Tweetstorm Digest: May 19, 2015

Lest you missed a bit of a @charlesfitz victory lap for Cloud City (Seattle) on Twitter:

1/ A geographic look at the Gartner Magic Quadrant for Cloud is revealing:


2/ The Leader quadrant for cloud computing shall henceforth be known as the Seattle quadrant.

3/ Seattle has also annexed the best real estate in the visionaries quadrant.

4/ Yes, Google does their cloud infrastructure work in Seattle.

5/ The MQ has more companies from south of the Mason-Dixon line than from Silicon Valley.

6/ VMware (wedged in there like Oklahoma) is Silicon Valley’s champion, almost by default.

7/ The Cloud BS Brigade of Silicon Valley BigCos (Cisco, HP, Oracle) only appear in their own press releases.

Bonus: a fun timelapse of how this Magic Quadrant has evolved over the last five years.

A Dispatch from Cloud City – 2014 Retrospective


In an effort to make this an annual event, here is a plumbing-palooza stream of cloud consciousness. Last year’s broad themes remain intact though my Rackspace call didn’t pan out.

Cloud Infrastructure

  • Public cloud has won. Thanks Target. Thanks Sony. Thanks Kim Jung Un. If your public cloud gets hacked, you get to blame someone else and will have company in your misery. Public cloud will absorb vast quantities of enterprise on-premises IT spending and thus be an enormous pot of gold.
  • Docker – everyone likes Docker. Even people who don’t.
  • There are two and a half big league public cloud providers vying in what John Connors has dubbed the (WTO-free) “Battle in Seattle” (Google does a lot of cloud work in Seattle too):

Amazon remains the leader with incredible execution and is relentlessly pushing up the stack. They are on the same “enterprise journey” that Microsoft went through beginning in the late ‘90s (with some of the same people in fact), in an effort to get IT comfortable paying them vast sums of money. Amazon seems to have abandoned price leadership as they find themselves in a price war against competitors who have vastly more money than they do. Frittering away valuable cash on hardware misfires and TV shows is a growing opportunity cost. If Amazon’s stock price doesn’t recover, expect their employee retention problems to grow and discussions of spinning out AWS to get more serious. But they’re not going to yield their leadership in 2015.

What I said last year about Microsoft still works:

“Azure has become the clear challenger to AWS. The much maligned Mr. Ballmer is not getting credit for Microsoft’s embrace and execution on cloud. Unlike most of its cohorts rooted (mired?) in previous generations of technology, Microsoft is well on its way to making the cloud transition.”

Microsoft is executing like old school, taillight-chasing Microsoft with the added advantage of glass-half-full perceptions about the company for the first time in nearly two decades under the regime. The open source embrace (sans extend) is real after enactment of the strategy tax cut. If you’re still having cognitive trouble with this, the best analogy I can offer is Microsoft has become Intel and just wants to soak up all those datacenter compute cycles (a pithy analogy for what Intel has become eludes me, but it could be a fun exercise).

Google I don’t give a full big league integer to because cloud is still basically a hobby for them. In technology terms, they are in many respects the leader, but they’re just not serious about the non-technology investments they need to make to really compete for that broad enterprise transition to the cloud (they too need to embark on an “enterprise journey” as opposed to hoping those enterprises beat a path to their door). The company seems more interested in n+2 or n+3 opportunities (self-driving cars! life extension! an air force!) than mundane n+1 opportunities like cloud (which gets interesting if you believe we’re seeing weakness in Google’s search cash geyser for first time – will the further out new businesses spin up soon enough to offset slowing and/or deteriorating desktop advertising?). Presumably all those robotics investments are so they won’t have to hire humans to do enterprise sales and support. Google is the Crazy Eddie of cloud (note Eddie didn’t have much of an enterprise business and but did have a fraud problem. But far be it for me to suggest that the ad business is anything but squeaky clean). They will continue to push prices down which is a great way to push Amazon to the wall. But Google needs more than just technology and lowest price to really compete for the enterprise cloud jackpot.

