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Critical Mass: It Doesn't Take an Einstein to Realize Why Microsoft Is Headed Down and Google Is Headed Up

Status: [CLOSED]
By Robert X. Cringely
bob@cringely.com

Albert Einstein, at the time of his death, was working on what he called the Unified Field Theory, which was intended to bring under a single roof all his ideas about how the universe really worked. He never finished it. Business and technology writers like me, though hardly Einsteins, also try to find a common spin on events and see the world of technology as a singularity spiraling through space and time. That, too, doesn't work. But I am beginning to think that if we relax our standards a bit and try to see events in terms of their underlying business theories, well, maybe things will finally start to make some sense.

You tell me.

Technology is simple, business is hard, so let's think primarily in terms of the business. Right now in computing and the Internet, there are four fundamental forces to be reckoned with -- Google, Intel, Microsoft, and Yahoo. I know there are a hundred or more companies that sprang to your mind, but they can each be factored in terms of these others. AMD, for example, is more like Intel than it is any of the others.

Of these companies, only Intel actually makes hardware and so it acts as a surrogate for the entire hardware industry -- an industry in decline. Hardware matters less and less and there will come a time, I predict, when hardware won't matter at all. That means Intel's theory of business is to make as many chips for as many customers just as fast as it can -- a theory that relies on constantly growing economies of scale and constantly falling prices. A decade from now, there will be two leading-edge fabs in the U.S., and one each in Japan, Taiwan, Singapore, and all of Europe. That's six semiconductor plants in all for the entire planet, none of which will be owned by AMD, yet I have no doubt that AMD will survive as a company. Intel will be there, too, and Intel will own one of those U.S. hyper-fabs, because without a fab, Intel can't envision itself even existing. It would actually be better if Intel COULD envision itself fabless, because a decade from now the company would be worth more without a fab than with. That's simply because the non-U.S. fabs will be, for the most part, temples of nationalism, funded by governments and immune to economic cycles while Intel will be immune to nothing.

A lot of this comes down to how companies view themselves and what they are really good at. You'll notice, for example, that I didn't include Sun in my list of vital companies. That's not so much because Sun can be defined in terms of the others but that Sun is simply doomed. Their software isn't better, their hardware isn't better, and they can't see themselves as anything but a maker of hardware or software, so my simple recommendation is that they take the rest of their cash and try entering a hot new field like -- say -- space flight. Or making really fine cakes. The world will always need fine baked goods. Or just give it back to the shareholders. Really.

Back to the forces that actually matter in our industry. Microsoft is a dinosaur that survives and will continue to survive because it has been anticipating misfortune, well, since forever. But for all its survivor instinct and cash in the bank, Microsoft is trapped by an antiquated business theory. At Microsoft, it is all about controlling the platform, and the platform to Redmond is still the personal computer. Microsoft exploits other peoples' technology to retain control of the platform. But over the last few years the PC has diminished somewhat as THE platform in favor of a broad spectrum of platforms ,- servers, handheld devices, televisions, and mobile phones -- each of which Microsoft is struggling to dominate as they have the PC.

But there's a problem with this approach. First, Microsoft tends to assume that if the PC goes away it will be replaced by something -- ONE thing -- when in fact it looks like the platform will be at least bifurcated between televisions and mobile phones, neither of which Microsoft dominates and neither of which it is likely to dominate.

Here's a question I hope Bill Gates has asked himself: "What's the likelihood that 10 years from now Microsoft will have 70-plus percent market share in; a) television software, and; b) mobile phone software?"

In both cases the odds are very much against Microsoft, yet Microsoft's theory of business absolutely requires that it succeed spectacularly on at least one of these platforms and preferably both.

So the company is in crisis and that crisis comes down to every one of those five stages of dealing with death as defined originally in 1969 by Elisabeth Kubler-Ross. These stages are denial, anger, bargaining, depression, and finally, acceptance. Microsoft has been in denial for most of the five years and $5 billion of Longhorn/Vista. They have been angry this entire time, too, at an establishment that just doesn't seem to understand the fragility of their empire and how breaking a few laws and destroying a few competitors is simply the price of survival at the top -- the price of American greatness. Microsoft has been bargaining for the past two-three years as it settles its debts to society, pretends to reform, and tries to figure a way out of its current mess. Depression has really hit Redmond in the last year and will continue to grow until well into the eventual period of acceptance, which has not yet begun.

