To: Executive Staff and direct reports
From: Ray Ozzie
Date: October 28, 2005
Subject: The
Internet Services Disruption
It is an exciting
time, as we’re at the beginning of the biggest product cycle in the
company’s history. In a week we ship new versions of Visual Studio,
SQL Server and BizTalk Server. Later this month we ship Xbox 360.
Next year we have a double barreled release of our two largest
products with Windows Vista and Office “12”. It’s a great time for
customers, our partners, and for those at Microsoft who have put so
much of themselves into these products.
But we bring these innovations to market at a
time of great turbulence and potential change in the industry. This
isn’t the first time of such great change: we’ve needed to reflect
upon our core strategy and direction just about every five years.
Such changes are inevitable because of the progressive and dramatic
evolution of computing and communications technology, because of
resultant changes in how our customers use and apply that
technology, and because of the continuous emergence of competitors
with new approaches and perspectives.
In 1990, there was actually a question about
whether the graphical user interface had merit. Apple amongst
others valiantly tried to convince the market of the GUI’s broad
benefits, but the non-GUI Lotus 1-2-3 and WordPerfect had
significant momentum. But Microsoft recognized the GUI’s
transformative potential, and committed the organization to pursuit
of the dream – through investment in applications, platform and
tools – based on a belief that the GUI would dramatically expand and
democratize computing.
When we reflected upon our dreams just five
years later in 1995, the impetus for our new center of gravity came
from the then-nascent web. With a clear view upon the challenges
and opportunities it presented, the entire company pivoted to focus
on the internet to pursue that ‘fully connected’ dream with support
for internet standards throughout our product line: a web browser,
server and development tools, and a service in MSN that was
transformed into a web portal. Many things we developed in that era
continue to fuel the growth of today’s internet: the technologies of
AJAX – DHTML and XMLHTTP – were created in 1998 and used in products
such as OWA.
In 2000, in the waning days of the dot com
bubble, we yet again reflected on our strategy and refined our
direction. After taking a more deliberative look at the internet
and its implications for software, we came to the conclusion that
the internet would go beyond browsing and should support
programmability on a global scale. We observed that certain aspects
of our most fundamental platform – the tools and services that
developers use when building their software – would not likely
satisfy the emerging security and interoperability requirements of
the internet. So we embarked upon .NET, a transformative new
generation of the platform and tools built around managed code, the
XML format and web services programming model. At the time, it was
a risky bet to build natively around XML, but this bet paid off
handsomely and .NET has become the most popular development
environment in the world.
It is now 2005, and the environment has changed
yet again – this time around services. Computing and
communications technologies have dramatically and progressively
improved to enable the viability of a services-based model. The
ubiquity of broadband and wireless networking has changed the nature
of how people interact, and they’re increasingly drawn toward the
simplicity of services and service-enabled software that ‘just
works’. Businesses are increasingly considering what services-based
economics of scale might do to help them reduce infrastructure costs
or deploy solutions as-needed and on subscription basis.
Most challenging and promising to our
business, though, is that a new business model has emerged in the
form of advertising-supported services and software. This model has
the potential to fundamentally impact how we and other developers
build, deliver, and monetize innovations. No one yet knows what
kind of software and in which markets this model will be embraced,
and there is tremendous revenue potential in those where it
ultimately is.
Just as in the past, we must reflect upon
what’s going on around us, and reflect upon our strengths,
weaknesses and industry leadership responsibilities, and respond.
As much as ever, it’s clear that if we fail to do so, our business
as we know it is at risk. We must respond quickly and decisively.
The
Landscape
Since 1995, inexpensive computing and
communications technologies have advanced at a rapid rate that even
exceeded our expectations. It’s so very difficult now for us to
imagine a world without the PC, the web and the cell phone. In the
US, there are more than 100MM broadband users, 190MM mobile phone
subscribers, and WiFi networks blanket the urban landscape. This
pattern is mirrored in much of the developed world. Computing has
become linked to the communications network; when a PC is purchased,
it’s assumed that the PC will have high-speed internet
connectivity. At work, at home, in a hotel, at school or in a
coffee shop, the networked laptop has become our ‘virtual office’
where we file our information and interact with others. The broad
accessibility and rapid pace of innovation in hardware, networks,
software and services has catalyzed a virtuous cycle whose pace
isn’t slowing. There has never been a more exciting time to be a
developer or a user of technology.