  • Docker – did I mention Docker?
  • Below the big boys we have a bevy of wanna-bes, characterized by varying levels of self-delusion about their ability to really play this game. The old school announcements of “one billion dollar” multi-year investments aren’t even table stakes – Google spends that on capex in a couple weeks. IDC slyly and without elaboration predicts “75% of IaaS provider offerings will be redesigned, rebranded, or phased out in the next 12-24 months”, which brings us to this group:

IBM has been my poster child for the existential threat cloud poses to old school IT vendors. I’ve been pontificating about the peril they face and their clueless response for quite a while (here, here, here, here, here and here as a start). I took a lot of grief about this view when I first wrote about it but now their plight is widely understood and even conventional wisdom:

Bloomberg Businessweek (US)

My inner contrarian even wants to go bullish on the company just to flout the crowd except I can’t see any path that looks like clear success. Even the best outcome, where IBM keeps all its market share, still results in a dramatically smaller company (in terms of revenue, workforce and stock price) due to the deflation of cloud computing. IBM’s fundamental problem is it is their traditional customers who are being disrupted by technology wielding upstarts and they are going to have to show customers can actually use IBM technology and “business consulting” to be successful against competitors who don’t have that burden. Good luck with that. IBM’s streak as the worst performer in the Dow Jones two years running may not be over.

To their credit, IBM woke up this year and is no longer downplaying cloud or attributing their woes to simply poor execution of ye olde business model. I am amused that IBM’s leadership has expressed far more public concern about their prospects than the normally curmudgeonly IT industry analysts and pundits who evidently are telling IBM’s customers not to worry about generational transition risk.

Beyond their cloud wanna-be status, it is hard to get enthusiastic about their big initiatives of Watson and becoming an iPad reseller. After what seems like decades of hype, Watson is being devoured by hundreds of much more focused machine and deep learning startups. And it is uncanny how iPad seemed to flatline just as IBM got interested in it (and if you contend IBM’s apps are just what the iPad needs to reestablish growth, I ask only that you name an IBM app, and if you can do that, name one that you’d like to use). Delusion factor: low. The dubious marketing underscores their desperation.

HP (sorry Hewlett Packard Enterprise) trails IBM significantly in terms of existential angst and has a massive internal distraction in splitting themselves up. Helion: they only wish they had another L. While I have been assuming a “better than Autonomy” bar would lead to acquisitions like Box or Rackspace, their efforts to get their hands on VMware suggest there may be some sanity lurking somewhere. Delusion factor: medium.

Cisco is the company with the biggest gap between reality and their own cloud blather. While they are one of the few growing server vendors, their reckoning approacheth on multiple fronts. Delusion factor: highest

Rackspace – my prediction last year was they would not be an independent entity by the end of 2014. They did put themselves up for sale, but had no takers (HP let me down). They have realized they can’t play with the big boys and have retreated to their old hosting turf. OpenStack was a huge distraction for them. But their stock price supposes there is still an acquirer out there. Delusion factor: low. They touched the hot stove, and will not make that mistake again. 

Telcos – CenturyLink (also in Seattle) is executing the best here while the others are too busy chanting “cloud is our birthright” to do much. Delusion factor: medium to high.

OpenStack – another year where the number of press releases probably exceeds the largest number of nodes in production in any instance. They lost ground this year as public cloud continues to outpace private cloud and OpenStack public clouds aren’t very public. A pivot to Docker is coming, even as they perhaps settle to be a telco supplier. Delusion factor: high.

  • Docker – the most interesting aspect of Docker is it works because Linux has won as the operating system of the cloud (and having written those words, a new operating system must surely be upon us imminently). If you don’t need to virtualize multiple operating systems, you can push application isolation up above a single OS. But while Linux has won, Red Hat has lost. They just don’t play any material role in cloud infrastructure. They’re a legacy, on-premise operating system company. Maybe this year the markets will ask why they’re trading at a multiple of over 70.
  • Digital Ocean – while the old school vendors huff and puff, I’ll just note this is increasing where the cool kids run their apps. The problem with taking the “enterprise journey” is it almost always leaves you somewhere developers don’t want to be.
  • Docker – they really mishandled their first competitive blitz, which was actually pretty minimal. But good practice for when VMware finally gets around to announcing vCenter will manage both VMs and containers (and I have no inside knowledge here, it just seems like an obvious thing to do).

