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10/11/2011
01:32 PM
Fritz Nelson
Fritz Nelson
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The Tale of Ballmer's Bonus

Skype buy and Facebook deals point to a more innovative Microsoft. But the board is not satisfied.

InformationWeek Now--What's Hot Right Now
United States v. Microsoft seems like a lifetime ago, when practically anything Microsoft did--a new product, an acquisition--was scrutinized as a malicious plot. Simply put: for a great deal of the 1990s and the turn of the century, Microsoft was presumed guilty. Meanwhile, despite an impressive installed base among many of its products, Microsoft became the pinnacle of mediocrity. Its banal technology was always just good enough. "Microsoft" and "innovation" couldn't get in the same room with each other, let alone the same sentence.

Don't look now, but Microsoft has changed.

On Monday, the European Union gave its blessing of Microsoft's acquisition of Skype. Some may find the $8.5 billion price tag excessive, but between Skype and the enterprise-class OCS/Lync, Microsoft has locked up a significant portion of the unified communications and presence market.

Imagine the integration of these services--which include not only instant messaging and presence, but also audio, desktop sharing and video -- putting it all on mobile devices, and scaling it to compete with everything from FaceTime to WebEx and Adobe Connect.

Skype's installed base alone makes it a de facto standard that can bridge communications across any computing system (including mobile ones) running any operating system. In July, shortly after Microsoft announced that it was acquiring Skype, Facebook baked Skype's video chat service into its social network platform. Talk about an instant footprint.

Microsoft's dealings with Facebook go back to the company's initial investment of around $240 million in 2007. Microsoft powers not only search advertising, but also incorporates Facebook recommendations in Bing searches. Just last week, Facebook incorporated Bing Translator to help translate posts and comments.

Microsoft has been quite savvy in many of its partnerships. Thanks to the company's deal with Yahoo, Bing now enjoys somewhere around 30 percent market share in search, according to several analyses; this from a product launched in 2009. Microsoft has successfully made Bing the default search mechanism in many products, including BlackBerry phones.

Azure, Microsoft's big foray into the cloud is also turning heads. Market share numbers are difficult to come by, but support for Java, Python, PHP and Ruby, in addition to .Net seemed the antithesis of the old Microsoft. Early this summer Microsoft announced big data-as-a-service running on Azure in what it dubbed Project Daytona using MapReduce. Last month The Register reported that Apple's iCloud was running across Microsoft Azure and Amazon's cloud service. And on Monday InformationWeek's Charlie Babcock reported that Compuware's CloudSleuth named Azure the top cloud performer in its year-round performance testing. Take the data with a grain of salt, but don't take Azure for granted, either.

Skype, Facebook, Apple, Google . . . this isn't your father's Microsoft.

Microsoft was left for dead in mobile. Its platform was old and creaky and losing ground when Microsoft did the unthinkable: Steve Ballmer flew to Mobile World Congress in Barcelona in early 2010 to tell the world it was scrapping everything and starting over with Windows Phone 7. Eventually Microsoft shipped a stunningly re-thought mobile user experience, and while it was missing some very basic features most users take for granted, Microsoft never balked. Version 7.5, or Mango, which just began its rollout last week addressed the product's shortcomings and added hundreds of features, including some crucial enterprise ones.

While the Microsoft App Market may have a mere 30,000 applications, the big ones seem to be there: Facebook, Netflix, Yelp and so on. Where Apple controls its entire ecosystem, down to the phone, and Google licenses Android to just about anyone, including letting licensees customize Android, Microsoft takes a little from each extreme, dictating minimum phone standards and keeping its signature Metro interface in tact. Its cozy deal with Nokia, ridiculed at first, will likely give Windows Phone 7 a substantial boost when Nokia finally starts to roll out Mango phones this year.

And, as end users move between desktops, tablets and smartphones, Microsoft's Windows 8 looms large. The company has been slow to the tablet game, and the desktop operating system and PCs in general are under attack, but Windows 8 shows great promise, taking the innovations of the Windows Phone 7 user experience and combining them into a platform that assumes a cloud-oriented world. As InformationWeek's Paul McDougall wrote last week: "Microsoft is designing Windows 8 with the notion that the desktop is merely a gateway to the cloud--and in Redmond's case, cloud means Windows Azure."

Windows Phone 7 and Windows 8 demonstrate a willingness to innovate. This is a company that is also poised to create the next computing interface, thanks to the success of XBox Kinect. Between Apple's Siri and Microsoft's Kinect, the next five years could witness a dramatic shift in how we interact with information.

And now onto the humdrum affairs of the enterprise. Office continues to do well -- Microsoft said Office 2010 is the fastest growing version in the product's history, and has sold more than 100 million copies. A cloud version (Office 365) also began shipping in June. SharePoint, Microsoft's collaborative platform, is yet another success story with a run rate of about $1.3 billion in revenue according to Microsoft last year; it is likely higher by now. There are even mobile SharePoint client apps.

Surely Microsoft is not without its challenges. Some would still call many of Microsoft's products--like Windows Server, SQL Server, Exchange, Hyper-V -- "just good enough." Companies like Box.net are picking away at SharePoint. Windows 8, despite its promise, has caused some angst among developers, now faced with what Dr. Dobb's Andrew Binstock called "a bifurcation of application technologies." Binstock wrote that it seems even Microsoft is unsure about how the pieces work together, and that it seems "the future of .NET, WPF and Silverlight are open questions."

Microsoft's technology serves a mainstream market; it is often a follower (and not a very fast one), not a leader. In the enterprise, Microsoft doesn't have the big, sexy applications to go head-to-head with IBM, SAP and Oracle. Big Data is the latest battleground--at least the one those companies are creating with great fanfare and entertaining barbs--and Microsoft has done very little there, outside of Project Daytona and the introduction of the Parallel Data Warehouse edition of SQL Server, the result of its acquisition of DataAllegro almost three years ago.

Then again, big data, despite all of its exciting promise, is not Microsoft's classic mainstream market play. And yet Microsoft insists that by virtue of search technology and its cloud infrastructure, it has the makings of a big data service to dwarf that of Oracle and IBM.

Last week, Microsoft filed its proxy statement with the SEC, and in it was the board's assessment of CEO Steve Ballmer and other executives by virtue of the bonuses the company paid out. Despite calls for Ballmer's head among industry watchers, the board gave him 100 percent of his bonus, although it could have given him more. It praised him for many of Microsoft's recent accomplishments, and dinged him for lack of progress in a variety of areas. The CEO of one of the biggest technology companies in the world earns $1.4 million a year.

If Microsoft's board signaled anything, it was that despite a remarkable year of progress, and an astonishing array of innovative new technology, Microsoft is not satisfied.

And that is the most surprising twist of all.

Fritz Nelson is the editorial director for InformationWeek and the Executive Producer of TechWebTV. Fritz writes about startups and established companies alike, but likes to exploit multiple forms of media into his writing.

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