The Shell Game: What is Microsoft Doing?

[graphic: Google Finance]

[graphic: Google Finance]

What is this so-called tech company doing?

Microsoft sees itself as going head-to-head with Apple and Google. The 10-year chart above comparing Microsoft, Apple, and Google stock tells us this has been a delusional perception.

It also sees itself in competition with IBM. Yet IBM surpassed it in market value two years ago, even after nearly a decade of ubiquity across personal computers in the U.S. and in much of the world. (IBM is included in that chart above, too.)

One might expect a sea change to improve performance, but is the shell game shuffling of Microsoft executives really designed to deliver results to the bottom line?

Tech and business sector folks are asking as well what is going on in Redmond; even the executive assignments seemed off-kilter. One keen analysis by former Microsoft employee Ben Thompson picked apart the company’s reorganization announcement last Thursday — coincidentally the same day the Guardian published a report that Microsoft had “collaborated closely” with the National Security Agency — noting that the restructuring doesn’t make sense.

The new organization pulls everything related to Windows 8 under a single leader, from desktop to mobile devices using the same operating system, migrating to a functional structure from a divisional structure. There are several flaws in this strategy Thompson notes, but a key problem is accountability.

To tech industry analysts, the new functional structure makes it difficult to follow a trail of failure in design and implementation for any single product under this functional umbrella.

To business analysts, the lack of accountability means outcomes of successful products hide failed products under the functional umbrella, diluting overall traceability of financial performance.

But something altogether different might be happening beneath the umbrella of Windows 8.

There’s only one product now, regardless of device — one ring to rule them all. It’s reasonable to expect that every single desktop, netbook, tablet, cellphone running on Windows 8 will now substantially be the same software.

Which means going forward there’s only one application they need to allow the NSA to access for a multitude of devices.

We’ve already learned from a Microsoft spokesman that the company informs the NSA about bugs or holes in its applications BEFORE it notifies the public.

It’s been reported for years about numerous backdoors and holes built intentionally and unintentionally into Microsoft’s operating systems, from Windows 98 forward, used by the NSA and other law enforcement entities.

Now Skype has likewise been compromised after Microsoft’s acquisition of the communications application and infrastructure for the purposes of gathering content and eavesdropping by the NSA, included in the PRISM program.

Given these backdoors, holes, and bugs, Microsoft’s Patch Tuesday — in addition to its product registration methodology requiring online validation of equipment — certainly look very different when one considers each opportunity Microsoft uses to reach out and touch business and private computers for security enhancements and product key validations.

Why shouldn’t anyone believe that the true purpose of Microsoft’s reorganization is to serve the NSA’s needs?

Tech magazine The Verge noted with the promotion of Terry Myerson to lead Windows — it’s said Myerson “crumples under the spotlight and is ungenerous with the press” — Microsoft doesn’t appear eager to answer questions about Windows.

As ComputerworldUK’s Glyn Moody asked with regard to collaboration with the NSA, “How can any company ever trust Microsoft again?”

If a company can’t trust them, why should the public?

The capper, existing outside Microsoft’s Windows 8 product: Xbox One’s Kinect feature is always on, in order to sense possible commands in the area where Kinect is installed.

ACLU’s senior policy analyst Chris Sogohian tweeted last Thursday, “… who in their right mind would trust an always-on Microsoft-controlled Xbox camera in their living room?”

One might wonder how often the question of trust will be raised before serious change is made with regard to Microsoft’s relationship with the NSA. With political strategist Mark Penn handling marketing for the corporation and Steve Ballmer still at the helm as CEO, don’t hold your breath.

32 replies
  1. Phil Perspective says:

    So, Bill Gates is essentially an NSA creation? Considering his family was connected way before anyone ever heard of Mister Softie, I could believe it. And Mister Softie did miss its earnings yesterday and its stock dropped by almost 10% today.