Cloud Platform

  • PaaS is still a zero billion dollar market, but there are signs revenue is ramping to the point where we can have a serious discussion about this threshold next year (note I define PaaS narrowly to net new, general purpose application platforms and don’t subscribe to xPaaS speciation/inclusion of decades old code) I still think this is the only layer at which most companies should be doing private cloud.
  • The Cloud Foundry Foundation – not sure if I’m more disappointed that it exists or that it wasn’t called the Foundration.
  • DevOps is a distraction and something you want other people to do on your behalf: if you’re actually doing DevOps, you’re doing it wrong. (That sentence will probably bring me more grief than any other in this post).

Big Data

  • FOMO is the biggest driver of big data in the enterprise. Lots of data is going into the lake, but not much is coming back out yet.
  • Hadoop, or more accurately HDFS, has won based on storage cost advantages and addressing the administrative and governance needs of IT. The programming model can charitably be described as unsettled, which is one of the factors hampering the realization of material value from big data. A big question for 2015 is how quickly Spark matures.
  • The most amusing announcement of the year was Google sucking it up and announcing full support for Hadoop, which they view as an obsolete and decade-old Google technology laundered through Yahoo.
  • The hype around big data will shift to the Internet of Things in 2015. IoT-washing will make cloudwashing look modest, as every data player adds at least those three letters to their home page. Some are doing more and actually building for specific IoT needs. Samsung is the biggest threat to IoT as they feel the urgency to ship half-baked spec sheets devices and crummy software that could set the whole market back significantly.
  • Get ready for data protectionism, as the EU (as a front for European manufacturers) decides they need to control their own data exhaust and not let those evil American technology companies squeeze all the value out of precision metal bending. We could see some very strange big data acquisitions by German manufacturing companies.

What else should we be watching in 2015?

Boxed In

Caged Wild Man by gillfoto, on Flickr
Creative Commons Creative Commons Attribution-Noncommercial-Share Alike 2.0 Generic License   via Flickr

The oft-repeated explanation for Box’s failure to IPO is that they somehow filed at a bad time and “missed the window”.

As usual with Box, the sound bites are better than the substance. They filed on March 24th of this year, a year that has seen the most IPOs since 2000. Since Box’s filing date there have been over 40 technology IPOs (with at least one in every month). These have included various software, SaaS and subscription companies like Hubspot, Yodlee and ZenDesk as well as HortonWorks and New Relic this week. What window exactly is closed?

Meanwhile, the stock market is not far off all-time highs, even as oil plunges, China slows, Russia invades and retrogrades, the Middle East burns, Europe self-immolates, and Ebola spreads, so it isn’t a macro problem.

The “Wall Street just doesn’t get it” argument is that because Box is a subscription business, they should get a free pass for their huge losses, because “lifetime customer value” means it will all turn out fine in the long run (this is of course counter to the Keynesian orthodoxy that in the long run we are all dead).

The people who generously have taken the time to educate us all on this topic (who coincidently often happen to be investors in Box) never seem to want to use Box’s own numbers to illustrate the virtues of a subscription business. Instead, they walk us through companies like Workday and imply that Box is somehow comparable in its subscription economics. They’re not.

There are good subscription businesses and bad subscription businesses. The spreadsheet-wielding denizens of Wall Street, despite their innumerable flaws, understand this quite well. They’ve been running the numbers on Salesforce, Workday and others for years, as well as subscription businesses in other industries.

High customer acquisition costs (traditional top-down enterprise sales model) combined with low revenue per customer (commodity file storage) doesn’t make for a good business. Add seemingly moderate churn and it can get ugly. There are some really crummy subscription businesses out there (TiVo and Vonage come to mind though it has been a while since I looked at their financials).

