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<DIV dir=ltr align=left><SPAN class=936471216-14092005><FONT face=Arial
color=#0000ff size=2>It makes sense if you think of it this
way:</FONT></SPAN></DIV>
<DIV dir=ltr align=left><SPAN class=936471216-14092005><FONT face=Arial
color=#0000ff size=2></FONT></SPAN> </DIV>
<DIV dir=ltr align=left><SPAN class=936471216-14092005><FONT face=Arial
color=#0000ff size=2>1 Billion = total profits = 100%</FONT></SPAN></DIV>
<DIV dir=ltr align=left><SPAN class=936471216-14092005><FONT face=Arial
color=#0000ff size=2>1.4 Billion = Profit from windows and desktops apps = 140%
of total profits</FONT></SPAN></DIV>
<DIV dir=ltr align=left><SPAN class=936471216-14092005><FONT face=Arial
color=#0000ff size=2></FONT></SPAN> </DIV>
<DIV dir=ltr align=left><SPAN class=936471216-14092005><FONT face=Arial
color=#0000ff size=2>It's still bad grammar and sensationalistic, but
correct.</FONT></SPAN></DIV>
<DIV dir=ltr align=left><SPAN class=936471216-14092005><FONT face=Arial
color=#0000ff size=2></FONT></SPAN> </DIV>
<DIV dir=ltr align=left><SPAN class=936471216-14092005><FONT face=Arial
color=#0000ff size=2>_Scott</FONT></SPAN></DIV>
<DIV dir=ltr align=left><SPAN class=936471216-14092005><FONT face=Arial
color=#0000ff size=2></FONT></SPAN> </DIV>
<DIV dir=ltr align=left><SPAN class=936471216-14092005><FONT face=Arial
color=#0000ff size=2></FONT></SPAN> </DIV><FONT face=Arial color=#0000ff
size=2></FONT><BR>
<DIV class=OutlookMessageHeader lang=en-us dir=ltr align=left>
<HR tabIndex=-1>
<FONT face=Tahoma size=2><B>From:</B> widdershins-bounces@attrition.org
[mailto:widdershins-bounces@attrition.org] <B>On Behalf Of </B>N
J<BR><B>Sent:</B> Wednesday, September 14, 2005 9:11 AM<BR><B>To:</B>
widdershins@attrition.org<BR><B>Subject:</B> RE: [widdershins] Forbes:
Microsoft's Midlife Crisis <BR></FONT><BR></DIV>
<DIV></DIV>
<DIV dir=ltr align=left><SPAN class=246070316-14092005><FONT face=Arial
size=2>Melissa,</FONT></SPAN></DIV>
<DIV dir=ltr align=left><SPAN class=246070316-14092005><FONT face=Arial
size=2></FONT></SPAN> </DIV>
<DIV dir=ltr align=left><SPAN class=246070316-14092005><FONT face=Arial size=2>I
agree this seems odd. I emailed the author and she told me this - '<FONT
size=2>Microsoft's other divisions are money-losing, so Windows etc account for
more than 100%'. This isn't correct, as obviously profits cannot exceed
100%. I'm not sure what to say to her :O</FONT></FONT></SPAN></DIV>
<DIV dir=ltr align=left><SPAN class=246070316-14092005><FONT face=Arial
size=2></FONT></SPAN> </DIV>
<DIV dir=ltr align=left><SPAN class=246070316-14092005><FONT face=Arial size=2>N
J</FONT></SPAN></DIV>
<DIV dir=ltr align=left><SPAN class=246070316-14092005><FONT face=Arial
size=2></FONT></SPAN> </DIV><FONT face=Arial size=2></FONT><BR>
<DIV class=OutlookMessageHeader lang=en-us dir=ltr align=left>
<HR tabIndex=-1>
<FONT face=Tahoma size=2><B>From:</B> widdershins-bounces@attrition.org
[mailto:widdershins-bounces@attrition.org] <B>On Behalf Of </B>Melissa
Shapiro<BR><B>Sent:</B> Tuesday, September 13, 2005 7:57 PM<BR><B>To:</B>
widdershins@attrition.org<BR><B>Subject:</B> [widdershins] Forbes: Microsoft's
Midlife Crisis <BR></FONT><BR></DIV>
<DIV></DIV><!-- Converted from text/rtf format -->
<P><FONT face=Arial color=#0000ff size=2>Anyone else wondering how this
statistic could be right? 140% of profits?</FONT> </P>
<P><FONT face=Arial size=2>The company relies on Windows and a suite of desktop
applications--products released a decade ago--for 80% of sales and 140% of
profits. Newer products--the Xbox videogame machine, the MSN online service, the
wireless and small-business software--collectively have racked up $7 billion in
