What Is Microsoft So Afraid Of?

Aug. 1, 2008 — -- It is hardly news when the Redmond software giant behaves a little oddly. But usually that behavior takes the form of bullying competitors or the self-delusion of believing that it is a major technology innovator.

But Microsoft's unusual behavior over the last few weeks has taken a different form: for the first time, perhaps since the Netscape threat arose in the early 1990s, Microsoft is acting scared.

First, of course, there was the still-unsettled attempt at a hostile takeover of Yahoo. Microsoft may still win that one in the end; but in the meantime, despite roaring into the negotiations full of sound and fury, Microsoft ended up being a cat's paw for both the woefully out-of-his-depth Yahoo CEO Jerry Yang and for rogue buyout master Carl Icahn. Then Microsoft, either desperately on the rebound or in a ham-fisted move to make Yahoo jealous, starting making advances at pitiful old AOL instead.

Whatever the strategic advantages of these acquisitions -- and frankly, it's hard to see how bolting one failing search company to another is going to compete any more effectively against a drag racer like Google -- it is hardly the behavior of a company that's sure of its own capabilities and confident in its future.

The old, swaggering Microsoft would have decided that it could win this battle against Google on its own, through a combination of a perpetually upgraded search engine, questionable linkages to existing MS products (such as Vista), raiding talent from Google and Yahoo and strong-arming everyone up and down the distribution and retail chains.

That's how Microsoft used to rule the tech world, and it left both enemies and friends quaking in their boots. It wasn't pretty -- and some of it might not even have been legal -- but that was how MS rolled when it was on top … not groveling to buy some other also-ran.

Ever since the Yahoo debacle, Microsoft has been acting strangely, and one can only conclude that the two events are somehow connected.

Vista Implementation Issues

Microsoft's suddenly transformed manner first appeared last week after a report, by the systems management appliance company KACE, saying that 60 percent of the administrators it surveyed had no intention of ever implementing Microsoft's year-old flagship operating system Windows Vista -- up 10 percent from last November.

Potentially even more devastating was the fact that more than 40 percent of the respondents said they were actively looking at other platforms, from the Apple Mac OS X to Linux -- while the remainder had either already abandoned Vista or were sticking with Microsoft's older Windows XP.

And that was only half of the bad news, because at about the same time, the influential market analysis firm Forrester Research came out with a report that announced that, more than a year after the introduction of Vista, its acceptance by enterprise (big company) users was "still in the single digits." More chilling, Forrester said, was the fact that even among those few acceptances, most came from automatic upgrades of existing software, rather than conscious adoption by XP users.

Microsoft CEO Steve Ballmer immediately fired off an e-mail to all Microsoft employees reminding them that "the success of Windows is our number one job" and that Microsoft remained "the best in the world at doing software and nobody should be confused about this," in the process suggesting that perhaps even he wasn't sure anymore.

That astounding admission of weakness from the blustering and cocky Ballmer was only the beginning. Over the weekend, the wheels seemed to fall completely off the once-mighty Microsoft juggernaut.

Mojave vs. Vista

For one thing, Microsoft took the bizarre step of mimicking the old "Pepsi Challenge" of the 1980s. The company, in disguise, brought together a group of on-record Vista haters, and asked them to try a new operating system called "Mojave." According to Microsoft, 90 percent of the Mojave testers professed to having a positive experience with the software. That's when the Microsoft people, metaphorically, pulled the fake cover off the box and announced, "Ta da! It's not really Mojave, but Windows Vista/Folger's Crystals/Pizza Hut!"

As blogger Christopher Null noted, "Presumably none of the focus group members had to face peripheral incompatibility problems and missing drivers, or watch their old XP computers suddenly slow to a crawl due to Vista's overbearing resource requirements. Sitting down in front of a powerful machine, configured correctly, and taking an expert-guided tour of Vista isn't an unpleasurable experience. Vista in the real world is a little different."

What Null didn't mention was the sheer creepiness -- and flop-sweat desperation -- of this gambit by Microsoft. Just how scared is the company by this apparent backlash against -- or at least glacial adoption of -- Vista.

This much: on Monday, Microsoft's official Vista team took advantage of its own blog to publicly excoriate the author of the Forrester report, Thomas Mendel, who surveyed 50,000 users to prepare his report, and accuse him of being "sensationalist" and "schizophrenic." The tech world looked on in stunned disbelief.

Beyond the sheer foolishness of attacking the messenger, the very idea of making a bitter enemy of a person who not only plays an important role in helping your biggest customers make their purchasing decisions, but also, ultimately, influences your stock price, seems an act of amazing stupidity and short-sightedness.

You can't imagine another great tech company like HP or Intel -- or even a brash youngster like Google or eBay -- doing something like this. This behavior, combined with the Yahoo play, the Ballmer memo and the Mojave bait-and-switch, smacks of a company that is not just frightened, but in actual fear for its very existence.

And perhaps it is.

Windows, Office Dominance Waning?

In the tech industry, it's always been known that all of the various media and Web plays by Microsoft, whatever the attention they receive, are mostly (pardon the pun) Windows dressing -- and that Microsoft has always made its real money on just two product lines that date back to the company's beginnings: Windows and Office. With the latter, it always had the best product; with the former, it enjoyed the largest user base and the industry standard.

Through the years, Microsoft grew accustomed (and complacent) to each new generation of Windows being quickly, and gratefully, adopted by that base. That model worked for 20 years, and upon its strong foundation Microsoft constructed the most powerful software company ever known.

But the world changed, thanks to open-source operating systems like Linux, to a resurgent and reborn Apple, and to the unique capabilities of the Web. Meanwhile, Microsoft did nothing to help its case: each generation of Windows, built upon the ones before, were buggy and increasingly unreliable.

Worse, the company -- apparently not learning the lessons of the semiconductor industry -- broke its tacit agreement with its partners and customers by not getting is products ready at the expected time. The nadir came with Vista, which was more than a year late, and nearly sunk Dell, HP, Sony and the other PC makers in the process.

So Microsoft only had itself to blame when both its hardware clients and its end-users began to look elsewhere. And when Vista, when it finally arrived, proved to be merely an evolutionary advance from its klugey predecessors rather than the revolutionary leap it was promised to be, the company quickly found itself on the path to its current predicament.

Looking at its behavior over the last few weeks, it's hard to not to conclude that Microsoft has passed some important tipping point … and that now even Microsoft employees realize it. And as stunning as these actions have been; what is even more telling is that almost nobody is surprised anymore by this kind of behavior from Microsoft anymore -- or indeed, even much cares.

This is the opinion of the columnist and in no way reflects the opinion of ABC News.

Michael S. Malone is one of the nation's best-known technology writers. He has covered Silicon Valley and high-tech for more than 25 years, beginning with the San Jose Mercury News as the nation's first daily high-tech reporter. His articles and editorials have appeared in such publications as The Wall Street Journal, the Economist and Fortune, and for two years he was a columnist for The New York Times. He was editor of Forbes ASAP, the world's largest-circulation business-tech magazine, at the height of the dot-com boom. Malone is the author or co-author of a dozen books, notably the best-selling "Virtual Corporation." Malone has also hosted three public television interview series, and most recently co-produced the celebrated PBS miniseries on social entrepreneurs, "The New Heroes." He has been the ABCNEWS.com "Silicon Insider" columnist since 2000.