Add the very real cost of goods sold for petabytes of storage and the overhead of a freemium model (90% of Box customers don’t pay), and it gets even worse (I’ve wallowed in the storage economics and it can be ugly). To own Box stock, you have to believe they will retain their customers for a really long time to pay back the acquisition costs and/or significantly increase their revenue per customer. It is hard to make this case and Box notably doesn’t make much of an effort.

How will Box extract significantly more revenue per customer? They have neither moat nor unique technology (unless you count their “which one of these things isn’t like the others” participation in the Linux Foundation’s Dronecode Project). They don’t have an operations at scale cost advantage. Their “platform ecosystem” is superficial at best. They face giant competitors like Apple, Google and Microsoft with untold billions in the bank who are happily giving cloud-based storage away as a complement to their other services, as well as Dropbox which continues to ooze into the enterprise with a bottoms-up strategy which has dramatically lower customer acquisition costs. Box is still doing the same thing it always has, even as the market has evolved. They no longer have the luxury of just highlighting SharePoint’s inadequacies. Some argue Microsoft’s refusal to support Android and iOS has been the singular Box value proposition – obviously, that is a window that has closed.

The implicit financial bet/hope is Box will find a new and better business soon. But if you read the S-1, you discover Box doesn’t really know who they are or where they are going (though they do claim they’ll be really agile getting there). They’re happy to make a few jokes and compare themselves to all of Apple, Facebook, Zappos and Salesforce with a straight face, yet can’t describe their own raison d’etre (beyond giving good soundbite which I yield to no one in my respect for but tragically that competence is not a foundation for spending hundreds of millions of dollars a year):

We design our software with the passion and attention to detail that you’d expect from leading consumer companies like Apple. Similar to Facebook, we release updates to our product continuously, which allows us to act on user feedback to improve the Box experience and respond to opportunities with agility. We support our customers with the greatest care and attention, delivering Zappos-like support. And we’ve created an open ecosystem much like [sic], leveraging the talents and skills of tens of thousands of developers outside of our corporation to build value on Box.

What would it mean for someone to describe their company as “like Box” in a positive way?

Which brings us to their updated S-1. The good news is Box has reduced their burn, but with it their growth. Box has been a poster child for the recent “excessive burn rate” startup critique. But this is not entirely fair, as Box’s massive spending is not sumptuous employee benefits or other discretionary items, but rather is baked into the business model for customer acquisition.

Then there are the details of the Series F (as in “F#&ked”) financing Box raised this summer when it became clear an IPO was not in the cards while they were still burning mountains of cash. The private equity investors dictated stark terms and will get “theirs” well before any other investor.

Given the Series F investor preferences ratchet up even further if Box doesn’t IPO by July 7, expect an all-out push to get this turkey over the finish line. Amid that push to ring the bell, I hope Box’s fans will explain to us how the company will become a viable and even decent business in the future as opposed to just chanting “LTV FTW” because they really want to get it out of their portfolios. Customers and investors beware.

Ballmer vs. Chambers: A Corporate Cage Match

Amidst adding Cisco to Dinosaur Row, I asked someone “If Steve Ballmer got run off by Wall Street, how does John Chambers still have a job?”

Both are/were long-tenured, non-founder CEOs of two of the biggest technology companies. Both have presided over erosion of prior dominance during the course of the 21st century, even as revenues and profits kept growing. Neither has been shy about making sweeping calls about the future, yet their predictions have stubbornly refused to come to pass. Both found themselves increasingly reacting to rather then driving key industry trends (although Ballmer will eventually get credit for not missing cloud computing, which is coming for Cisco, even as Chambers continues to ply ye olde enterprise playbook in response). Ballmer’s tenure as CEO began January 1, 2000 while Chambers took the CEO chair in January 1995.

I’ve related this story before, but Steve was acutely aware of the consequences of taking office almost exactly at the top of the dot com bubble. He would bellow, not proudly, that “I’ve lost more market cap than any CEO in history”. After a couple years, he could amend that with “Thank god for John Chambers”.