Our products have embraced the internet in
many amazing ways. We’ve transformed the desktop into a rich
platform for interactive internet browsing, media and
communications-centric applications. We’ve transformed Windows into
best-of-breed infrastructure for internet applications and
services. We’ve created, in .NET, the most popular development
platform in the world. We’ve got amazing products in Office and our
other IW offerings, having fully embraced standards such as XML,
HTML, RSS and SIP. Our MSN team has demonstrated great innovation
and has held its own in a highly competitive and rapidly changing
environment – particularly with Spaces and in growing a base of 180M
active Messenger users worldwide. The Xbox team has also built a
huge user community and has demonstrated that internet-based “Live”
interaction is a high-value, strong differentiator.
But for all our great progress, our efforts
have not always led to the degree that perhaps they could have.
We should’ve been leaders with all our web properties in harnessing
the potential of AJAX, following our pioneering work in OWA. We
knew search would be important, but through Google’s focus they’ve
gained a tremendously strong position. RSS is the internet’s answer
to the notification scenarios we’ve discussed and worked on for some
time, and is filling a role as ‘the UNIX pipe of the internet’ as
people use it to connect data and systems in unanticipated ways.
For all its tremendous innovation and its embracing of HTML and XML,
Office is not yet the source of key web data formats – surely not to
the level of PDF. While we’ve led with great capabilities in
Messenger & Communicator, it was Skype, not us, who made VoIP
broadly popular and created a new category. We have long understood
the importance of mobile messaging scenarios and have made
significant investment in device software, yet only now are we
surpassing the Blackberry.
And while we continue to make good progress
on these many fronts, a set of very strong and determined
competitors is laser-focused on internet services and
service-enabled software. Google is obviously the most visible
here, although given the hype level it is difficult to ascertain
which of their myriad initiatives are simply adjuncts intended to
drive scale for their advertising business, or which might
ultimately grow to substantively challenge our offerings. Although
Yahoo also has significant communications assets that combine
software and services, they are more of a media company and – with
the notable exception of their advertising platform – they seem to
be utilizing their platform capabilities largely as an internal
asset. The same is true of Apple, which has done an enviable job
integrating hardware, software and services into a seamless
experience with dotMac, iPod and iTunes, but seems less focused on
enabling developers to build substantial products and businesses.
Even beyond our large competitors,
tremendous software-and-services activity is occurring within
startups and at the grassroots level. Only a few years ago I’d
have pointed to the Weblog and the Wiki as significant emerging
trends; by now they’re mainstream and have moved into the
enterprise. Flickr and others have done innovative work around
community sharing and tagging based on simple data formats and
metadata. GoToMyPC and GoToMeeting are very popular low-end
solutions to remote PC access and online meetings. A number of
startups have built interesting solutions for cross-device file and
remote media access. VoIP seems on the verge of exploding – not
just in Skype, but also as indicated by things such as the Asterisk
soft-PBX. Innovations abound from small developers – from RAD
frameworks to lightweight project management services and solutions.
Many startups treat the ‘raw’ internet as
their platform. At the grassroots level, such projects actively
use standards such as vCards and iCal for sharing contacts and
calendars. Most all use RSS in one way or another for data
sharing. Remixing and mashing of multiple web applications using
XML, REST and WS is common; interesting mash-ups range from
combining maps with apartment listings, to others that place RSS
feeds on top of systems and data not originally intended for
remixing. Developers needing tools and libraries to do their work
just search the internet, download, develop & integrate, deploy,
refine. Speed, simplicity and loose coupling are paramount.
And the work of these startups could be
improved with a ‘services platform’. Ironically, the same
things that enable and catalyze rapid innovation can also be
constraints to their success. Many hard problems are often ignored
– the most significant of which is achieving scale. Some scale
issues are technological and result from the fact that they are
generally built on application server platforms rather than
high-scale service platforms. But new services also need to build
user communities from scratch – generally by word of mouth. Many
fund their sites using syndicated ads, but have a difficult time
transforming their services into higher levels of commerce. Some
seek to incorporate client software into their user experience, but
then need to reinvent software deployment, update, communications
and synchronization mechanisms. User identity and cross-service
interoperability mechanisms are still needlessly fragmented.
