Can Ballmer pilot Microsoft through a changed tech course?

Under pressure from Wall Street, European regulators, users, and a host of nimble competitors, Microsoft's brain trust is trying hard to steer a new course. It won't be easy. Microsoft faces pressure, threats from all sides A decade after the United States dropped any serious inquiry into Microsoft's business practices, the E.U. continues to fine Microsoft to make it change its cowboy competitive ways. Just yest

Microsoft faces pressure, threats from all sides

A decade after the United States dropped any serious inquiry into Microsoft's business practices, the E.U. continues to fine Microsoft to make it change its cowboy competitive ways. Just yesterday, it fined Microsoft another $1.3 billion for anticompetitive practices, for a total of $2.5 billion to date.

Customers have responded to Microsoft's long-delayed Vista desktop operating system with a resounding "no thanks," and the company's effort to get its own office-productivity file format approved as a standard by the International Standards Organization has been rejected.

And despite successes with SharePoint 2007 and good reviews for the new Windows Server 2008, Microsoft has been increasingly embattled by open source alternatives such as Linux, and it faces a growing threat from Google in the on-demand delivery business.

The bid to take over Yahoo, a move to reinvent Microsoft's faltering Web advertising business, is running into opposition from Wall Street, which thinks that merging two troubled companies makes as much sense as transplanting a diseased heart into an ailing patient.

And while these wounds were still smarting, Adobe shot another arrow Microsoft's way, announcing its AIR development platform, one more step away from the Microsoft desktop and toward computing in the cloud.

These forces have led Microsoft's CEO Steve Ballmer to claim it's now behaving differently, though there is some skepticism about how real that commitment is.

Can Ballmer steer Microsoft out of the roadblocks?

The highly competitive Ballmer, you might say, is the man who cried "nice." And like the boy who cried wolf, no one believed him. The software giant's attempt to make nice with much of the developer community by opening up its APIs for key products was greeted with a jaundiced eye by regulators at the powerful European Commission.

However sincere Microsoft's stated change of heart may be, it is becoming clearer and clearer that Microsoft -- which knows it has to change -- is still struggling to find a fresher path.

What's a poor CEO to do?

Now that Bill Gates has effectively left the building, Ballmer is free to transform Microsoft, a job made all the tougher by the enormous reservoir of mistrust the company has engendered over the years.

Case in point: the open APIs. Microsoft will give its competitors free access to the application programming interfaces and protocols it uses to ensure interoperability between its own products, a very significant change in business practices.

"The change of strategy indicates Microsoft now believes an open approach is a better way of fostering a development ecosystem -- and that it has accepted that, in a world of Web services and software as a service (not to mention antitrust laws), it can no longer have things all its own way," commented Matt Aslett, an analyst with the 451 Group.

The move was obviously a response to pressure from the European Commission, which in the absence of an aggressive U.S. Department of Justice, has become the software giant's most potent critic.

But the Europeans weren't overly impressed with the gesture, saying, "The Commission notes that today's announcement follows at least four similar statements by Microsoft in the past on the importance of interoperability." Less than a week later, the EC fined Microsoft that additional $1.3 billion.

It's worth noting, though, that Microsoft pledged not to sue open source developers for development or noncommercial distribution of implementations of the server and communications protocols -- a huge move for any Linux or open source developers who may have feared Microsoft's big legal stick.

And for a company that literally wouldn't use the term "open source" on its Web site until fairly recently, that is quite a change.

Sharing the road is just the beginning

Playing nice, even if Microsoft convinces regulators that it means it, with other technologies along its route is just a beginning.

Microsoft remains tied to the desktop, the source of the vast majority of its revenue and profits. It's not that Microsoft doesn't know this. You can go as far back as the Gates "we missed the Internet" memo for evidence, but the company still can't make a real break with the past.

Sure, Microsoft makes huge amounts of money, but from Wall Street's perspective, it's like a utility or phone company stock your parents might have owned in the 1960s: safe, but really, really boring. That's why the share price has been relatively flat for years.

Ballmer wants to change that, and the obvious place to start is with the company's ailing Web business. Give the man his due. By willing to pony up more than $40 billion for Yahoo, he's admitted that Microsoft on its own will never be able to compete with Google. But many on Wall Street believe (just check the stock charts) that Yahoo is too sick to play doctor to Microsoft's patient.

It's not at all clear how the Yahoo game will end or what the combined companies would look like. But nearly every month produces evidence that (and I hate this phrase) the paradigm is shifting.

Just a few years ago, the idea of building something like Adobe's new AIR platform would have made no sense at all. But now that high bandwidth is common (if not ubiquitous) and advances in hardware and programming languages make for powerful yet tiny applications running on tiny handhelds, Scott McNealy's old boast that "the network is the computer" is closer than ever.

Opening the APIs and opening up the wallet -- if not for Yahoo, then for another major player -- are smart moves. But the road to change is full of potholes -- and other drivers and the highway patrol. Hang on tight.

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Copyright © 2008 IDG Communications, Inc.

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