Lets look at their performance during their shared tenure (January 1, 2000 to February 4, 2014). Revenue and profits are generally up and to the right, but stock performance is negative – presumably their future performance was already priced into the stocks. Microsoft’s total return is better with all the dividends, but still in the red over Ballmer’s tenure.

Total Return: Advantage Ballmer (Microsoft -15.3% vs. Cisco -56.8% )

CSCO Total Return Price Chart

CSCO Total Return Price data by YCharts

Market Capitalization: Advantage Ballmer (Microsoft -49.7% vs. Cisco -68.2%)

CSCO Market Cap Chart

CSCO Market Cap data by YCharts

Revenue Growth: Advantage Ballmer (Microsoft +333.5% vs. Cisco +156%)

CSCO Revenue (Quarterly) Chart

CSCO Revenue (Quarterly) data by YCharts

Profit Growth: Advantage Ballmer (Microsoft +175% vs. Cisco 75.12%)

CSCO Net Income (Quarterly) Chart

CSCO Net Income (Quarterly) data by YCharts

Bigendian Suit: Advantage Chambers

John Chambers, chairman and chief executive officer of Cisco Systems

(A picture of Steve in his red v-neck sweater — or worse, forthcoming Los Angeles “America’s Team” Clippers garb — is omitted as a matter of common courtesy).

Now you may say “but lets look at Chambers’ full tenure”, as he assumed the big boy chair five years before Ballmer. And you’re welcome to do that, even in our what have you done for me lately culture, but the record is uglier than that of the much derided Microsoft (I won’t even start digging up all those acquisitions everyone has rightly forgotten about). Will Chambers declare victory and head for the exits before the future pain becomes more evident at Cisco, or will he overstay his welcome until the hounds of Wall Street start baying for his head? Stay tuned. And then we can have a discussion about whether Cisco’s next CEO should be a product guy or another sales guy…

Tweetstorm Digest: July 10, 2014

Reprising today’s @charlesfitz Tweetstorm:

1\ Some quick reactions to @satyanadella morning Microsoft missive (sprawling, like the company).

2\ A first step to answering the biggest question about the company: why does it exist beyond just perpetuating its past?

3\ Shift from vapid (realizing potential) or means (devices & services, cloud-first/mobile-first) to end (productivity) is long overdue.

4\ Company has been at a loss wrt mission since achieving BHAG of computer on every desk and in every home.

5\ Productivity is Microsoft’s core but still some awkward stretching to cover full portfolio

6\ Still waiting for major deviation – addition or deletion – from Ballmer’s Microsoft. Bing and Xbox not going away (and rightly so).

7\ HailStorm vision is back: individual as hub for all the technologies in their life. Should have done it a decade ago.

8\ Microsoft’s disastrous embrace of the ad economy remains unresolved (devalued personal computing franchise, got none of the upside).

9\ Privacy paeans weaker than Apple; lumping with security feels like afterthought. Privacy path fundamental question for company.

10\ Still no answers for the Windows business, Company must pivot from personal computer to personal computing.

11\ More changes coming soon, including probably some layoffs. Marketing rationalization has been deferred for long time.

12\ My preference is still to break the company up. Would unlock a lot of value.

13\ Satya continues to endear himself to literate press with literary references 😉

(Somehow periods seem more necessary here).

A Dispatch from Cloud City

A few end of the year observations from Cloud City (aka Seattle):

