The Bankwatch

Tracking the consumer evolution of financial services

Google, Microsoft, and "The Starfish and the Spider"

 Dare’s post comparing the Economist OpEd from Googles Schmidt (post earlier today), and the July analysts speech from Ozzie at Microsoft got me thinking more about the comparison.

First a revamped UI for Microsoft Office and now Google jumping into the Web Office game with both feet? 2007 is going to be an interesting year for Office productivity software.

Source:  Google Office: The Gloves are Off

I pasted Ozzie’s speech below.  Its easier to read in this format than the MS press release format.

The dramatic difference that leaps out to me is the corporate approaches.  Google sets a general environment that encourages creativity, and is allowing the results of that creativity to define the outcome.  Microsoft has decided the future and has created a top down directive to build towards that outcome.

Its not to say which will succeed, although I have my views.  But the approaches are very different.  This is also the dilemma that faces firms with an established revenue stream and business model, that is under threat.  Its easier (relatively) to decide on a new strategy, turn left, and all is well.  The problem is that the environment we find ourselves in is not yet defined, so how do we know left is the appropriate direction?

This is the perfect lead in, to the the book I finally picked up today, “The Starfish and the Spider”.  Reviews here and here.  From what I have seen so far, methinks Google is the starfish, and Microsoft is the spider.  (Hint … you don’t want to be the spider). 

Relevance to Bankwatch:

How should Banks organise to solve the business model puzzle for this new internet environment.  What is the right business model, the right technology strategy, the ones that will address revenue and expenses, and deliver the right productivity?

 

 

 

Financial Analyst Meeting 2006
July 27, 2006

Ray Ozzie

Chief Software Architect
Biography
Download the PowerPoint presentation (551 KB)
Watch the webcast

RAY OZZIE: Good afternoon. Thanks for the opportunity to speak with you today. I—you know, part of my role as CSA is to have a visceral understanding of technology trends, and to understand the relevance of those trends from a market as well as from a business perspective. In transforming that understanding into action, it’s also my role to ensure that our product strategy across the company is on the mark, and that our products and services are innovative and highly competitive and built on a technical architecture that’s designed to ensure sustainable growth.

As many of you are already pretty aware, I strongly believe that Internet services will play a very important role for Microsoft moving forward. So I thought I’d devote my entire time with you today on that specific topic. I’ll lay out three things. First, why I believe that a fundamental transformational shift toward services is a necessary and appropriate course of action for all technology companies at this juncture. Second, I’ll lay out a specific service-centric conceptual model that’s intended to help you understand how we’re now framing the “what” and the “why” of Microsoft’s offerings across all markets. And finally I’ll lay out some metrics that I’m using and we’re using to measure our progress in services.

So first some background on this shift to services. For the past 25 years, I’ve had the opportunity to serve in a leadership capacity at companies both large and small. And during this time I’ve had the good fortune to have participated in a number of transformational eras in our industry from mainframe to mini, mini to PC, PC to Web and mobile devices. I’ve seen dramatic improvements in technology driving one transformation after another.

Today, just as in those previous eras, I see some fundamental changes afoot, technology changes that will afford significant economic opportunity for those prepared to take advantage of the market implications of such a technology shift. Just as in the past, the changes before us are being catalyzed by the steady march in the progress of technology, a confluence of factors that Richard Karlgaard, publisher of Forbes, has coined “the cheap revolution”: cheap computing, cheap storage, cheap communications. You’re all familiar with Moore’s Law, and what it enabled in terms of the increasing power of PCs and handheld devices. The phone in my pocket has a processor 10 times faster than the fastest supercomputers that I used in college—has 10 times as much memory. A 1-gigabyte flash memory card costs 25 bucks, and your laptop has a 100-gigabyte disk. And this is just incredible, given where we’ve come from.

The computing and storage trends of the past 20 years have taken the PC far beyond its roots in productivity, transforming it into an amazing device that’s also used for creating and editing and storing and consuming vast libraries of digital media. And the impact of these trends of course hasn’t been just limited to PCs; even phones are now being transformed beyond their roots in communications into amazing devices for when you’re on the go, wherever you are—viewing and capturing media—devices that automatically annotate photos and audio and video with things such as time and location and even the direction you’re facing in some cases.