Intuitively there seems to be a platform opportunity in providing
such capabilities to developers in a form that retains the speed,
simplicity and loose coupling that is so very important for rapid
innovation.
Key Tenets
Today there are three key tenets that are driving
fundamental shifts in the landscape – all of which are related in
some way to services. It’s key to embrace these tenets within the
context of our products and services.
1. The
power of the advertising-supported economic model.
Online advertising has
emerged as a significant new means by which to directly and
indirectly fund the creation and delivery of software and services.
In some cases, it may be possible for one to obtain more revenue
through the advertising model than through a traditional licensing
model. Only in its earliest stages, no one yet knows the limits of
what categories of hardware, software and services, in what markets,
will ultimately be funded through this model. And no one yet knows
how much of the world’s online advertising revenues should or will
flow to large software and service providers, medium sized or tail
providers, or even users themselves.
2. The
effectiveness of a new delivery and adoption model.
A grassroots
technology adoption pattern has emerged on the internet largely in
parallel to the classic methods of selling software to the
enterprise. Products are now discovered through a combination of
blogs, search keyword-based advertising, online product marketing
and word-of-mouth. It’s now expected that anything discovered can
be sampled and experienced through self-service exploration and
download. This is true not just for consumer products: even
enterprise products now more often than not enter an organization
through the internet-based research and trial of a business unit
that understands a product’s value.
Limited trial use,
ad-monetized or free reduced-function use, subscription-based use,
on-line activation, digital license management, automatic update,
and other such concepts are now entering the vocabulary of any
developer building products that wish to successfully utilize the
web as a channel. Products must now embrace a “discover, learn,
try, buy, recommend” cycle – sometimes with one of those phases
being free, another ad-supported, and yet another being
subscription-based. Grassroots adoption requires an end-to-end
perspective related to product design. Products must be easily
understood by the user upon trial, and useful out-of-the-box with
little or no configuration or administrative intervention.
But enabling
grassroots adoption is not just a product design issue. Today’s web
is fundamentally a self-service environment, and it is critical to
design websites and product ‘landing pages’ with sophisticated
closed-loop measurement and feedback systems. Even startups use
such techniques in conjunction with pay-per-click advertisements.
This ensures that the most effective website designs will be
selected to attract discovery of products and services, help in
research and learning, facilitate download, trial and purchase, and
to enable individuals’ self-help and making recommendations to
others. Such systems can recognize and take advantage of
opportunities to up-sell and cross-sell products to individuals,
workgroups and businesses, and also act as a lead generation
front-end for our sales force and for our partners.
3. The
demand for compelling, integrated user experiences that “just work”.
The PC has morphed
into new form factors and new roles, and we increasingly have more
than one in our lives – at work, at home, laptops, tablets, even in
the living room. Cell phones have become ubiquitous. There are a
myriad of handheld devices. Set-top boxes, PVRs and game consoles
are changing what and how we watch television. Photos, music and
voice communications are all rapidly going digital and being driven
by software. Automobiles are on a path to become smart and
connected. The emergence of the digital lifestyle that utilizes all
these technologies is changing how we learn, play games, watch TV,
communicate with friends and family, listen to music and share
memories.
But the power of
technology also brings with it a cost. For all the success of
individual technologies, the array of technology in a person’s life
can be daunting. Increasingly, individuals choose products and
services that are highly-personalized, focused on the end-to-end
experience delivered by that technology. Products must deliver a
seamless experience, one in which all the technology in your life
‘just works’ and can work together, on your behalf, under your
control. This means designs centered on an intentional fusion of
internet-based services with software, and sometimes even hardware,
to deliver meaningful experiences and solutions with a level of
seamless design and use that couldn’t be achieved without such a
holistic approach.
The Opportunities
These three tenets are causing a shift in the
software landscape that started with consumers and is progressively
working its way toward the enterprise – changing how software is
monetized, how software is delivered, and what kind of software is
ultimately embraced. With our presence in so many markets serving
so many audiences, and with such a broad variety of products and
solutions, we are well positioned to deliver seamless experiences
to customers, enabled by services and service-enhanced
software, including:
SEAMLESS OS – The operating system as it would
be designed for today’s multi-PC, multi-device, work anywhere,
web-based world. Enabling you to login using any of your
service-based or enterprise identities. Deploying software
automatically and as appropriate to all your devices, and roaming
application data and settings. Permitting seamless access to
storage across all your PCs, devices, servers and the web.