Cloud City, Bespin by TK769

Image via TK769

Cloud Infrastructure

  • AWS remains a beast. Yet a chink in their armor is emerging…
  • Azure has become the clear challenger to AWS. The much maligned Mr. Ballmer is not getting credit for Microsoft’s embrace and execution on cloud. Unlike most of its cohorts rooted (mired?) in previous generations of technology, Microsoft is well on its way to making the cloud transition.
  • Despite very strong technology and an impressive operational footprint, Google Cloud Platform is still a hobby for Google. They are as yet unwilling to make the necessary non-technology investments to really compete to win here.
  • Private infrastructure clouds just aren’t happening – instead enterprises are both getting more comfortable (surrendering?) with public cloud and continuing to invest in virtualization (VMware obituaries were definitely premature).
  • OpenStack’s identity crisis is warranted. Without a credible ecosystem of OpenStack-based public cloud providers and little enterprise private cloud adoption, the OpenStack bandwagon is left providing ingredient technology to the industry itself, which doesn’t really need what the vendors are selling.
  • Rackspace’s OpenStack bet outcome is increasingly clear: they may not exit 2014 as an independent entity. They should have invested up the stack in higher value services like Amazon, not down (and to add insult to injury, I’ll wager their VMware business still is bigger than their OpenStack business). They’ve lost over half of their market cap this year. While they still sport a premium multiple, the overall trend is towards a SoftLayer kind of valuation which could put them in play for acquisition by the kind of legacy vendors who confuse hosting with cloud (isn’t HP out telling the world their balance sheet has finally recovered from Autonomy?).

Cloud Platform

  • PaaS is still a zero billion dollar category, but could PaaS end up being the level at which enterprises implement private cloud? I see more traction for PaaS than IaaS in the enterprise.

Big Data

  • In the absence of a strong set of customer successes, I think Hadoop may be spending some time in the trough of disillusionment. The challenge is not filling the data lake, the challenge is extracting meaningful and material business results from the lake. It is a data science problem far more than an infrastructure problem. How long will it take to transition to a Hadoop 2 that is robust, deployable, performance, has ecosystem support, etc.?
  • I continue to be amused that Google is so far ahead when it comes to big data that it is a material disadvantage for them. They get dismissed as proprietary while the rest of the industry is enraptured with Google’s technology from two generations back that has been awkwardly laundered through Yahoo.

What else is happening below the clouds on the ground?

Exploring Alternative History

Tablet circa the year 2000

Bloomberg has a nice piece revisiting the broad vision Microsoft laid out in June 2000 at the grandiosely named Forum 2000. They even have an edited cut of some of the scenario videos developed for the event to bring the vision to life.

The event was originally scheduled to open the new millennium in January with a bang and more importantly to lay out Microsoft’s vision for the 21st century. The company felt intense pressure to reassert its thought leadership on at least three fronts. Microsoft, by virtue of being a business with actual profits, probably had an even greater relevance problem during the height of the dot com mania than it does today. Second, the unrelenting antirust assault on the company was building to its climax and the company desperately wanted an alternative narrative. And, largely forgotten today, the company was very concerned about demonstrating it would not lose a step in the transition to its brand new CEO, one Steven A. Ballmer, who had just taken the reins from Bill Gates.

The event was pushed from January to March and then ultimately June because the dates kept overlapping with antitrust rulings. That event kicked off a train of events that lead us directly to Microsoft’s current situation and the search for a new leader. It definitely provides a glimpse of a different trajectory for Microsoft over the last decade.

The original process to define Microsoft’s forward vision was through a set of technical committees made up of Microsoft’s best and brightest technologists. Despite high hopes and leaks to the press that such a process was under way, this approach was pretty much a complete bust. As that became apparent, Steve asked Paul Maritz to oversee an effort to pull together a compelling vision for the company. Paul described this exercise as “creating a new parade”.  A small and fairly eclectic group was formed of people from across the company but largely outside the engineering ranks. We sketched out the broad attributes of what things going forward would look like and then five sub-teams were tasked with making this brave new world come alive for consumers, small business, enterprises, knowledge workers and an end-to-end healthcare scenario that illustrated what developers would be able to build. Each group scripted and then shot professional quality videos from the user perspective.

I don’t think people appreciate how close Microsoft came to completely imploding in 2000. Employees woke up every day to relentlessly negative headlines from the DoJ case. It was not yet evident that the surreal world of the dot com bubble had ended, and even if you weren’t being wooed daily to join revenue-less startups with ridiculous valuations, you felt obligated to explore options.