  2. Rayne says:

    @Phil Perspective: You got any links about his background, I’d love them. I really haven’t done much with his early years. What I see happening to firm began sometime after 1998 Halloween memo and the ill-judged response to open source as a competitive threat.

    I think it’s really difficult to see Microsoft as truly competitive; they’ve bought so many other entities and their products, like the former Great Plains enterprise accounting software, but they continue to make bank only on a very narrow number of products like Xbox and Word, make massive errors in judgment and execution like Zune and now Surface. What’s keeping them propped up? We don’t hear about firms in same competitive circles like Oracle or IBM making such huge mistakes while floating by on such a narrow source of income.

    Is it their utility to the NSA that keeps them going? It’s not as if we haven’t seen a model for a US business person tightly identified with a business becoming an “asset” — see Erik Prince and the company formerly known as Blackwater.

    One only need look at the key vectors necessary to Stuxnet to truly understand this.

  3. bsbafflesbrains says:

    It’s easier to be arrogant when you have the Government behind you and Warren Buffet as a best bud.

  4. lefty665 says:

    I can agree with most of what you’ve said about Microsoft (MS), but not come to the conclusion that reshuffling has anything to do with collaborating with NSA.

    Why bother reorganizing for NSA? Backdoors and access are baked in at the bottom, the foundry layer, of MS products. Juggling the executive suite is not needed to ensure that compartmentalized software development continues to allow NSA (and MS itself) access across platforms. No matter how they slice up the org chart, at the bottom, different hardware requires different code.

    For example, we have been writing software that runs on MS OS computers for around 30 years, including pocket pc and earlier phones. However, our code will not run on Windows RT, the ARM-device version of Win 8 that shipped on the first release of tablets.

    MS has had a huge ride on the pc based desktop. That paradigm is changing, hell, it’s already changed. Microsoft is in a heap of trouble. Increasingly cloud based computing does not need the desktop in huge numbers, or in many cases want it. Free OS, Android, has taken 3/4 of the phone market and a big share of tablets. MS has not had a competitive phone OS in years.

    MS has bet the farm on Win 8 to be the bridge to a non-desktop centric future. You can see that in the Win 8 Metro user interface (UI). It was clearly designed for touch but was jammed down desktop users throats. To further their problems, more than 1/3 of MS’s user base is still running XP. They’ve got to leverage those users to 8, a tough job made even tougher by forcing the Metro UI. As the old computing joke goes “God may have made the world in 7 days, but he didn’t have an installed base to deal with”. MS is backing up some with the 8.1 maintenance release to give desktop users a somewhat more familiar UI.

    From that perspective it makes a lot of sense to reorganize with unity of command over their lifeblood product. I’m agnostic on the wisdom of individual shuffles, with the exception of Ballmer, he should have gone many years ago.

    Trivia, I recently ran into reporting of NSA access, a backdoor key, that dates to Win 95. Who knows how far back it goes. Anyone want to make me an offer on my copy of Windows 1.0 on 3.5″ diskettes?

  5. Rayne says:

    @lefty665: See Ben Thompson’s post linked in the piece. The shuffle helps bury accountability financially and developmentally. Another piece of crappy management by Ballmer.

    Ask yourself why shareholders haven’t ousted the idiot by now, even before this move.

  6. lefty665 says:

    @Rayne: I read the article, and he works hard to make his point, a point that has some merit.

    However, he notes Apple as the first big exception. MS is reorganizing in a fashion similar to Apple. Surely a fatal step to emulate a defunct loser of a company like Apple. Second, he castigates MS for creating a “functional organization that values expertise and experience”. Valuing “expertise and experience” what a stupid management objective. Sorry, I don’t buy his premise, along with much of the crap that’s come out of MBAs over the last several decades (Duhbya amongst them).

    As the primary author of accounting software, I can testify that we can add up all the pieces parts in any, and every, way management wants to see them; divisional, functional, cost or dysfunctional. There is no fundamental reason for functional organizations to be any less financially accountable than any other. MBAs and CPAs f**king with the numbers is a bigger problem. That happens regardless of how the organization is structured.