losses in four years. </FONT></P><BR><BR>
<P><FONT face=Arial size=2>Microsoft's Midlife Crisis </FONT><BR><FONT
face=Arial size=2>Victoria Murphy, 09.13.05, 6:00 AM ET </FONT><BR><A
href="http://www.forbes.com/2005/09/12/microsoft-management-software_cz_vm_0913microsoft.html?partner=daily_newsletter"><U><FONT
face=Arial color=#0000ff
size=2>http://www.forbes.com/2005/09/12/microsoft-management-software_cz_vm_0913microsoft.html?partner=daily_newsletter</FONT></U></A><FONT
face=Arial size=2> </FONT></P>
<P><FONT face=Arial size=2>Steven Ballmer, Microsoft's cheerleader and chief
executive, takes the stage at the Georgia Dome in Atlanta to stoke the spirits
of 10,000 faithful at the company's annual sales meeting. "Win, drive, innovate,
impress!" he shouts, his forehead glistening under hot stage lights as ponds of
sweat soak the pale blue shirt on his barrel-chested frame. "But there's a way
people keep score. Billions! Billions! Billions! If you wanna grow, things that
rhyme with 'billions' are very good," he roars, sprinting up and down the aisles
to trade high fives with starstruck salespeople. </FONT></P>
<P><FONT face=Arial size=2>The crowd at the Georgia Dome loves it, but even
Ballmer's booming voice can't mask the disturbing truth: Microsoft (nasdaq: MSFT
- news - people ) is slowing down. It is bigger, more lumbering and less
profitable than it was five years ago. Its sales are up 73% in five years, but
profits are up only 30%. Payroll has doubled in the last six years. In the
fiscal year just ended, sales rose only 8%, the first time the company has ever
reported less than double-digit growth. </FONT></P>
<P><FONT face=Arial size=2>In the dog years of Silicon Valley, Microsoft, at 30,
is in advanced middle age. The company relies on Windows and a suite of desktop
applications--products released a decade ago--for 80% of sales and 140% of
profits. Newer products--the Xbox videogame machine, the MSN online service, the
wireless and small-business software--collectively have racked up $7 billion in
losses in four years. </FONT></P>
<P><FONT face=Arial size=2>In Web-server software, Microsoft has 20% of the
fast-growing market, while the free Apache program, a Linux variant, has
70%--worth $6 billion in revenue had Microsoft gotten the sales. In search,
Google (nasdaq: GOOG - news - people ) and Yahoo! (nasdaq: YHOO - news - people
) get 70% of queries while MSN gets only 13%. Google now gives away features
(desktop search, photo archiving) that Microsoft promises in its next upgrade of
Windows--which is running two years late. </FONT></P>
<P><FONT face=Arial size=2>What has gone wrong? Microsoft, with $40 billion in
sales and 60,000 employees, has grown musclebound and bureaucratic. Some current
and former employees describe a stultifying world of 14-hour strategy sessions,
endless business reviews and a preoccupation with PowerPoint slides; of
laborious job evaluations, hundreds of e-mails a day and infighting among
divisions so fierce that it hobbles design and delays product releases. In
short, they describe precisely the behavior that humbled another tech giant: IBM
(nyse: IBM - news - people ) in the late 1980s. Tellingly, IBM reached a point
of crisis just over three decades after it started selling computers to
commercial users. </FONT></P>
<P><FONT face=Arial size=2>"Microsoft is a vestige of the past," says Marc
Benioff, chief of rival Salesforce.com, whose shares, since they were first
offered to the public in June of last year, are up 27%; Microsoft's are down 5%
in that period. Salesforce, which trades at 84 times next year's earnings
(versus 20 for Microsoft), rents its software to businesses over the Internet.