Forum 2000 changed all that internally. It provided a sense of purpose and showed how the whole could be greater than the sum of the parts. Soon after Forum 2000, Mark Lucovsky, one of the key contributors to Windows NT, the inventor of Win32 (he also likes to brag he invented “DLL Hell”) and one of the company’s distinguished engineers, showed up with an architecture to make the Forum 2000 videos real (the ability to actually implement had not been the foremost consideration in painting the vision…). This lead to .NET My Services (aka hailStorm) which was announced in the spring of 2001.

.NET My Services was a cloud-centric model using web services to deliver consistent, personalized experiences across a wide variety of devices (including non-Microsoft devices – the very first device demonstrated was a Palm). It was also an API-first model, which meant any endpoint could access the system (this is an approach the Facebooks and Twitters claim, but regularly violate in the name of “protecting the user experience” which really means protecting ad revenue). It was a major departure from Microsoft’s traditional PC-centric platform and also introduced a subscription business model as opposed to the traditional license model. It was an open platform accessible from any device or service through open XML-based protocols but could be bootstrapped using Microsoft’s vast footprint of devices, applications and services. It represented a fundamental shift to a service-centric world, both technically and in terms of business model.

By 2001, it was clearer that the dot com mania had been a giant bubble and wasn’t coming back, plus the appeals court ruled that Microsoft would survive the antitrust proceedings intact. The confidence stemming from these positive external factors, however, ultimately undermined Microsoft’s desire to invest and realize the new vision.

Competitors like Sun Microsystems, no doubt horrified that their years of lobbying had failed to hobble the company, now faced a revitalized Microsoft with a vision for the future that was compelling to customers and driving the industry discussion. When they probably should have been figuring out how to save a business shackled to the dot com ship, Sun embarked upon a very effective campaign of demagoguery around Microsoft leading the shift to a user-centric model. As a result, My Services ushered in the first big industry debate around identity and privacy in the cloud. In retrospect, Microsoft’s personal computing heritage and fundamentally user-centric approach to give users full control over how their data would be shared looks vastly superior to today’s world administered by the almost interchangeable Big Brothers of Facebook, Google and NSA.

With the competitive and existential threats from dot coms and the DoJ having abated by this time, Microsoft chickened out on seeing it through. It was easy to back down from the industry debate over identity, shirk the challenges of figuring out the subscription service model and revert to the comfort and familiarity of good old Windows and Office. Harvard Business School later did an interesting case on the tensions between the old and the new camps inside the company and how it played out.

I don’t think it is widely appreciated that WinFS was born of a desire to realize the My Services scenarios, but to do it in a Windows-centric way. There was broad agreement on the importance of the scenarios, but strategic nostalgia for Windows resulted in the company trying to rethread them through the franchise and revisit the eternal dream of integrated storage. Instead of the truth being in the cloud, the truth would reside on Windows and everything would have to sync with your PC (just don’t turn your laptop off…). This decision triggered a sequence of events that directly brings us to the present day where the erosion of the Windows franchise played no small role in Steve Ballmer’s departure,

My Services was shut down, with CTO and WinFS cheerleader David Vaskevitch dismissively telling the team the company “didn’t need another $500 million business”. The fixation on WinFS technology brought down Longhorn, the release of Windows scheduled to follow Windows XP. Simply put, WinFS was too ambitious technically. After much internal debate, Longhorn came to an end with the “Longhorn Reset” whereupon the company embarked on the far less ambitious Windows Vista (and WinFS was never to be seen again, although I have flashbacks when I listen to the Hadoop guys talk today). However, given it had been over five years since Windows XP had shipped, the company felt pressure to rush the product out the door to meet obligations to customers who had paid for a new version of Windows as part of their enterprise agreements. Hence the “Vistaster” of shipping a half-baked version of Windows.

The company then spent three more years cleaning up the quality, performance, haphazard user experience and packaging of Vista, resulting in the very solid Windows 7, but failing to move the PC industry forward in any material way during that time. Windows XP remained the most popular version of Windows and Microsoft was forced multiple times to extend the end of life of Windows XP by a customer base that was just not compelled by multiple subsequent releases.

