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The blogosphere coverage today of Microsoft's self-reported change in focus from a software company to a media company, the moving of adCenter from MSN to Microsoft, and other related events have been absolutely fascinating. It's just another example of the fundamental changes imposed on many corporations by the increasing pre-eminence of just about anything on the Web.
Readers of this blog know that I closely track the seismic shifts the Web is undergoing these days, and is putting us as a society through as well, as we increasingly integrate our lives with it. I've written about Microsoft being disrupted by Web technologies before, but this latest round seems to take things to a new level. And of course, we're really not just talking about Microsoft, in my opinion they're just a leading indicator; an 800-lb. canary in a coal mine for large companies with any significant revenue coming from traditional software business models.
To be sure, Ballmer clearly stated it's an evolution, but that's not really the point. While you should never hang too much on a single statement, the general message has been clear for a while: Microsoft thinks the action (i.e. value) is moving to content and the eyeballs (people) attached to it. The advent of Live Software, Live Labs, and the 2 billion dollars of additional planned investment next year all point to a genuine seriousness of intent by Microsoft in the world of online media. This mirrors a lot of what we're seeing in Web 2.0 trends in general, particularly an emerging value hierarchy that tells us that attracting users with the most compelling content (including, or even especially, each other in the form of online social communities) is now considerably more valuable that punching out code in a world where non-connected software is becoming relentless commoditized and growth-constrained.
Thus, attracting users on the Web with the very best honey (content) and monetizing their attention is the name of the game in the future. Not sure about this? Think about these numbers: The software industry is about a $40 billion a year industry. The most monetized form of media, advertising, is about 10 times that size by most estimates, and you know where it's moving: online. The math is easy to do here and Microsoft is actually quite right to pursue this as the Web burrows its way into virtually all forms of media, from TV, news, radio, movies, music, games, telephony, and practically everything else.
The question I have is one of focus. I'm with John Battelle the Microsoft might be trying to reinvent the wrong part of the business. Perhaps Microsoft really should split Live Software off into a separate, focused, and high-octane spin-off. Because unless they know something we don't (which is always quite possible), Microsoft's traditional software properties have about another 10 years of decent revenue and already have enough things to handle today, especially with the now-famous struggle of getting Vista shipped to customers. This means that rapid evolution on top of their current execution challenges isn't something they should or maybe even could do with their main business unit. Speaking of which, how many more versions of Windows with Microsoft ship in the next decade? Maybe two, maybe just one? How many more features can be crammed into Microsoft Office? Not many. Upshot: If there's maybe just a few more 'shots' in the old pistol, they can't spinoff and must build a bridge to the new world quickly, hopefully in front of their competition.
As the game changes, companies like Microsoft must scale over and up to the next level, or they'll miss the next big playing field, which is something Google does seem to understand with clarity. However, Microsoft still has the resources to get there first with the most people. Like I said, it's going to be fascinating to watch.
Update: Good analysis on some of this from Robert Scoble himself.
Is Microsoft gearing up in the right direction? Is the Web the future of Media? I think we know the answer to the latter, but not the former.
Thanks for very interesting article.