    “…crappy management by Ballmer.” I agree with that part. But even a blind hog finds an acorn every now and then. Actually, I’d predict that Ballmer can bring down any organizational structure.

    Like Kodak, MS is doomed, but MS at least has the Xbox. MS’s desktop software paradigm has aged. They are not finding a path to a new highly paid OS software future to replace the one they created years ago. It is terribly hard, like ripping out their own heart. The installed base joke I quoted above isn’t really a joke. Happens to most of us at some point.

  7. Saul Tannenbaum says:

    Oh, please.

    Microsoft, after having failing strategy after failing strategy, is copying its organization structure from another highly successful company: Apple.

  8. Rayne says:

    @lefty665: Apple limits its products. This attribute is absolutely key to making the model work. Microsoft is making no such attempt to limit — hello, Zune and Surface? I’m guessing you missed Thompson pointing out this key differentiation, and he does understand this since he worked at both Microsoft AND Apple. I’d even go so far as to say that Apple Maps was a failure because it was an expansion of product too far. Had Apple not launched the Apple Maps update with iPhone 5 last year, the stock wouldn’t have tumbled nearly $300 a share nor would they have to expend capital to acquire Locationary to fix Maps.

    As for Xbox: it’s pretty sad when a software company needed to glom onto a game platform in order to salvage the rest of its business, including Windows. Strip out Xbox and what exactly is left? We’re still looking at One-Ring-To-Rule-Them-All, and a financially unsuccessful one at that.

    I should point out I’ve been a consultant working in competitive intelligence for the software industry, tracking products made by the companies I mentioned. Yeah, this is my dogfood; what I might work on in the future is shaped by the tectonics discussed here. I’m not merely pulling this out of my ass.

  9. Bay State Librul says:

    I read Microsoftt’s reorg letter.
    One analyst had it right.
    Folks are not buying PC’s
    How do you make up the difference?

  10. Helmut Monotreme says:

    @Rayne: I believe that Microsoft is very actively trying to limit its products. That’s what Microsoft secure boot is all about. It is about getting every manufacturer of PC motherboards on a short leash with Microsoft on one end. It’s about the windows app store doing the same thing with software companies and cloud computing has always been about empowering big software and big data at the expense of anyone who owns a computer. They want to be the premium brand at the premium price, but have the ubiquity of a commodity product.

  11. lefty665 says:

    @Rayne: “Apple limits its products” Yep, sure does. That’s why I’ve never been an Apple fanboy. Except for Woz. There is nothing about a proprietary environment that is attractive. I’ve never been much of a Microsoft fan either, but at least the platform has been accessible.

    No, I did not miss Thompson’s point. He makes a case that’s built on sand. Good for a posting to stir up a few clicks and to impress the credulous, but not much substance. Like Putin said of talking to the US recently “It is Like shearing a piglet. Lots of squealing but not much wool”.

    Not going to get into a cred pissing contest with you. I will however note that the theme of your post, that Microsoft is reorganizing to better collude with NSA, is delusional. They’ve had all the collusion they want for around 20 years. So pull the other one, it’s got bells on. If you’re peddling that kind of stuff as “consulting” I’d recommend researching cheaper dog food.

  12. Saul Tannenbaum says:

    @Rayne: Look, you have no evidence, which is why you phrase your suggestion that Microsoft is reorganizing to be better aligned with the NSA as a question. As @lefty665 notes, they’ve had all the “collaboration” they’ve needed already.

    Taking this seriously for a moment, it’s exactly the opposite of a useful strategy for the NSA. If there was ever a shred of proof that Microsoft undertook a corporate restructure to better serve the US intelligence community, what’s left of Microsoft’s brand would be instantly radioactive. Whyever would you want to bring more attention to industry/intelligence collaboration at this point in time?

  13. P J Evans says:

    A lot of businesses aren’t going to Win8, because their software won’t run with it. (The company I worked at is only just getting to Win7. They’ve been running on XP for years. And they had some OS2 machines as recently as 2007.)

