Microsoft: 1995 redux?

Posted by: Steve Hamm on November 01, 2005

Today’s San Francisco briefing by Bill Gates and Ray Ozzie bears an eerie resemblance to a fateful day almost exactly a decade ago: Dec. 7, 1995. That was the day that Microsoft invited an army of analysts and reporters to Seattle to roll out its plans for mastering the World Wide Web and browsing. At today’s briefing, Gates and Ozzie announced a handful of initiatives aimed at bringing Microsoft up-to-date with the Web 2.0 crowd—most notably Google and Yahoo. It included an online offshoot of Office, Office Live, and a new Web service called Windows Live that allows you to keep your e-mail, news feeds, blog feeds, document files, etc. all in one place. This is just the beginning, Microsoft promises. Much more is yet to come. Will Microsoft eventually dominate the Web 2.0 world as thoroughly as it did the browser sphere? I think not (see my reasoning below), but that doesn’t mean it won’t do some interesting things while trying.

Bear with me while I take a trip down memory lane. Microsoft was under intense pressure in late 1995. Netscape had just gone public that August, and Microsoft looked slow and vulnerable. Things came to head at Comdex, the annual computer industry wing-ding in Las Vegas. At the Chili Cookoff at the Mack Center, Goldman Sachs analyst Rick Sherlund contronted Bill Gates in a hallway (Back in those days industry giants mixed with the masses)and asked him what he was doing about the Internet. Roger McNamee, then of Integral Capital Partners, also piped up. Gates assured them that Microsoft was fully aware of the challenges and was working on a response.

The rest is history. Just a few weeks later, Microsoft announced its Internet strategy. It was "embrace and extend." The company would license Sun's Java programming language and ship Java runtime software with each version of Windows. It would add HTML to all of its applications and create links from them to the Web. Its Internet Explorer browser would remain free.

Here's Rick's e-mail recollection of thse fateful days:

"I did express concerns to Bill and his response was that he understood the concerns and that it would take about 6 months for MSFT's plans to be more evident to the world. He was basically saying that he understood that we did not see MSFT strategy yet, but they were very aware of the issues. MSFT had been very radio silent on their Internet strategy, and at the Dec 7th meeting they disclosed support for Java, but told us that XML was of greater strategic significance, which I viewed as MSFT's effort to push into Web services as a way to pull standard setting back away from Sun. Gates gave no details to us at Comdex, just a wait and see. Roger was very pumped up on the Netscape vision. I had taken MSFT off our recommended list for about 6 months until after the Dec 7 meeting when they finally articulated an Internet strategy. Their stock began to benefit shortly after when it became clear that the Internet was driving broader PC adoption, from people that were more interested in communicating and searching out information rather than person productivity."

Here's Doc Searls' take on the turn of events.

Things started to happen fast after that. Netscape's stock went into a tailspin. Then, a couple of weeks later, I recall seeing Netscape CEO Jim Barksdale at a briefing in Santa Clara. He laid out Netscape's strategy to a bunch of analysts, reporters, and industry folks. During the Q&A somebody asked him how he could continue to build a business on selling browsers when Microsoft was clearly going to keep giving them away for free. He said, innovation.

We now know that innovation wasn't enough. Microsoft was able to leverage its immense wealth and its desktop monopolies and crush Netscape. Which, of course, led to the government anti-trust case and Microsoft's settlement.

Here's Sherlund, again, comparing then and now.

"There are certainly similarities between Netscape and Google. Netscape wanted to co-opt the desktop, making Windows just the lower level systems calls under the browser, with the browser being the user interface and the API's developers would write their Java apps to. Thin client computing would have replaced the need for Windows then. But thin client never took off. Ultimately the view of Oracle and MSFT competitors was fine, go ahead and run Windows, but just architect your applications to run on the server and use the desktop as the UI. This is similar to the Google strategy it would appear. Rather than trying to replace Windows or for that matter even Explorer, just put your tool bar on every machine and get users to direct their traffic over to Google where free software and data hosting is available, all of which can be monetized by search/advertising. Since the Web now offers higher bandwidth and Ajax provides a richer user experience with higher performance, this really is another run at fat client computing and MSFT. This time there is a better chance for hosted applications, free, updated continuously, accessible anywhere. Problem is, apps may not be as rich as desktop apps, what about disconected (on an airplane), will companies trust their data and reliability to Google or Yahoo. Consumers are light weight users of some of these apps, so they could be a good initial market, not a market MSFT really addresses. Consumers use of Office represent only about 5% of MSFT's revenue, but this would be foolish for MSFT to let Google or Yahoo host Office-like capabilities before they do. I understand MSFT has brought back the Net Docs team for hosted version of Office, this time the corporate antibodies are not attacking it as a risk to Office, rather it is part of the Office group. MSFT has a great new version of Hot Mail (Kahuna) that uses Ajax. The MSFT Atlas tool (beta) I hear great things about for Ajax development. MSFT has been playing down the meeting on Tuesday, no Web cast either. I will be there given the gravity of thee issues. MSFT needs to cycle faster, the pace of innovation on Web 2.0 is mind blowing."

I think the most important thing to focus on when you compare 1995 to 2005 is: back then, Microsoft was taking on a software company. It could kill Netscape by giving away what Netscape had to charge for. Google et al are different animals. They make money from ads. And, as long as Google and Yahoo are compelling places that attract zillions of people/viewers, they're going to be able to charge a premium for their ads. Microsoft's monopolies can't change that.

But I've been wrong before. An acquaintence recently reminded me that back in 1995, I predicted that Microsoft was headed for a long decline. I was wrong.

On a personal-user note: I went to Windows Live shortly after the beta was posted. Turns out I'm already a member, since I have a Hotmail and Passport account. It took only a few seconds after I opened the URL for my e-mails to pop onto the screen. Cool stuff!

I don't know where this all leads, but, but one thing is sure: The tech industry is shifting into overdrive again.