Barbarians at Bill Gates

Even if you have not been the richest man in the world for the better part of a decade, the one thing you can afford is a sense of humor. And it is nice to see that Bill Gates, one of Microsoft‘s founders, its chairman, and its chief software architect, has a great sense of humor. Nothing was made more clear when Gates called IBM its biggest threat in the IT market in an interview prior to his keynote address at the Consumer Electronics Show in Las Vegas last week.

CES usually comes in the early part of each year, when the IT community has been poisoned by an excess of product announcements and vendor pronouncements during the course of the previous year. This is an excellent time to show off new electronic toys–many of which are based on computer technologies these days, of course–because the holiday season has many of us (particularly those of us who like electronics and computer technology) in the mood to think about gadgets. And CES is just plain fun, with over 130,000 attendees all playing around with toys from over 2,500 exhibitors.

During his keynote, Gates showed prototype home media centers, cell phones, and a very slick super-wide screen head’s up display for his office that looked more like the bridge of the Starship Enterprise (Enterprise-D, to be specific) than the desktop PC you look at every day at work. You can watch the CES keynote by Gates and demos of Windows Vista by clicking here, and it is interesting in that is previews a lot of Windows Vista functionality, including that new 10-foot interface that I surely want on my desktop–mostly for Flight Simulator, of course. And the Flip 3D interface, which is akin to Sun Microsystems‘s Looking Glass interface. Basically, you can take a Windows application window, rotate it in simulated 3-D space, and stack them up like pieces of paper in a folder–with just enough space to see each screen. It is very slick, and helps make your desktop a lot less crowded. Desktop search in Vista was also previewed at CES, as was a feature called Quick Tabs for better organizing searches; there is also a Windows Sidebar and Windows Sideshow (which has video features) to organize various live feeds of data, Web sites, and applications as they are running. Basically, you can make your own personal dashboard on your PC. Microsoft also previewed using an Xbox gaming machine as a graphics co-processor for a Vista-based PC. This is a very interesting idea, particularly if you have applications that need intense graphics processing. Gates also previewed much better tablet PC functionality with Vista. He also said that Vista would offer much better integrated TV, Web, and local video processing, and added that Windows XP Media Center Edition, which has all of the richest video currently available on the Windows XP platform and which integrates a TV remote with the PC so you can interface with that PC in a way that is more familiar than a keyboard (but you can also use a keyboard, obviously), shipped 1.5 million units in 2004, but exploded to 6.5 million units in 2005. Microsoft really expects video to drive shipments of Vista, and this will impact your home and your business alike.

By the way: If you are using Media Player 9 and you watch the keynote by hitting the Fast Fast Forward button on the lower right to speed it up, it is also quite hilarious. I can’t process the data on the Fast Fast Fast Forward setting–it is too fast for my ear.

All of this Vista preview was great fun, and the technologies could lead to a much different workplace and home collaboration experience over the next decade, which Microsoft has anointed as “The Decade of the Digital Lifestyle.” But what does this have to do with enterprise computing platforms?

The comments that Gates made prior to his speech to Reuters are what I found most interesting. With Google going public in the summer of 2004 and enjoying an explosive growth in its market capitalization and its mindshare in the IT market, it is no surprise that it Google is being championed by many in the IT press and analyst community as Microsoft’s most likely rival going forward in regard to innovation in information technology. Given this, it was natural enough for Reuters to ask Gates who he sees as Microsoft’s greatest challenger. He predictably dismissed Google as any kind of rival–even though Google has just successfully defended against a very aggressive move by Microsoft to try to steal away its search and advertising deal with Time Warner’s AOL unit–and said that “people tend to get over-focused on one of our competitors; we’ve always seen that.” Then Gates said that IBM, oddly enough, is its biggest threat, saying that IBM is the biggest company in IT “by far,” which is not strictly true since Hewlett-Packard has nearly the same annual revenues as Big Blue since IBM divested itself of its disk drive and PC businesses. Gates said that IBM has four times the employee count as Microsoft and “has always been our biggest competitor.”

In a very real sense, IBM helped make Microsoft, and like in life, you always sow the seeds of your own downfall. As is well known, IBM made Microsoft a real player by picking its DOS as the operating system on the PC in 1981, and further cemented Microsoft’s credibility by launching the OS/2 PC server platform in 1987. While IBM was distracted by OS/2, Microsoft sneakily developed Windows NT, and has in the past decade went from a joke in the midrange (at least according to some prominent IBMers a decade ago) to the dominant platform on small and midrange servers. Just like IBM either misjudged or dissembled for competitive reasons about any threat Microsoft was to itself, I think this is precisely why Microsoft has consistently, in public, waved off any suggestion that open source software or organizations like Google represent any threat to Microsoft’s hegemony on the desktop and in parts of the corporate data center. Internal Microsoft documents that have leaked out in the past year show Microsoft is undoubtedly concerned that open source software is its biggest threat, and the odds favor that Microsoft sees the idea of advertising-support, Web-based applications as a threat to its current licensed software business and its future subscription-based software business. You would have to be a fool not to be worried about that. To put it bluntly, free, advertising-supported newsletters in the IT business killed any hope of charging for IT publications. Why should software be any different? The Web is the great equalizer, and Microsoft will have to contend with that.

Just like IBM did not publicly take the threat of Windows NT seriously–which I explain in the two TFH Flashback articles at the bottom of this story–even if it might have been internally worried about the effect of Windows on AS/400 sales and profits, Microsoft cannot look worried about the competitive threats it is facing. Microsoft also has tens of billions of dollars in cash and monopolies on desktop PCs and desktop applications and a near monopoly on server operating systems, so it can afford to shake off such suggestions as the threat of Google with a laugh. Microsoft is in a much better position in 2005 than IBM was in 1995–no doubt about it. But change comes quickly in IT, and mark my words:

If someone gets a Web-based office productivity suite running in a hosted environment out, this will start to cut into Microsoft’s game.

Most of us just need the functionality of Word and Excel and PowerPoint to do our work. We do not need a heavier and heavier PC or backend servers. I like 3-D, 10-foot screens, but I do not need them badly enough to pay big bucks for them. In fact, I will never pay much of a premium for such functionality, and if Microsoft believes that the majority customers–particularly business customers–will pay extra for that, then Microsoft will echo IBM’s mistakes with the AS/400 and iSeries almost precisely. Even legacy customers who have no alternative for running their RPG and COBOL programs did not pay a premium in the transitions from the AS/400 to the iSeries to the i5. That is just not the way people spend. And if there is a cheaper alternative to any business application–such as a hosted office suite environment that provides the same functionality as a local PC–there is no doubt in my mind that businesses will opt for that.

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