are lots of powerfull players in the ares, like Oracle, IBM, etc.

The main problem of Microsoft is: if they really want to compete with Google and such, they need to change their business model. That would pretty much require to fire all MBAs they employ.
Is it possible? I do not beleave it is.

Another way for Microsoft would be to apply all non business powers. This may be huge, from the power of a monopoly to political relations. But I don't think it's going to be as effective this time as it used to be.


November 10, 2005 3:00 PM

Benioff's makes the most telling point. Microsoft has to kill off their own stuff to compete in web services. Microsoft employees - and the company itself - are hardly incented to kill their own products. Scoble compared M$ going from packaged software to services as Kodak going from film to digital, and it's a good analogy. The faster digital photos occur, the less profit for Kodak. But if their digital division isn't committed 100%, they will eventually be obsolete. So they have to suffer, and so will M$. And in the end, the lead Yahoo and Google have will probably be too much to overcome.

Rod Boothby

November 10, 2005 4:48 PM

In a web based office world, the threat to Microsoft is very serious. It not only threatens their revenue stream from Office, but also their revenue from Windows itself. Why not use a Linux box or a Mac when everything you do is based in HTML, XML, PDFs or Flash.

There are two parts to the platform that will connect web based office technologies together:

The first is search. Hence, Microsoft's fear of Google.

The second is a IT services. That second part is far more general, and offers the opportunity for a vast range of outsourcing opportunities. The package is not just software as a service, but a software and a business process bundled together as a whole service. For an example of this, check out GlobeOp. They provide a total outsourced mid and back office solution to fund managers. "Mid and back office" refer to trade confirmation and accounting, respectively.

The implications for corporate management models are also significant. The focus will be upon increased internal innovation. My blog - Innovation Creators - makes the business case for enterprise blogging. It also describes how management can create an environment that fosters innovation. Web 2.0 technology will play a critical roll. As companies adopt these types of approaches, more of them will seen the need for Blogs and Wikis, and that will, in turn, keep up the pressure on Microsoft.

The model for selling this software (as packaged server tools or as a service) will not generally include advertising. Large companies will be willing to pay for the software/service.


December 25, 2005 7:01 PM

"Why not use a Linux box ... when everything is based on HTML, XML, PDFs or Flash"

That's not why we use Linux.

Even though I have a writely account I still used OpenOffice.org2 - it's just habit to open a wordprocessor to write a document.

The more people spend in a browser, the more they get use to blogging the more accepting of a webprocessor over a local wordprocessor (something with a splash screen).

Also the 'pain in the assness' of having to log into something just to write a damn letter.

If Google ever bought Writely - mixed in some Numsum and had presentation software that could export to Flash!! Wow, watch out microslow.

My guess would be that this is more like Yahoo territory. They seem to be more purchase happy of existing/useful companies - flickr,, konfabulator.

I do however hope that these players not forget about the Mac or Linux desktops. Look at for example. I can write a document in save it in the Open Document format. Writely imports an Open Document without problem. Rod, this is all from a Ubuntu Linux computer.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.



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