SEAMLESS COMMUNICATIONS – Communications and
notifications – from voice to typing to shared screen; from PC to
service-based agent to phone. Maintaining continuous co-presence
with intimate friends and family; improving the coordination amongst
individuals who need to work together by reducing latency and adding
clarity through shared context.
SEAMLESS PRODUCTIVITY – Enabling you to create,
find and organize documents and data among all the desktops,
devices, servers and services to which you have access, and with all
the others with whom you need to work, through ‘shared space’
products that are internet service-based, enterprise server-based
and directly peer-to-peer. Working within and across homes, small
businesses, virtual workgroups and enterprises.
SEAMLESS ENTERTAINMENT – Enabling you to
create, store, organize, present, consume and interact with media of
all kinds; accessing, caching and viewing it anywhere you like
regardless of where the media resides. Gaming experiences that
bring two or two million people together across PCs, devices and the
web.
SEAMLESS MARKETPLACE – Enabling you to
research, find, buy and sell whatever you want through a seamlessly
integrated purchase, billing & payment & points, advertising & lead
generation & sales management system designed to satisfy the needs
of both buyers and sellers.
SEAMLESS SOLUTIONS – Enabling workgroups and
businesses to rapidly create and customize any of a broad class of
template-driven, semi-structured data-based applications and
solutions that “just work” and provide instant value – whether using
them from the web, from enterprise servers, or from mobile client
PCs.
SEAMLESS IT – Enabling enterprises to
seamlessly and cost-effectively manage many of the things they’ve
classically done within their data centers – e.g. PCs, messaging,
content and applications. The management experience might be wholly
within the cloud, or with the cloud seamlessly integrating
enterprise server assist.
Moving Forward
In order to adapt to the requirements underlying
these key tenets, groups must reflect upon their existing plans, and
assess their designs in the context of the end-to-end experiences
they need deliver in order to understand how services might make a
substantive impact. Groups should consider how new delivery and
adoption models might impact plans, and whether embracing new
advertising-supported revenue models might be market-relevant.
In assessing where we are and where we need to
be, some new efforts will surely require incubation. But in many
areas we have 80% of the product and technical infrastructure
already built – we just need to close the 20% gap. Following are
but a few thoughts for each division intended to catalyze a
“services-enhanced software” mindset.
Platform
Products & Services Division
a. BASE vs.
ADDITIVE EXPERIENCES – In MSN, and in Windows Update and software
deployed by it, we have quite a bit of experience with methods and
practices for getting innovations to market on a rapid cycle. In
the form of a newly combined division, we should consider many
options as to how we might bring user experience innovations
and enhancements to users worldwide. Specifically, we should
consider the achievability, desirability, and methods of increasing
the tempo for both ‘base’ OS experiences as well as ‘additive’
experiences that might be delivered on a more rapid tempo. In doing
so, we would better serve a broad range of highly-influential early
adopters.
b. SERVICES
PLATFORM – Through years of experience, the MSN team understands the
methods and practices of building ‘internet scale’ services. The
Platform team understands developers and has deep experience in
communications and storage architectures. These teams must work
together, benefiting from each others’ strengths, to develop a next
generation internet services platform – a platform for both internal
and external innovation. A platform with capabilities and an
operations infrastructure that takes those services to a scale never
yet seen on the internet - to our benefit, and to the benefit of our
partners and customers.
c.
SERVICE/SERVER SYNERGY – A tension has emerged between our products
designed for the enterprise and those for the internet.
Exchange/Hotmail, AD/Passport, and Messenger/Communicator are but
three examples. All our enterprise clients and servers must
interoperate with and complement our internet services. Our
functional aspirations are generally “server/service symmetry”, but
architectural considerations dictate that different implementations
may be required to economically reach internet scale. We must
quickly find the best path to achieve seamless user, developer, and
administration experiences involving servers and services.
d.