The cheap revolution has catalyzed seemingly relentless innovation and the creation of an amazing range of smart and powerful devices, devices that are the entry points—the edge—of our computing, communications and entertainment experiences, from laptops to rich media editing workstations, from digital cameras to hard disk camcorders, from smart phones to media players to the Xbox 360—everything has got a processor and memory and an increasingly huge amount of storage. And everything today directly or indirectly now also connects to Internet-based services.

The infrastructure supporting those Internet services has itself also been transformed by the cheap revolution. 1,000-gigabyte servers, terabyte servers, have now become quite commonplace, making it economically viable for the first time to create vast data centers that are built from low-cost PC-like commodity hardware. These data centers are enabling us to provide a number of services—remote computing, remote storage and application services—a centralized services platform to a billion users of the Internet worldwide.

As an industry we’ve talked about the power of massive centralized data centers as long as I can remember, from Ted Nelson’s Xanadu to all the talk in more recent years about the potential of thin client computing. These visions highlighted the many benefits of having a vast array of scalable centralized services available to us anywhere, anytime. But these early visions all presume that the communications channel would be very narrow between end user and the centralized service. Given the assumption of low bandwidth, it seemed very natural that the limited desktop terminal model, like that of a browser, would be required if centralized services were to broadly succeed. But today for many of us, and certainly for most businesses, the availability of inexpensive, high-bandwidth, always-on communications has become the norm. Our world has evolved into one with amazingly powerful “edge” devices, amazingly powerful centralized services, and high-bandwidth pipes connecting the two. And so rather than having to have a limited client and needing to put all the intelligence onto the service, we can for the first time consider how to intentionally balance where to put the application, where to put the data, and how rich to make the user experience based on factors such as mobility or the nature of the device, the nature of the Internet connection to that device and so on. Some applications or data are best kept on the centralized service—projecting their user experience through a browser or through software that’s temporarily downloaded onto a client. Other applications or data are best kept on a PC or mobile device, projecting subsets of that data to other users by temporarily uploading it onto a centralized service as a cache. That architectural choice is now ours, and I can’t sufficiently emphasize the importance and significance of this architectural choice that we now have.

The cheap revolution has enabled us to have the best of both worlds, utilizing incredibly powerful centralized data centers together with powerful devices for incomparable hybrid user experiences and solutions driven by software.

The importance of services in the design of new hardware, like the Xbox and new software, might be referred to as a services transformation. This transformation is, of course, first impacting consumer markets, where people increasingly treat the Internet as the hub of their activities, ranging from news and entertainment to shopping and learning.

The shift toward services will next impact small-business markets, as Jeff Raikes was talking about, because small businesses tend to act more like consumers in their fear of technological complexities, and because of their extreme pragmatism in assembling inexpensive solutions that just work.

Ultimately, this shift will also have an impact on enterprise IT, as well. And as you might imagine, Microsoft and other large-scale service providers gain immense economies of scale when fielding hundreds of thousands of servers, economies that might for some infrastructure services be quite relevant to our enterprise customers.

Clearly, enterprises would need to make some tradeoffs in order to leverage these services, cost versus control being the most obvious. At some point, though, the potential TCO savings of a shift toward utilizing our infrastructure may simply be too great to ignore.

This services transformation will in some way impact all markets served by technologies. And I believe it represents a growth opportunity for our industry. It’s a transformation that all technology companies must embrace in some way if they wish to expand their relevance to their customers moving forward.

So what exactly is this services thing, and how will it impact Microsoft’s products? You’ve heard about it a lot in various forms today. Let me lay out for you a bit of a conceptual framework so you can better understand not only what’s ahead, but why, and how services factor into it.

Internet services is a very broad term, and because of that, people generally oversimplify and think of it as being synonymous with search or advertising or software as a service. But in fact it’s really two things. It’s an architectural principle that I described before, a way of designing solutions so that some part of it might be on a client device and another part of it might be within a centralized data center. And it’s also a new online value delivery model. This new Web-based value delivery model has turned the technology industry on its head from design to development to marketing and sales and customer relationships.