Meanwhile, iPhone and iPad (and imitators like Android) were in market and Microsoft’s Post-PC nightmare was looking very real. The company decided to focus Windows 8 almost exclusively on tablets, hoping to pull the tablet category back into the PC universe. Except that didn’t happen. Windows 8 on tablets received mixed reviews. Surface was a costly mistake, both financially and in its impact on critical OEM relationships. And it screwed up the desktop experience for billions of PC users (one senior Microsoft executive told me Windows 8 was only for tablets, but didn’t answer my question of why they neglected to mention that in the advertising). Which brings us to the present and the search for a new CEO.

In retrospect, this sequence of events is crystal clear in a way it never is in the fog of the present. Even with greater commitment, there are a million other ways the Forum 2000 vision could have gone wrong. Parts of the vision were dead on, others such as assuming tablets would rely on a stylus were big misses. It was still predicated on bootstrapping from the current Microsoft installed base, which would force a myriad of tradeoffs between old and new every day. There were major business challenges to overcome in building a successful subscription business, particularly as the Google advertising revenue volcano was just beginning to erupt. Microsoft subsequently spent years drooling over the prospect of hundreds of billions of dollars of advertising moving online, without fully internalizing that capturing those revenues would require behavior that was in many ways antithetical to the personal computing ethos at the core of the company. The good news is the rise of the tablet kept Microsoft from turning Windows into an ad-funded desktop billboard monstrosity.

The Price of Success

And of course, Microsoft faced the innovator’s dilemma in spades. The last decade of Microsoft’s history is a classic and very public case study on how a very successful company deals with disruption (disruption it knows is coming). The dissipation of the Forum 2000 vision was very much the result of a battle between seemingly reactionary forces exercising their fiduciary responsibilities and the hazy dreamers of a less distinct and unproven future. The counter-revolution obviously prevailed, at least temporarily.

Some have even argued that Microsoft did the right thing by maximizing Windows profits for as long as it did (and is still doing even though Windows profits dipped slightly below $10 billion in the last fiscal year). Horace Dediu’s recent podcast “The Limits of Executive Power” has an interesting take on this (and smart commentary recently on Microsoft is hard to find):

We begin with a defense of Ballmer for preserving great things, continue by condemning him for not having destroyed those very same things and end by asking whether anyone could have done the right thing.

The Innovator’s Dilemma came out in 1997. We all read it at Microsoft and were looking for disruption behind every tree. Discussions about the need to cannibalize Windows before someone else did have been going on for at least 15 years. And in the meantime, the company has banked profits from Windows alone in excess of $100 billion (I have not done the actual math but the number is of this order of magnitude). Clearly undermining that profit stream proactively 15 years ago was the wrong thing to do, but how should the company have avoided its current situation? The company invested in pretty much every kind of non-PC device including smartphones (Microsoft was the leader in this space as recently as 2006), tablets (albeit with styluses) and a bunch of goofier form factors.

I believe the fundamental problem was the unwillingness and/or inability to transcend the single device (UPDATE: I should make explicit that this is a reference to Tim O’Reilly’s popularization of Dave Stutz’s farewell from Microsoft missive which was written after the My Services experience). Microsoft had the vision and means to both lead the industry and bridge its existing businesses to a cloud-centric, multi-device world, but failed to follow through. Now it finds itself belatedly embracing this model but from a disadvantaged position. It is yet another technology industry example of innovations conceived in one place being successfully commercialized elsewhere that lacks the baggage of the conceiver.

Near the end of my tenure at Microsoft, I was in a meeting with a cast of thousands. One of the presenters said “we wouldn’t want to do another hailStorm”, expecting all the heads in the room to nod in unison. The SVP in the room turned to me and said “we should have done hailStorm” to which my answer was “damn straight”. The rest of the room was aghast. I suspect this viewpoint is not as contentious now, even at the board level. Success can be a bitch.