  14. lefty665 says:

    @P J Evans: We’ve had no big issues running on Win 8, with the exception of RT that I mentioned in my first post. The issue that we mostly see is cost, starting with the licensing revenue stream Microsoft is desperate for. However, the larger cost is integration, support and lost productivity due to learning curves. That causes many companies to be slow to upgrade.

    For most business tasks XP and older versions of Office, already paid for and amortized, do the job. Why change? With XP, the forcer will be Microsoft’s declared end of support next year, if they can stick to it. That may work for them if they bring back $40 Win 8 licenses and a legacy (more or less) desktop.

    That does not address the non-desktop market. That is where the future lies, and Microsoft has a tough competitor in Android that is essentially free. Google is adding value to their OS through other means, advertisers, clicks, etc. Microsoft cannot generate the bucks it needs that way. It will be interesting to see what comes from the Google purchase of Motorola. If they are successful it will give them a hardware/OS base like Apple, and a non-proprietary OS market dominance Microsoft is not likely to compete with successfully.

    Microsoft is stuck on their flagship OS. That drives branching into other products and ways to add value. We saw it with Apple and the deluge of iWhatever products. They were stuck worse on their OS than Microsoft. Nobody else would touch it, even had it been offered, and their hardware remains a proprietary niche/cult item. They were desperate for alternative revenue streams, and they found them. However, Steve Jobs’ fantasy and levitation act died with him. The resulting crash back to reality has creamed their stock.

    Funny that OS2 outlived NT by a decade. Just confirms that we solved most of the major OS and office applications problems long long ago.

  15. lefty665 says:

    @lefty665: Please amend that to: “In our experience that causes many companies to be slow to upgrade. Your mileage may vary.” I wasn’t looking to pick a fight.

  16. Chetnolian says:

    While I don’t buy your theory on the management reorganisation (it’s more easily explained by the old saw “When in doubt reorganise”)the Glyn Moody argument you quote does have force on the matter of trust. In the UK Microsoft ads have just appeared on trains (and probably elsewhere) saying “Your privacy is our priority”. Ha! It looks like Redmond has the same view of public trust.

    I bet there are people in Washington who think Snowden’s worst crime is to prejudice Microsoft’s business.

  17. Rayne says:

    @Saul Tannenbaum: LOL Seriously, I’m laughing. Why not do a reorg at a time when a company’s cred is in the shitter? That’s the first step many publicly listed businesses take to recover value. And what better reason to reorg than to preserve the relationship with one of the largest and most loyal customers they have, the U.S. government? Of course there won’t be much evidence.

    The stock chart says a lot all on its own. They simply aren’t in the same business with what we perceive, or even what Microsoft says is their competition.

    @P J Evans: Microsoft did itself no favors with introducing Vista, which was a POS right out of the gate. The reluctance of private industry to migrate to the latest Win stemmed from Vista’s failures and a perceived lack of added value. The lack of backward compatibility for other applications was the extra fillip.

    @Chetnolian: Think about Stuxnet and the inherent critical feature Windows provided and the Senate Intel Committee screaming about leaks related to Stuxnet. Related? Hmm…

  18. P J Evans says:

    You’d be surprised at what doesn’t work with Win8. Or requires testing to make sure that it doesn’t screw up something else critical. (It’s specialized stuff that needs features that MS is likely to decide no one is using. And a version behind in that, too.)

  19. P J Evans says:

    Rayne, I’m considering buying Win7 before it disappears. I don’t have anything that Win8 would be happy with.

  20. Saul Tannenbaum says:

    @Rayne: So your argument boils down to: This is a perfect time to reorg to better collaborate with the NSA because Microsoft’s business failures make it a logical time to reorganize?

    Have you ever heard of Occam’s Razor: among competing hypotheses, the hypothesis with the fewest assumptions should be selected?

