Is Microsoft losing it?

By Alex Singleton | 3 September 2005

We are seeing a huge shift from software we run on our computers, to software we run through the web. In this changed world of web-based software, Microsoft has failed to deliver any innovative, industry-leading products. It has MSN search, but this is not as good as Google search and has a much smaller market share (despite being the default homepage for users of Microsoft Internet Explorer). It recently launched the me-too MSN Spaces blogging software, but it is neither as good nor as popular as Google's Blogger.com software. Microsoft lags behind with online photo software, being trounced by Yahoo's Flickr photo album software, which lets you store your photos on the web, giving friends access to them if you wish. Instead of running map software like Microsoft Autoroute on our computer, we are switching to Google Maps on the web. And to top it all, Microsoft has been caught spectacularly off-guard in the digital music sector, failing to properly rival Apple's iTunes.

Google's GMail software showed for the very first time that it was possible to produce a web-based e-mail service that was nice to use. Microsoft's Hotmail was OK when Microsoft bought it in 1998, but it is thrashed today. Yet the importance of GMail goes much further than beating Hotmail. It shows that Google has the technology to threaten the lucrative Microsoft Exchange Server market.

As software continues to move towards the web paradigm - or Web 2.0 as it is sometimes nicknamed - the importance of Microsoft Windows will be diluted. In the past, there has been a network effect which has encouraged use of Windows. The network effect is switching to the world wide web. Because web standards are independent of any operating system, it does not matter whether Windows is being used. This is why Microsoft has been so keen to subvert and control web standards (for example, by pushing ActiveX) though its attempts have been less than successful.

We have also seen a slowing down of innovation in the application software that Microsoft has traditionally focussed on. The latest versions of Microsoft Word have some nice features over previous editions, but there is little if any real innovation. The big ideas like "what you see is what you get" (WYSIWYG) editing were added in the early 1990s. As David Stutz in The Natural History of Software Platforms points out that as a program succeeds in the marketplace, and users become used to a certain way of working, it becomes increasingly difficult to change it: "The process of ossification makes successful platforms easy targets for cloners, and cloning is what spells the beginning of the end for platform profit margins." Attempts to commoditize word processors and other essential office programs are getting better. In future we may choose word processors in the same way as we buy Xerox machines or Hoovers - we won't necessarily buy the real thing.

The thrashing of Microsoft in new markets is an important reason to be skeptical of the merit of the European Union's anti-trust action. The European Union says Microsoft should be better at helping third-party developers interact with Microsoft protocols. But if Microsoft is going to exclude developers, encouraging them to program for and popularize open standards, rather than Microsoft-owned ones, perhaps we should stand aside. Just last month, with the introduction of Google Talk, which lets other software interact with it, the established player, Skype, announced it would open its system up to competition. If you offer a closed system and others offer a more open system, you're at a disadvantage. If Microsoft wants to penalize itself by being antisocial, who are we to intervene?