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Can Microsoft Innovate In A Web-Centric World?

For all its dominance, the company needs to find a way to prove to the public that it is indeed a masterful game-changer and part of that may come from shifting the way it invents itself.
One of Microsoft's newest organizational structures, what it calls "Labs," focuses on building prototypes and early-stage products, typically as part of larger product groups. Among the approximately 20 labs, there's Live Labs, Office Labs, adCenter Labs, and BizTalk Labs. These groups look for new opportunities, using mixed teams of MSR and product group employees to build prototypes and release them to the Web if possible, even before integrating them with larger products.

"Microsoft has got to have the capability to get products in the hands of consumers more quickly," said Alex Daly, Live Labs' group product manager. "And as a leading indicator, I think we're having some success." Live Labs has incubated a number of ideas that have translated into products as well as several others still under incubation. Most notable is PhotoSynth, a Web app that meshes together a set of photographs into a navigable, three-dimensional picture.

The Web has the potential to drastically transform how Microsoft presents its innovations to its customers: new features can be released to the Web as add-ons before they ever hit shelves as integrated features, and new products can hit the Web early during testing.

"I think you find the ability to add a feature, compose it in, and test drive it is, again, much, much simpler than it is when you're delivering a large, integrated piece of software that's sort of bought and installed in a monolithic way," Mundie said, adding that people also should expect more beta software to find its way to the Web than in the past.

Other companies have been doing this for some time. Google, for example, releases almost everything as a "beta" at first, sometimes soon after the germination of the idea. Microsoft hasn't done this as much, but recently there's been a quick succession coming out of Office Labs, such as a new search bar for Office commands and an open source multitouch application that uses a Webcam to sense touch.

Another new way Microsoft is trying to take advantage of the Web is with the Microsoft Experimentation Platform, a recently created group that evaluates ideas for new products and features controlled experiments with actual customers. For example, Microsoft ran an image test on Windows Marketplace to choose between two images that would link to a gaming download section. Surprisingly, a solitaire icon had a 61% better click-through rate than a poker icon, potentially pushing customers to buy more games through the site. There are admittedly few results to measure by, but so far the Experimentation Platform looks promising.

Experimentation Platform general manager Ronny Kohavi brought this idea from Amazon, where a search feature tested in its experimentation platform resulted in a 3% increase in revenue for the company. "The culture at Microsoft was old school, and there wasn't much possibility to interact with customers when I got here," Kohavi said. His customers now include a number of product groups and new tests are taking place weekly. Kohavi runs classes for Microsoft employees on how to use the platform, and on a recent day had 250 people sit through a full-day course.

There are signs of life in Microsoft, but the company needs more than a public relations campaign to regain the allure that once left competitors shaking in their boots when Microsoft entered a new market. The road back to there is potentially filled with potholes, but some structural fixes to the company can help point in the right direction.