But what would acceptance even mean for Microsoft? Well, it certainly isn't the acceptance of corporate death. It's the acceptance of the death of its business theory, which is unsustainable since it requires complete triumph, which is nearly impossible. That Microsoft did it once before was luck and a willingness to bargain with the Devil. But now luck is gone, leaving only the Devil, and that's not enough. Microsoft's entire theory of business must die and the essence of its current crisis is that the company hasn't yet realized or accepted that fact, and so it isn't yet in a position where it can even envision a successor theory.

This new business theory will come, but not until Microsoft has suffered more. As they say in Alcoholics Anonymous, first you must hit bottom.

It's the platform, stupid.

Microsoft has recently discussed an alliance or merger with Yahoo. Wall Street analysts describe this as an alliance against Google, but it is more than that. It's Microsoft's struggle to, like a hermit crab, take its platform with it. Microsoft has a platform, you see, but Yahoo doesn't. Yahoo is a "media company." Find every Steve Ballmer reference to Yahoo in the last two years and you'll also find the words "media company." Microsoft finds this description comforting because it allows Redmond to see Yahoo as less of a threat. Yahoo understands media -- something Microsoft has spent billions on over the last decade with little to show for it. If Microsoft can drag its platform dominance (while it still exists) on top of Yahoo's media savvy, well, there might be a chance for total triumph after all.

I don't think so.

I know Yahoo fairly well, and I like Yahoo people a lot, but their own acceptance of themselves as a "media company" takes them out of the business of defining the future. Yahoo is fabulous at execution, which Microsoft generally isn't, but neither company is today a leader. They are quick and brutal followers.

Yahoo is about the content and the user relationship, all of which is good, but at its heart Yahoo appears to lack respect for the very users who support it, which hardly makes the Y! folks useful role models or partners for Microsoft, which suffers from a similar disease.

Let me give you an example. Most web traffic uses http port 80. The secure stuff uses https port 443. Many of the advertisements, pop-ups, and other annoying things on web sites start with an http link to something else. Yahoo for example doesn't provide all those advertisements on their pages themselves. If you look at the http source you'll see links to Adserver and other places.

I'm not against Internet advertisements. Heck, I wish we had ads on this page so I could take my wife out to dinner. But the problem with ads is two-fold. If you accidentally click on an ad, sometimes unexpected or unwanted things happen. If you don't click on it, sometimes the ad is programmed to do unexpected or unwanted things anyway. Those unwanted things include putting spyware on my PCs, adding software to my PCs, reconfiguring my browsers, infecting my PCs with malware, and redirecting my browser to less than tasteful sites.

About a month ago something got through my firewall and infected two PCs. It messed up the browser and I had to reinstall IE. IE is very difficult to reinstall, I might add. As I checked the logs, I found the infection came through Yahoo Mail. It came from an advertiser and there was already a firewall rule blocking them. I went into the html source at Yahoo and found the advertiser was now using https instead of http. Since https is a secure path and often encrypted, the firewall can't filter against it through normal mechanisms.

I found out the IP address of the firm. I then found another dozen IP addresses this firm uses. I then found the ISP hosting this firm and their garbage. I then put in a firewall rule blocking every subnet address managed by this ISP. Problem fixed.

I also contacted Yahoo's "Abuse" group to inform them of the problem. I asked them to establish a business policy on appropriate rules of conduct for their advertisers. One rule would be NOT to use https. (Another should be 'don't mess with our customer's PCs.') Yahoo blew me off.

Yahoo generally has a pretty good anti-spam system. But it has been faltering lately. I had 18 spam messages through Yahoo Mail this morning, for example. I've got to believe the recent increase in spam getting through Yahoo's filters could be a result of an advertisement or two that used https to get around people's protection tools. I don't know if there is an actual cause and effect relationship. I'm just guessing here. However if I am correct, then in the end Yahoo is hurting their brand image and that is not good for business.

I have no problem with legitimate and responsible advertisements. However, firms like Yahoo really have to start taking responsibility for EVERYTHING that is put on their websites. They have to control their advertisers!

Seriously -- what would happen if a major TV network played a commercial that said "Attention VISA cardholders, there has been a major problem with thousands of our accounts. Please call this phone number to see if there is a problem with your account...."

Which brings us next week to Google, which HAS redefined the platform AND the business theory, much to Microsoft's consternation. And back to Albert Einstein, too, who sets us up for next week by saying, "We can't solve problems by using the same kind of thinking we used when we created them."

Could be.




Editor's Note: A factual error on this page was corrected on May 8, 2006. "The secure stuff uses https port 81." was changed to "The secure stuff uses https port 443." Thanks to several alert readers for informing us of the error. What does Bob have to say for himself? "You are right, I was wrong. I don't know what I was thinking. We had a new baby last week: I'll blame him."

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