LIGHTWEIGHT DEVELOPMENT – The rapid growth of application assembly
using things such as REST, JavaScript and PHP suggests that many
developers gravitate toward very rapid, lightweight ways to create
and compose solutions. We have always appreciated the need for
lightweight development by power users in the form of products such
as Access and SharePoint. We should revisit whether we’re
adequately serving the lightweight model of development and solution
composition for all classes of development.
e.
RESPONSIBLE COMPETITION – We will compete energetically but
also responsibly and with recognition of our high legal
responsibilities. We will design and license Windows and our
internet-based services as separate products, so customers can
choose Windows with or without Microsoft’s services. We’ll design
and license Windows and our services on terms that provide third
parties with the same ability to benefit from the Windows platform
that Microsoft’s services enjoy. Our services innovations will
include tight integration with the Windows client via documented
interfaces, so that competing services can plug into Windows in the
same manner as Microsoft’s services. We will compete hard and
responsibly in services on the basis of software innovation and
price – and on that basis we will offer consumers and businesses the
best value in the market.
Business Division
a. CONNECTED
OFFICE - How would we extend or re-conceptualize Office modules to
fit in this seamless model of connectedness to others, and to other
applications? Should PowerPoint directly ‘broadcast to the web’, or
let the audience take notes and respond? How should we increase the
role of Office Online as the portal for productivity? What should
we do to bring Office’s classic COM-based publish-and-subscribe
capabilities to a world where RSS and XML have become the de facto
publish-and-subscribe mechanisms?
b. TELECOM
TRANSFORMATION - How should our investments in RTC evolve to serve
not just the enterprise, but also fully embrace the concept of
grassroots adoption? How can RTC begin as an individual phenomenon,
growing into a small business offering with a level of function that
they’d never imagine possible, growing into the enterprise? How
should we utilize service-based federation and hosting to ensure a
‘just works’ experience for all users, whether or not an
administrator was ever involved?
c. RAPID
SOLUTIONS - How can we utilize our extant products and our knowledge
of the broad historical adoption of forms-based applications to
jump-start an effort that could dramatically surpass offerings from
Quickbase to Salesforce.com? How could we build it to scale to
hundreds of millions of users at an unimaginably low cost that would
change the game? How could we re-shape our client-side software
offerings such as Access and Groove, and our server offerings such
as SharePoint, to grow and thrive in the presence of such a
service? Could these rapid solutions encourage a new ISV ecosystem
and business model?
Entertainment & Devices Division
a. CONNECTED
ENTERTAINMENT - How can XBox Live benefit from interconnection with
other services assets, such as PC-based and mobile-based IM and
VoIP? How might both the PC and XBox mutually benefit from a common
marketplace? Might PC users act as spectators/participants in XBox
games, and vice-versa?
b. GRASSROOTS
MOBILE SERVICES – How might the Windows Mobile device experience be
transformed by for consumers by connection to a services
infrastructure – in particular one enabled by RTC-based unified
communications? How might unmediated connection to a rich services
infrastructure transform mobile phones into a mass market messaging,
media and commerce phenomenon?
c.
DEVICE/SERVICE FUSION – What new devices might emerge if we envision
hardware/software/service fusion? What new kinds of devices might
be enabled by the presence of a service?
What’s Different?
One perspective on this memo might be to say “This
is in many ways is pretty close to what we’re already working on.
What’s the big deal?” Or “We tried something similar years ago; why
will we succeed this time?” These are understandable reactions.
Many visions of the future going all the way back to “Information at
Your Fingertips” contain elements of what has been laid out here.
That said, I have a number of reasons for optimism
that we can deliver well on this vision. First, I know that Bill,
Steve and the senior leadership team understand that Microsoft’s
execution effectiveness will be improved by eliminating obstacles to
developing and shipping products. The recent reorganization into
three divisions is a significant step, and the division presidents
are committed to changes to improve our agility.
Second, we are just now completing a wave of
innovation that has never been seen in this company. 2006 is going
to be an amazing year for shipping products, and many across the
company will be ready to take on a new mission.
Third, regardless of past aspirations, this is the
right time to be focusing on services for two specific reasons: the
increasing ubiquity of broadband has made it viable, and the proven
economics of the advertising model has made it profitable. It can
be argued, for example, whether or not Hailstorm was the ‘right’
undertaking. But regardless, the effort would certainly have
benefited from having a known-viable services business model for
which to design.