  21. lefty665 says:

    @Rayne: @18 It is clear that Microsoft is in huge trouble, and we agree that rearranging the deck chairs ain’t likely to help much. But… I said it before and I’ll repeat in case you did not understand. Suggesting that Microsoft is reorganizing to please NSA is delusional. Paranoid also comes to mind. Where is there any evidence that NSA is not, has not, or is afraid it will not get everything it wants from Microsoft? There are plenty of real issues to deal with in that collaboration. Making up more is not helpful.

    @19 p j evans I’m sure you are right there’s stuff that won’t run on 8. Your point and mine agree that everything requires testing and re-validation when you change major OS versions (and some updates). That is a big part of the barrier to upgrading. It is expensive in both dollars and resources. The shuttle ran on the original magnetic core memory and tape storage into this millennium because it was thoroughly debugged, and the potential consequences of a bug introduced in an upgrade were horrendous. Memory was so small that they needed three tapes, one each for launch, orbit and re-entry.

    Our internal testing environment is XP, Vista, 7 and 8 (we dropped win2k when the machine finally croaked). Everything runs off a 7 server and includes virtual machines as well as hardware workstations. We have not run into anything that worked in XP but was broken in the others. I’d be curious to know what you hit. It could help keep us avoid those holes.

  22. Rayne says:

    @Saul Tannenbaum: Has anything Microsoft ever done been simple enough to fit Occam’s Razor?

    As for toxicity: just look at the stock’s performance. The market already smacked them. What’s keeping them from tanking further? Have they already hit rock bottom and therefore have nothing to lose by assisting one of their biggest and most reliable clients?

    Really, that’s pretty simple in itself.

    @P J Evans: Win 7 has been pretty doggone stable on my desktop, laptops, netbook, about on par with XP. My son has Win 8 on a desktop and is very unhappy with it, had to do a complete restore last week on his 6-month old system. The overwhelming majority of my work these days, however, is on Android tablets. LOVE it, am seriously considering an Android laptop in near future.

    @lefty665: I wish I could write more clearly about what I know, but I can’t. I really do not feel like having lawyers on my back. Suffice it to say that I once worked for a consulting firm on the Microsoft account, and I know for a fact they can and have done illegal crap they tried not to disclose. There was a judgment stemming from a lawsuit during the last handful of years which actually halted all sales of a particular application; they’d literally done something illegal to stem risks to a product worth 30% of their revenues at the time. That’s where I have to leave it.

    Just because one might be paranoid doesn’t mean someone isn’t out to get them, either. Paranoia can be reasonably acquired from exposure to the truth.

  23. Saul Tannenbaum says:

    @Rayne: Yes, many things Microsoft does have been simple. Zune: “Let’s copy the iPod”. Windows 8 Phone: “We have to look innovative”. The reorg: “We have to behave like one company. Let’s copy Apple’s functional organization”.

    If you think the stock has hit rock bottom, you have to believe that investors (if that term still makes sense in the world of high frequency trading) have factored in all the possible bad news that might emerge from Microsoft. Given that Microsoft’s enterprise-centric businesses have continued revenue growth, that can’t be true. If those businesses started to tank the same way the PC and device businesses have tanked, then you’d see a real Wall Street bloodbath.

    But I’m with @lefty665, this is delusional and telling us you know of some Microsoft illegal behavior isn’t really news. They’ve engaged in anti-trust violations and been found to have infringed on patents (maybe you’re referring to patent infringement and Microsoft Word?.

    Unless you have some actual evidence that the Microsoft reorg was driven by a desire to better collaborate with the US intelligence community, I won’t be participating in this conversation any more. It’s a distraction from the real and important issues.

  24. lefty665 says:

    When somebody’s actually after you, it’s not paranoia. There’s no doubt Gen Keith and his minions have treated us all like we’re on the wrong side of an AUMF. I or that they’ve leaned on all the comm and tech companies to cooperate.

    I don’t doubt MS has been up to their elbows in unlegal stuff on the commercial side, or that they’ve had their chops busted for it from time to time.