"Microsoft," Benioff says, "still wishes the Internet hadn't been invented."
</FONT></P>
<P><FONT face=Arial size=2>"Microsoft has become what it used to mock," says
Gabe Newell, a developer on the first three versions of Windows. At late-night
rounds of poker with "Bill and Steve" in the mid-1980s, he says, "we laughed at
IBM. They had all this process for monitoring productivity, and yet we knew they
had spectacularly bad productivity. That's Microsoft now." </FONT></P>
<P><FONT face=Arial size=2>Jeff B. Erwin, who quit in December after five years
there, adds, "Microsoft has some of the smartest people in the world, but they
are just crushing them. You have a largely unhappy population." </FONT></P>
<P><FONT face=Arial size=2>Unhappy because they aren't getting rich the way they
did in the 1990s. In September 2003 Microsoft ended its stock option program,
replacing it with outright grants of shares, which aren't at the moment minting
very many millionaires. Since the tech crash in 2000, Microsoft stock has lost
half of its value, although it has done better than the next four entries in the
March 2000 ranking of Nasdaq stocks by market capitalization: Cisco (nasdaq:
CSCO - news - people ), Intel (nasdaq: INTC - news - people ), ITC DeltaCom
(nasdaq: ITCD - news - people ) and Oracle (nasdaq: ORCL - news - people ). And
now it is being eclipsed, in software cool and stock market excitement, by the
upstart Google. </FONT></P>
<P><FONT face=Arial size=2>The doubts and the sniping gnaw at Ballmer, 49, who
became chief executive six years ago, just as the tech sector was peaking on
Wall Street. "The one thing that frustrates me is any sense that the company
doesn't have huge, amazing opportunity to change the world and huge, amazing
opportunity to grow," he says. "We absolutely do. Will we execute well? That's
my job." </FONT></P>
<P><FONT face=Arial size=2>In many ways, Microsoft still looks invincible--its
stock may even be a bargain. Surely it has the wherewithal to buy its way into
new fields. Even after paying a $32 billion dividend last year, Microsoft has
$40 billion in its pocket. With annual net income of $12 billion-plus, it
outearns every other technology company. </FONT></P>
<P><FONT face=Arial size=2>Moreover, the next 18 months could be filled with
blockbusters. Fifteen product releases are set, including new versions of
Windows, Office and the SQL database; the much-hyped Xbox 360 is to debut this
holiday season. Microsoft is at its best when a new threat looms--as Netscape
did a decade ago--and now it has the next one. Ballmer revs up the troops with a
new battle cry: "Goo-GLE! Goo-GLE! Goo-GLE!" </FONT></P>
<P><FONT face=Arial size=2>"Tone comes from the top," he says. "People have to
be reminded that there's nothing that stands in our way of competing. Our
capacity to learn is amazing." </FONT></P>
<P><FONT face=Arial size=2>Ballmer is one of the richest men in the world. His
3.78% stake in his employer is worth $11 billion. Bill Gates owns 9.42% and,
with other assets, has a net worth of $51 billion. And while Gates sells 20
million shares every quarter to diversify his assets, Ballmer rarely disposes of
shares, and even then mainly for charitable purposes. He drives a seven-year-old
Ford to the office every day. </FONT></P>
<P><FONT face=Arial size=2>Ballmer grew up in the suburbs of Detroit, one of two
children; his father was a manager at Ford Motor (nyse: F - news - people ), his
mother raised the kids. Steve and Bill bonded at Harvard in their sophomore
year. Bill dropped out, while Steve dutifully stayed on. Ballmer graduated in
1977, did a stint at Procter & Gamble (nyse: PG - news - people )and entered
the Stanford Graduate School of Business in 1979. In 1980 Gates persuaded him to
ditch the M.B.A. program and join Microsoft as employee No. 30. </FONT></P>
<P><FONT face=Arial size=2>For two decades Ballmer was Bill Gates' right hand.
