Just read this Steven Levy article about Bill Gates last week as a Microsoft ‘employee’. Pretty good – Levy is an undeniable Microsoft expert, having studied and written about Microsoft and the software industry for many years.

Interestingly, Levy referenced this blog post from last year: Microsoft is Dead, by Paul Graham. I suppose that Levy’s actual intent was to reference the sentiment expressed by Graham’s essay, rather than the factuality of it, since it’s lacking in the latter.

In any case, I do agree that Microsoft is facing big challenges. Their two main problems are, one, that they aren’t getting the best people (Google is – see below), and two (Graham hit the nail on the head here), that they’re pursuing the wrong innovation strategy.

Regarding the latter, innovative software doesn’t come from companies that are already big. But the solution isn’t to buy Yahoo; buy all of the possible next Googles, leave them alone until there are clear winners and losers, and then harvest.

Some comments follow on more of the specifics raised in the article.

Regarding the granddaddy cash cow: Windows. It’s important to remember that Microsoft still has a monopoly, and that its software runs almost every client computer. The real issue is that each Windows release competes with the previous one, and that from that perspective, Vista is getting killed by XP.

It surprises me that so many people – including those in the product group at Microsoft – see Apple/OSX as the biggest competitor to Windows. As I already stated, Windows is the biggest competitor to Windows. Given that so much of the demand for Windows, as well as the growth partner ecosystem which gives the platform its value, has been driven by enterprise customers, why would you model future versions on a niche consumer product?

Finally, back to Google. I agree that Google is perceived as the overall technology leader in the industry right now, and for many of the right reasons, the most important of which is that, again, they’re hiring the best people.

But while Google owns search, and Microsoft’s attacks on that space have been unsuccessful, it’s also true that Google’s attacks on other areas (e.g. productivity applications) have been unsuccessful. What will be interesting is who wins the next frontier – cloud computing – and how. Yes, Google has a head start, and yes again, they’re hiring the best people, but the battle hasn’t been fought yet. Microsoft has consolidated many of its best people around productizing its cloud computing strategy, and its greatest asset in the battle may be the one that got the company started in the first place: developer tools.

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