Individuals on the Web, armed with nothing more than a browser and a search engine and word of mouth, discover new products and services of all kinds. They try them, they buy them, they experience them, recommend them, they maintain their vendor relationships online. Neither stand-alone products nor stand-alone marketing and sales models are quite as relevant in this new world. Whether it’s a product targeting the consumer, the enterprise, or any other customer in between, the user is now in control on the Net. And so, regardless of where we came from as an industry or as a company, moving forward we must frame all our products and services from an online connected end-user perspective.

Let me explain how I might model some of the things that we aspire to build at Microsoft in this kind of an end-user-focused fashion.

I’ll start with an example of how I might frame the personal products and services that we might offer to an individual. As I do in framing anything that I build, I start with the audience, in this case the individual end user. For years Bill Gates and others have found it useful to frame our offerings in terms of our digital work styles and our digital lifestyles—and you heard Robbie Bach and Kevin Johnson talk about that today. Indeed, for better and for worse, many users of information technology have found that our work lives and our home lives have become forever blurred. We work at home, we shop from work, we take our laptops on vacations, and we spend too much time messing around with the technologies, synchronizing data to our laptops and getting mobile devices to work right.

We should be focused on our activities and what we want to do with the technology, not on how to get it all to work together. What we want are seamless experiences across PCs and other devices and across the Web.

So thinking in terms of the individual end user as our audience, I then asked the question, What specific effect are we trying to have with our products? How might technology solutions be applied to augment the individual’s activities in this day and age?

In answering this question I’ve created some activity groupings. I’ve mapped out usage scenarios with storyboards within those groupings, helping to clarify how users themselves actually think about using our products in their daily activities.

When they’re in a purely work or productivity mindset, they might need to do things such as write documents or create presentations or do competitive research on the Web. They might communicate by e-mail or IM or use online discussion forums.

At the other end of the spectrum in their lifestyle, they might play games—different kinds of games, as Robbie was saying, depending on who they are. My wife, Donna, is a nut about Sudoku. My son Neal is into “Halo”; my daughter Jill loves “The Sims.” But I also have a category where I know the things that you do when you live your life online. This is kind of a catch-all—there are many such activities, in areas involving photos and music and movies and shopping and more.

A range of potential user experiences are laid out here that represent a range of opportunities for hardware, software and service offerings. Now in a previous era, the PC era, when looking at a palette of opportunities like this, Microsoft would naturally begin by thinking with a PC mindset, in essence saying, What kind of PC application can I build to, say, help this user edit documents or help this user send e-mail? Since our historical success has been PC-centric, it’s only natural to think that we might have taken a PC-centric view of how to fulfill these experiences.

But we’re in a new era, an era in which the Internet is at the center of so much of what we do now with our PCs. And it’s important to start then from a different vantage point. So instead, we start with the Internet service. Even in cases where the experience is best delivered by writing applications for the PC, when considering the overall user experience that we’re trying to achieve, we now start with a service-centric perspective.

We frame the question, How can we best accomplish the experience we want taking advantage of the ability of centralized services to enable seamless end-to-end experiences for the user? We know that a centralized service can be a great place to store or cache things so they can be accessed anywhere on the Net, and to organize things and share things with others.

So in our case, we consider what can be done for the user by assuming the presence of a new service infrastructure that does such things, a set of centralized services that in our case we call Windows Live. The services offered up by the Windows Live platform are available to Web sites and also to client applications and also to mobile applications. And this is key to our strategy. Because it’s our aspiration to create seamless Web, desktop and mobile experiences for all activities relevant to users and customers in all our markets.

And our model for doing so is to use our Windows Live services platform as an experience hub, and to use the PC, the browser and mobile devices as different experience-delivery mechanisms for the value we aspire to deliver.

In other words, Microsoft is using Windows Live as a hub to bring it all together.

So to continue our example, let’s consider we’d extend one of these user experiences to a service-connected PC. We might ask ourselves, how can we deliver a great work experience, productivity experience, using the PC as the primary experience-delivery mechanism while also using the Windows Live services platform as a hub for that experience?