He headed sales for Windows 95, then became president in 1998. In January 2000
Gates ceded the chief exec role in order to focus on the big picture. They talk
or e-mail each other daily, and Ballmer consults with Gates even on small
acquisitions. </FONT></P>
<P><FONT face=Arial size=2>In Gates' grip the old Microsoft ran like a startup,
even though it had long ceased to be one. A decision as small as hiring a
product-marketing manager required approval from the very top. "There was no
management structure," says Mich Mathews, a 12-year veteran who now heads
marketing. "We were very hierarchical. If a guy in France wanted to do
something, that had to go through Steve." </FONT></P>
<P><FONT face=Arial size=2>Shortly after Ballmer took charge, he began looking
at how to build some structure into an unwieldy management process. He
interviewed a hundred employees at all levels. What emerged was an attempt to
create a system with both accountability and flexibility. He recast the company
into seven divisions and ordered each to publicly disclose a quarterly
profit-and-loss statement, even though accounting rules don't require such
revelations. </FONT></P>
<P><FONT face=Arial size=2>"This will be a place with some structure, but
structure that aids teamwork, not politics and bureaucracy," Ballmer told
employees in a companywide e-mail in June of last year. "Nothing solves ‘big
company' ills quite like a strong focus on accountability for results with
customers and shareholders." </FONT></P>
<P><FONT face=Arial size=2>With accountability, though, comes competition for
resources. The seven divisions act as rival fiefs, pursuing overlapping
technologies and warring over whose code will prevail in the spaces where
different divisions' products interact. "Windows and Office would never let MSN
have more budget or more control," says Mark Jen, who quit Microsoft eight
months ago. "MSN e-mail should talk to Office Calendar contacts and share
appointments from Office with friends and family on the Web. But then MSN could
cannibalize Office." </FONT></P>
<P><FONT face=Arial size=2>The squabbling is delaying the release of the next
version of Windows, called Vista. In 2001 Microsoft promised that Vista would be
ready in 2003; by mid-2003 it said 2005. Now Vista is set for year-end 2006, the
company vows; some analysts say early 2007 is more likely. </FONT></P>
<P><FONT face=Arial size=2>Some employees complain that they spend hours
tracking down collaborators in far-flung groups instead of talking to customers
and taking products to market. Working on a huge project requires checking in
with management constantly. "Instead of promoting the product to customers, I'd
get stuck in the office until midnight preparing slides for my monthly product
review," says David Ryan, 33, a marketer for Windows XP. He has just been freed
up to pursue an incubation project in the server group, where he is happily
exempt from most reviews. At Microsoft a "review" is often a progress report
illustrated with 15 PowerPoint slides. </FONT></P>
<P><FONT face=Arial size=2>Other staffers say that almost every move requires a
lawyer's signature and that even routine approvals can take weeks. Recently one
employee waited a month while a $10,000 purchase order for outside development
work was held up by legal. By the time the lawyers were done, the budget for the
deal had evaporated. Dennis Reno left Microsoft two years ago feeling burned out
from bureaucracy. He'd worked 18-hour days but got little done because he was
bogged down by paperwork. "The smallest issue would balloon into a nightmare of
a thousand e-mails," says Reno, who is now at Plumtree Software (nasdaq: PLUM -
news - people ). </FONT></P>
<P><FONT face=Arial size=2>Ballmer views product integration as Microsoft's big
advantage--how its software will reach from the desktop to servers, databases
and the Web and onto phones, handhelds and set-top boxes. But reach means
complexity. As it is, the last version of Windows has 50 million lines of code,
and Vista will run a lot more. </FONT></P>
<P><FONT face=Arial size=2>"Projects were weighed down by integration," says
Alexander Hopmann, who quit Microsoft in March to join a home-networking
startup, Pure Networks, in Seattle. In 2000 he worked on new storage software
for Exchange, a server program that works with Microsoft Outlook e-mail, but the
Outlook team, without admitting so, didn't want it. "They sent me a 200-page
document that said our technology had to be 100% better than the current stuff.
Then it failed, of course, so they did it themselves." </FONT></P>
<P><FONT face=Arial size=2>More recently, programmers at the MSN online service
were ready to release a search tool letting users sift through their own PCs,
but the research lab and the Windows division were working on similar efforts.
Some argued that any new tool should wait to be bundled into Vista. Yusuf Mehdi,
a top MSN executive, had to dicker inside the company for a month before
striking a compromise that let MSN's and Vista's search tools both go ahead.