Finally, I believe at this juncture it’s generally
very clear to each of us why we need to transform – the competitors,
the challenges, and the opportunities. As an outsider, I was
repeatedly impressed and awed over the years by how this company’s
talent has swarmed to effectively respond to huge business
challenges and transitions.
That said, even when we’ve been solidly in pursuit
of a common vision, our end-to-end execution of key scenarios has
often been uneven – in large part because of the complexity of doing
such substantial undertakings. In any large project, the sheer
number of moving parts sometimes naturally causes
compartmentalization of decisions and execution. Some groups might
lose sight of how their piece fits in, or worse, might develop
features without a clear understanding of how they’ll be used. In
some cases by the time the vision is delivered, the pieces might not
quite fit into the originally-envisioned coherent whole. We cannot
allow the seams in our organization, or our methods of making
decisions, show through in our products, or result in the failure to
deliver on key end-to-end experiences.
Complexity kills. It sucks the life out of
developers, it makes products difficult to plan, build and test, it
introduces security challenges, and it causes end-user and
administrator frustration. Moving forward, within all parts of the
organization, each of us should ask “What’s different?”, and explore
and embrace techniques to reduce complexity.
Some problems are inherently complex; there is
surely no silver bullet to reducing complexity in extant systems.
But when tackling new problems, I’ve found it useful to dip into a
toolbox of simplification approaches and methods. One such tool is
the use of extensive end-to-end scenario-based design and
implementation. Another is that of utilizing loosely-coupled design
of systems by introducing constraints at key junctures – using
standards as a tool to force quick agreement on interfaces. Many
such tools are not rocket science: for example, by forcing a change
in practices to increase the frequency of release cycles, scope and
complexity of any given release by necessity is greatly reduced.
Another simple tool I’ve used involves attracting developers to use
common physical workspaces to naturally catalyze ad hoc face-time
between those who need to coordinate, rather than relying solely
upon meetings and streams of email and document reviews for such
interaction. Embracing change at a local level through such tools
can make a real difference – one project at a time.
Next Steps
We’re off to a great start with many
initiatives already under way – from efforts occurring now within
MSN, to the IW services being launched imminently. We’re in a
tremendous position to succeed, but doing so will require your
belief, creativity, support, leadership, follower-ship and action.
This memo was intended to get all of us roughly
on the same page, and to get you thinking. The next steps are:
1) I am
working with the division presidents to assign, by December 15th,
“scenario owners” – a role intended to improve our execution of key
services-based initiatives through leadership. These leaders will
provide an outside-in perspective in mapping out and communicating
specific market objectives, while at the same time working with
developers and others at the detail level to ensure expedient
decision making and continuity. These individuals will be
responsible for driving critical decisions such as feature
re-prioritization and cuts while appreciating the business tradeoffs
and impact of such decisions. They’ll listen. They’ll rapidly
effect changes in plans to ensure execution and improve agility,
even for scenarios that span divisions. Initial scenarios to be
assigned ownership will include the seven seamless experiences
described earlier.
2) Beginning
in January these individuals will work with me and with product
groups to concretely map out scenarios and pragmatically assess
changes needed in product and go-to-market plans related to services
and service-based scenarios. For some groups this will impact
short-term plans; for many others on path to shipping soon, it will
factor significantly into planning for future releases.
3) All
Business Groups have been asked to develop their plans to embrace
this mission and create new service offerings that deliver value to
customers and utilize the platform capabilities that we have today
and are building for the future. We expect both technical and
non-technical communities to be increasingly engaged on the topic of
services and service-enhanced software. As we begin planning the
next waves of innovation – such as those beyond Vista and Office
“12” – we will mobilize execution around those plans.
4) I have
created an internal blog that will be used to notify you of further
plans as they emerge. There, I’ll point you to libraries of
documents that you will find interesting to read, and I’ll be
experimenting with ways that you can directly engage in the
conversation.
http://blogs/live
These steps are important and necessary, but
not sufficient, for us to deliver on our aspirations. The most
important step is for each of us to internalize the transformative
and disruptive potential of services. We must then focus on the
need for agility in execution, and take actions as appropriate where
each of us can.
The opportunities to deliver greater value to our
customers, to our developer and partner communities, and to our
shareholders are significant. I very much look forward to embarking
on this journey with all of you.
-- Ray