In the context of documents and spreadsheets and things such as calendars, we’d ask, how might a PC-based Office product use the Windows Live platform services to enhance the productivity experience for Office users? It might mean, for example, that Outlook, say, might be enhanced as it was in Office 2007 to allow calendars to be published into the centralized service, making them available to Windows Live users anywhere on the Web. By enabling Office with capabilities afforded by the Windows Live platform, Office becomes a more valuable product to each user on the Internet.

Of course, then we’d consider what other kinds of Web-based services could seamlessly connect with a PC-based office using Windows Live as an experience hub. And so this is how we’d frame something like Office Live.

Office Live is an incredibly powerful set of Internet services for individuals and small businesses delivered through a browser. Office Live makes use of Windows Live as a services platform, taking advantage of things such as Live ID, Live Mail, adCenter and Search.

In other words, we bring together Office and Office Live using Windows Live as the experience hub.

The same holds true for how we’d extend experiences to mobile devices, such as the Smartphone and Pocket PC. In this case, we treat Windows Mobile as an adjunct experience delivery mechanism, making it a great companion device for experiences primarily honed on the PC or the Web. Seamless PC, Web, and mobile messaging and calendaring is obvious. But another example that might not be so obvious of a great PC-to-mobile scenario is to be found in Office OneNote Mobile. It’s a mobile note-taking companion that works hand in hand with a PC-based OneNote.

So far I’ve just been discussing productivity-related experiences. But an experience hub such as Windows Live has the capability of bridging many aspects of your online life.

Our MSN offerings, for example, deliver a broad range of services to mobile and desktop clients in the areas of shopping, music, video, news, and more, of course using the Windows Live platform as a hub.

And there’s Xbox. From day one, the Xbox team considered how might the overall gaming experience be enhanced by using the power of the Internet and Internet services. And they’ve done a stellar job in delivering Xbox Live. This service utilizes the power of the Windows Live platform for federated identity and points and payments and more. And Xbox Live anywhere enables console users and PC-based game users alike to join a single seamless, passionate entertainment community and marketplace.

So to summarize, in developing applications and solutions in this new era, we use an experience-first, service-centric approach—a holistic approach across the Web, the PC, and other devices, an approach that uses the Windows Live services platform to kind of bring it all together.

So let’s for a moment take a look inside that platform.

The Windows Live services platform serves three distinct roles. First, it makes it easier for developers both inside and outside of Microsoft to quickly and easily create open, interoperable, broad-scale Internet applications and services.

Second, its purpose is to observe and aggregate the behavioral activity of users in a manner respectful of their privacy, both to improve the user experience and to improve profitability.

And third, its purpose is to serve as a common back end for monetization supporting all three services’ business models—advertising, subscriptions and transactions.

When talking about a platform in the classic sense, as in Windows or .NET, it’s all too easy to focus almost exclusively on the infrastructure elements of that platform. After all, every development platform must have application frameworks and APIs and databases and the like. And the same, of course, is very much the case with this new type of platform. Windows Live’s infrastructure services represent a very significant investment from a capital, operational and technical innovation perspective. It takes quite a bit of cleverness to economically serve hundreds of millions of people worldwide.

But beyond infrastructure services, what’s most unique and valuable about a very large-scale services platform is what I’ll refer to as optimization. By optimization I mean the monitoring and utilization of both collective end-user behavior and individual behavior to rank content for the user. That ranked content might be the order of advertisements in a search or e-mail window, or the order of relevant news items or playlists or video clips or items in a marketplace that are presented to the user.

We see the power of optimization every day in the relevancy of search engines and on Web sites such as Digg or Reddit and YouTube and Amazon.

Optimization always respectful of a user’s privacy will be increasingly key to delivering great user experiences, and it’s already a key factor in the area of profitability, because the larger the number of users that are connected to any services platform, the more behavioral the data that can be generated. The larger the number of PCs and other devices that are connected to that platform, the more behavioral data that’s available; the larger the number of applications connected to the platform, both Web apps and desktop apps, the better our optimizations will be and the more profitable it will be for us and for our partners.