</FONT></P>
<P><FONT face=Arial size=2>Ballmer has moved to counter the drawbacks of
bigness, pushing employees to focus more on customers and less on internal
doings. At the sales meeting in July, former sales chief Kevin Johnson
encouraged the crowd to "just say no" to internal requests and meetings. He has
ordered all internal sales meetings to occur only on Tuesdays, so his reps can
pitch to customers the rest of the time. </FONT></P>
<P><FONT face=Arial size=2>Some customers say Microsoft is more responsive than
it used to be. "The old Microsoft took its customers for granted," says J.E.
Henry, tech chief at the Regal Cinema theater chain. "They didn't care what we
had to say about total cost of ownership, security, risk. After Steve took over,
I saw a complete turnaround." </FONT></P>
<P><FONT face=Arial size=2>In its days of complacency, IBM had a no-layoff
policy. Ballmer, determined not to let deadwood accumulate in Redmond, Wash.,
lets go of 6.5% of the workforce every year for inadequate performance. He makes
a valiant effort to penetrate the management honeycomb to rally the worker bees.
He writes a quarterly overview, e-mailed to all employees, and also does several
Webcasts a year. He regularly holds what he calls "skip-level one-on-ones" with
individuals or groups of employees who are up to ten levels below him. Another
method: "wallows" (his word)--impromptu meetings focused on the bigger issues;
he recently challenged the Microsoft Business Solutions team to describe how it
will target medium-size companies. </FONT></P>
<P><FONT face=Arial size=2>Ballmer has put in place half a dozen internal
surveys to give employees a sense that their opinions are heard. The Microsoft
poll is an anonymous survey with 60 statements that employees are asked to rate,
from "strongly disagree" to "strongly agree," on such topics as accountability
and performance rewards. Last year Microsoft got 70,000 written responses to
various questions. </FONT></P>
<P><FONT face=Arial size=2>Customer satisfaction gets measured annually.
Employees meet with managers every August to plan up to six "commitments" for
the upcoming year. Each job is assigned to one of 15 levels--the system sounds a
lot like civil service pay grades--and given a "competency tool kit," a list of
the skills an employee of a particular type and level should have. At annual
performance reviews, managers are compelled to rank employees on a scale of 1 to
5. Says Hopmann, the escapee now at Pure Networks, "There's a bureaucracy that
over time has developed these rules. It has become a huge morale problem."
</FONT></P>
<P><FONT face=Arial size=2>Morale would no doubt be better if Microsoft were
still growing at 50% a year, as it was doing 15 years ago. Not counting one-time
gains from option accounting, net in the fiscal year just ended was up only 19%.
</FONT></P>
<P><FONT face=Arial size=2>The Xbox game console is hot, but its division has
lost $4 billion in four years and isn't yet in the black. The mobile-software
division, also losing money, has just a sliver of the market for cell phone
handsets. Microsoft Business Solutions, after acquiring Great Plains Software
for $1.1 billion and Navision for $1.4 billion, is supposed to deliver $10
billion in sales by 2010. At its current 6% growth rate, MBS will attain that
goal in 43 years. </FONT></P>
<P><FONT face=Arial size=2>Give us time, Ballmer says. "You could say 1995 to
2000 was about us winning on the desktop. Then 2000 to 2005 we won and drove the
server market. And the next five years is all about driving and winning the
Web," he says. Yet it was in 1995 that Gates issued his "tidal wave" memo, a
clarion call to the Microsoft hordes: "Like the PC, the Internet is a tidal
wave. It will wash over the computer industry and many others, drowning those
who don't learn to swim in its waves." A decade later, is Microsoft poised to
win the Web? Not by any measure. </FONT></P>
<P><FONT face=Arial size=2>Then again, Microsoft is so vehemently competitive
that it could yet prevail in videogames, searching and servers. Microsoft is
"the world's largest startup," says star programmer Ray Ozzie, who wrote Lotus
Notes and joined Microsoft in April when it acquired his startup, Groove. "No
one seems to feel comfortable in their own skin here. It's weird. They still
need to succeed." </FONT></P>
<P><FONT face=Arial size=2>He observes what Ballmer is too proud to say: "The
top executives get the potential Microsoft has. But the next tier of employees
doesn't because of the stock price." </FONT></P></BODY></HTML>