    Hard to see what that has to do with being in bed with NSA for two decades.

  25. Phil Perspective says:

    @Rayne: Sorry for my late reply. IIRC, his mother was on the board of the American Red Cross, or a similar charity, with the head of IBM. He offered Windows(whatever it was originally called) to them on the condition it was licensed, not sold outright. IBM told him to take a hike. It was in a documentary I saw. I wish I could remember the name. Grrr! But I’ll try and find more information and post the links and stuff.

  26. Phil Perspective says:

    @Phil Perspective: I just read Gates’ Wikipedia page. His mother was on the national United Way board along with one-time IBM CEO John Opel. She was appointed to the board in 1980. I think the documentary was called Pirates of Silicon Valley. Hope that helps somewhat.

  27. Rayne says:

    @Phil Perspective: Thanks much, Phil. I know that Microsoft saw IBM as a key competitor for 25+ years, much intensity in their assessment.

    But looking at a comparison of MSFT against IBM over last 10 years, something went off the rails.

  28. lefty665 says:

    When somebody’s actually after you, it’s not paranoia.

    There is no doubt General Keith and his minions have treated us all like we’re on the wrong side of an AUMF. It is also clear that they have leaned on all the comm and tech companies to cooperate. All have rolled over, some more willingly than others (think QWest).

    NSA has been in cahoots with Silicon Valley since it was just a gully. You can go back to the 40’s, 50’s, 60’s and beyond and find that NSA and its predecessors funded the R&D for most of the technology we enjoy today. For example, digital spread spectrum in cell phones is WWII vintage Govt crypto technology. We owe them some orchids along with the brickbats.

    I don’t doubt Microsoft has been up to its eyeballs in illegal stuff on the commercial side, or that they’ve had their chops busted for it from time to time. That’s the way monopolies work. But it is a huge leap from there to asserting that they are reorganizing to better cooperate with NSA.

    What I have seen in the press, and it’s been damn little, is that the backdoors and cooperation have been pretty tightly compartmentalized inside Microsoft and the other collaborators. What they are doing is (was) not common knowledge on the MS campus. Reorg will not change that, and that is just one of several places that the idea of reorganization for better collusion fails. Compartmentalized activities are compartmentalized no matter where they fall in the org chart.

    I agree, Microsoft’s got a ways to fall. How far will hinge on how well, or poorly, 8 bridges them to a non-desktop centric future. The answer is not in on that yet. I’m still kicking myself for not shorting Apple after Jobs croaked, the tea leaves were clear. MS might not be a bad candidate today. However, the question is when they’ll collapse. The market has an uncanny ability to stay long longer than I can stay short. T’was ever so.

    You are bright, clearly have a lot of techie experience, and write well. I usually enjoy your stuff. But on this one you are out in la la land. Please let it go. You are making it harder to have a rational discussion about real and profound issues.

    I’d also politely suggest that you rethink AMFing Saul. I don’t always agree with him either, but he always has an informed and thoughtful opinion. He makes me think and examine why I believe as I do. That from him and many others (usually including you) is why I hang around here. Flames are cheap. They’re available almost everywhere, I don’t need to come here to get them.

    Last thought, just because you’re paranoid it doesn’t mean nobody’s after you. I remain, one hop away, yours truly. Lefty

  29. lefty665 says:

    @Rayne: Marcy undoubtedly knows chapter and verse.

    Microsoft was the vendor for PC-DOS that IBM supplied with their PCs. My recollection is that Gates offered to sell the OS to IBM, and that IBM declined. That turned out to be one of the all time biggest mistakes in computer history. It opened the door for Microsoft to vend functionally identical MS-DOS for clones. IBM has yet to get over the discomfort.

    MS-DOS on clones is where a bunch of us got started in the PC business. It beat the heck out of CP/M on S-100 bus machines. Microsoft had a pretty good ride on MS-DOS and its successor, that Windows thingie. Some of the rest of us did ok too. Z80s rule!

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