Five Changes Microsoft Must Do — Or Die

For the past few years, we’ve kept hearing that Microsoft is in financial trouble. But until now, for all the books and articles foretelling Microsoft’s demise at the hands of Google, the numbers really didn’t support that conclusion. Windows and Microsoft Office still sold in the billions; and businesses kept paying ridiculously high rates for collaboration software like SharePoint.

Today’s quarterly earnings call, coupled with the news that Microsoft will lay off 5,000 workers across multiple departments, shows that some of the worries about Microsoft were true after all. The Operating system, and all the software that runs on top of it, is moving to the Web. This isn’t about the recession. It’s about Microsoft’s paralysis.

So, Microsoft, if I’m speaking to you directly, here are steps you can take to build a bigger and brighter future, one where you can avoid the mistakes made by industries that have not adapted well to the Web (newspapers and magazines come to mind).

1. Strengthen the Facebook relationship

What ever happened with your Facebook relationship, anyway? It doesn’t matter that you were slightly used (for a mindbogglingly silly valuation) or that you grossly overpaid for one percent of Facebook: the social network, despite its own troubles figuring out ways to make money, stands in a better position to compete in the future of computing than you do.

Tomorrow’s operating systems will be less visible and less important to the user than the Web browser — which will be the starting point for many people that Windows used to be. Within that browser, Facebook has a chance of being the building block on top of which all important applications get built. Google bets it will be that building block(with search), but if you, Microsoft, joined more aggressively with Facebook you could give Google a run for its money.

Look at all the apps on Facebook: Most are still silly games. You could help bring important apps to the new “social operating system.”

2. Stop trying to be a one-stop shop

Seriously, just stop it guys. The days of being a one-stop vendor for businesses are dying, and your relentless, head-in-the-sand persistence that you can make everyone buy everything from you is so grossly antiquated that you’re insulting the market at this point.

The CIOs who believe you — and, based on the numbers, there still are many — will retire or die in the coming years. And when they do, the guy who grew up with Google, Facebook, Wikipedia and YouTube isn’t going to fork over hundreds of thousands of dollars (or millions) to you because you keep repeating that you’re “the most trusted enterprise vendor!”

Sorry, that’s not good enough anymore.

3. Build a lightweight operating system

While some people say doing this would be fruitless, because users could go get Linux for free, that’s a rather insular statement. Much of the computing population in the world doesn’t even know what Linux is or how to go about installing it. People are comfortable with Windows, but the migration of apps and computing to the Web means they shouldn’t have to overpay to have a big shiny OS with a bunch of bells and whistles (they’d never use) if they just need an OS to lie quietly under a browser.

4. Invest in (and encourage) online SharePoint and Exchange

Some of the best news of 2008 for you, Microsoft, was that you offered a fully Web-based version of your collaboration software (SharePoint) and your e-mail system (Exchange). It was about time. But make sure you really mean it.

What does that mean? For starters, don’t just offer it as “door number two” option after you’ve gone through an exhaustive pitch to get people to buy a more pricey on-premise SharePoint server that they’ll have to spend millions maintaining and hire additional staff to manage. I know it’s tempting to do that, to get your stock price up for the next quarter, but if there’s one thing we know, it’s that a short-term gain on SharePoint will not help you in the long run. You need a long-term win on SharePoint or you will be crushed by nimbler competitors on collaboration. You have Ray Ozzie: He pioneered collaboration in many senses. Listen to him.

5. Release a fully-online version of Office NOW!

Back in November, 2008, CIO asked Stephen Elop, Microsoft’s business division president, why Office wouldn’t be released until late 2009 —a full two years after Google released Google Apps. “It’s to make sure it’s in line with what our customers expect,” he’d said. “And also, we’re held to a certain standard.”

He meant, of course, that Microsoft has to be better than little playful Google Apps.

While Elop is undoubtedly one of the most forward-thinking people at Microsoft, the justification comes off as very weak (and we know it’s still a thinly-veiled attempt to shield the cannibalization question). It sounds an awful lot like a stodgy old newspaper editors in 2002 saying that the masses shouldn’t be able to comment on stories or be able to submit articles themselves, because the newspaper brands were “held to a certain standard.”

On the Web, businesses have to get off their high horses and let the consumers dictate what’s needed. The fact is, while a lot of financial analysts still need a robust Microsoft Excel application, the majority of us can get by just fine with the more minimalist productivity apps from Google and Zoho.

Just sitting on the sidelines and saying you have to wait for an online offering to be perfect is silly. Release what you have, and iterate on top of it. It’s called agile development. Heard of it? This is the new world of software, and if you watch the 5,000 good folks exit your company this year, you’ll realize it may have already passed you by.