With our market and product breadth and our strong partner ecosystem, I believe Microsoft has an unparalleled opportunity to deliver relevant experiences to users through efficient optimization. So Windows Live services platform exists today. It’s in the process of being significantly enhanced through the deployment and redeployment of some of our best technical talent and also through significant capital investment. I believe, in many ways, it’s key to our success moving forward.

In terms of understanding our progress toward that success, let me just spend a few minutes on metrics. The three most fundamental underpinnings of our approach are, first, to continuously increase the number and quality of our service-connected offerings from desktop to Web, to naturally and organically attract users and increase usage.

A second key underpinning is to continuously increase our ability to optimize our offerings using the aggregated data that our platform infrastructure produces, and doing so while being industry leaders in how we approach and deliver end-user privacy.

And the third key factor is to significantly increase the seamlessness of the experiences that users enjoy using our offerings across multiple PCs and other devices. It’s a specific objective to make owning a second PC, third PC, or phone or media player by far easier to set up and use than the first. They’ll just work together in simple yet meaningful ways.

Earlier, Kevin outlined a set of core metrics that we’re using to drive disciplined execution related to services within our platform division. Expanding on these, there are four additional metrics we’ll also be monitoring. We’ll be monitoring them to ensure that our company-wide services effort remain on track. We’ll monitor our rate of adoption through the growth and usage statistics of Microsoft’s own Web properties and also our service-connected desktop apps.

This is important because we’ll work intentionally to increase the amount of primary attention that users give to our services and service-connected offerings. We’ll monitor the ecosystem growth rate in terms of advertisers as well as the number and quality of partner applications and syndicated Web sites connecting into our services platform. We’ll monitor the application attach rate: that is, the stats indicating how many users utilize multiple applications, whether desktop, mobile or Web.

And finally, we’ll monitor the device attach rate: that is, stats indicating how many users utilize multiple PCs or other devices with our services. As we dramatically reduce the burden of owning and managing multiple devices and multiple applications and replicated libraries of media and documents, it’s not unreasonable to think we’ll catalyze some level of additional PC and device purchases.

Furthermore, our Live efforts will have a natural side effect of increasing the use of genuine software simply because authentication is required to gain access to many of our most appealing services.

For all these reasons, I believe that the overall services opportunity is largely additive, increasing revenue opportunities for both our existing software licensing model as well as for our services business model.

So let me summarize the three things that I’ve told you today. First, I believe that a fundamental transformational shift toward services is a necessary and appropriate course of action for all technology companies at this juncture.

Second, I believe there’s a very specific service-centric, common-sense, conceptual model that brings together both our new and existing desktop and server offerings in all our markets around Windows Live as a services platform and as an experience hub.

And finally, even though there’s some level of entropy in any fundamental technology and market share, there are some very solid metrics that we can and will use to measure our progress and to intelligently manage our investments.

Some years from now, as you look back on this time, this time I’ve referred to as being a services transformation, I think you’ll view it as the beginning of a period where your view of software and servers and services became enmeshed and intertwined. And when you do look back on this era, I’m confident that you’ll see that Microsoft was taking a leadership role in advancing the industry into this new era.

Some may view what we’re doing here as a big, bold bet. But frankly, it’s a very natural bet for us as a platform company. And I’m confident that it’s the right bet for our customers in all markets. I believe we’re well-positioned to lay the foundation for this new world because—well, because of our capacity and willingness to invest, and because our current offerings represent a huge asset that we can migrate to our advantage into this new services world. And because—well, because we have existing relationships with so many different classes of customers in so many markets, doing services will be relevant and appealing.

The world is evolving into a highly networked form in which the barriers to participation in almost everything we do are crumbling down—the barriers to sharing, the barriers to contributing and learning, the barriers to working together. As more participants come online, platforms and marketplaces will serve to make exchanges between us more liquid and more efficient. And the patterns inherent in our activities online will enable the creation of entirely new value that we don’t even understand today.

I believe that by embracing services in most everything we do, the potential for this company to positively impact the lives of individuals and the operations of businesses has never been greater.

Thanks very much for your time and attention. I really appreciate it. (Applause.)

END

Written by Colin Henderson

November 22, 2006 at 17:15

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