Suite talk as Microsoft makes friends

30 May 2003

What do you do when you’re the biggest software company in the world and one of the most recognised brands on the planet? There are two options. Flaunt your success and run roughshod over customers because you’ve got millions of them and won’t miss a few. Or, loosen the tie, put out a hand and make friends.

It’s true to say that Microsoft has been afflicted with a bout of schizophrenia over the last couple of years and played both roles.

Today in the Atrium Building, the striking glass structure that is its Dublin HQ in Sandyford Business Park, the mood of Microsoft’s general manager is more of the second than the first. If he’s the soft cop, I can only assume that the hard one is in the basement, turning the screws on some treacherous Linux user.

Joe Macri (pictured) readily concedes that mistakes were made in the implementation of the Licensing 6 Software Assurance program.

Pitched by the Seattle giant as “a simpler way of obtaining the latest version of Microsoft products”, it was launched last July as a user-friendly replacement to a tangled web of complex licences. But customers, analysts and anyone with a gripe against Microsoft saw it another way. Here was a company with a monopolistic grip on the world’s operating systems (OSs) — around 90pc of desktops use Windows and its suite of software products — squeezing more out of users too dependent to walk away.

No matter how many times Macri, and his counterparts around the world, juggled the stats to demonstrate that only a few companies were paying more than before, the consensus was that Microsoft was intent on extracting as much from its customers as it could.

“In terms of how we communicated Licensing 6 we did a very poor job,” admits Macri. “But it’s fair to say that every time a customer has come to us with a concern, we have found a solution and responded.”

The decision to cut deals to keep customers sweet has been accompanied by a series of tweaks to the programme, making it more amenable to disenfranchised users. The most recent initiative sees Microsoft offering other benefits and discounts to help the medicine go down.

“People will see that we’ve learnt from our mistakes,” says Macri, “not just from Licensing 6, but from our dealings with the Department of Justice. We know that it’s good to listen and it’s good to respond.”

It’s almost ancient history how Microsoft attained vast market share through Windows and then used it to steal pole position for its Internet Explorer web browser. This series of events would spark a run-in with the US Department of Justice and the lengthy antitrust case. Microsoft emerged intact albeit subject to rules aimed to curb what were deemed to be anti-competitive practices in the way it bundled its own product with the Windows OS.

When Macri talks of listening and responding after the outcome, I feel obliged to point out that there was no choice. It was the law.

“We learnt from it, is a better way of putting it,” says Macri. “We have taken on the responsibility of being a monopoly in certain markets. We have clearly listened and had decisions made and will adhere to those legal decisions from a legal perspective.

“Whatever happens with the EU investigation,” he says, referring to the subsequent and ongoing investigation into Microsoft’s strategy from Brussels, “we will do what we have to do.”

He argues that the experience has not been one that is entirely unique to Microsoft: “When you have a monopoly, responsibilities come with it. If you talk to people in the electricity or communications businesses, they have had similar issues as well.”

He is also quick to point out that such problems are a rare luxury, and only relate to its Windows Client business. “Let’s be very clear, we’re not a monopoly in the Xbox space, the applications business or the mobile market,” he states.

This leads on to perhaps the most striking characteristic of Microsoft’s strategy over the last few years. Despite ongoing legal battles that might have prompted serious soul searching among less-ambitious companies, Microsoft has spread into other markets, sometimes at blistering speed. This is not just a testament to its ambition but also to the money it has in the bank.

Like the spoilt college kid who shows up on the first day of term in a flashy sports car, Microsoft never stops reminding us how rich it is. The Windows OS has given it cash assets reckoned to be in the region of US$38.65bn, which explains why the world’s No. 1 software company can be more cheerful than most in a slow market.

The last few years has seen it pour funds into various platforms, developing its .Net architecture and going head to head with the likes of Sun, IBM and Oracle, while taking on Nokia in the mobile space, SAP in the enterprise resource planning market and topping it off with its Xbox games console pitched against games giants Sony and Nintendo.

Macri is relaxed about all the fronts his company is fighting on and dismisses speculation that the lack of progress made — in the mobile space, for example — is tantamount to failure.

“Do you want us to do what some of our competitors do and stand still?” he laughs. “We have a responsibility to shareholders to continue to optimise their investment. Some things may well flop, but it’s too soon to tell. We’re in these markets for the long haul.”

With last month’s launch of Windows Server 2003, the IT enterprise sector is a natural extension of the Client business and the one that presents the major growth opportunity for Microsoft. But there are some things in its way, according to its critics.

The first is security. There has been a perception in the industry that Microsoft product has been riddled with holes and is a hacker’s dream. “We can talk perception or we can talk fact. We had the most vulnerabilities but that’s changed,” says Macri. “As an industry we should stop pointing the finger and start focusing on research and development (R&D) efforts. Security is an industry issue, not just Microsoft’s.

“We made huge investments last year and the number of break-ins is reducing. Will they go away entirely? No. But we will continue to rescue the vulnerabilities. Because we are a market leader it’s clearly going to impact on us more because we’ve got more users.”

The other stick that is readily to hand when beating Microsoft is the rise of the open source community. With source code made available to developers at large, the baseline argument is that it ensures the rollout of a more flexible, bug-free product that an organisation can customise to suit its own needs without paying though the nose.

On a recent stopover in Dublin, Microsoft’s third in command, Paul Flessner, took time out to predict the demise of Unix-based servers, open source products such as Sun’s Linux range. Macri, playing soft cop again, is more diplomatic. He starts with the familiar pitch about total cost of ownership: “If you take the cost of using that technology for five years, the Windows platform is more cost-effective than Linux”, but soon shifts his tone.

“Open source has taught us a couple of things. It has done a great job in reconnecting vendors with the masses of developers and IT professionals — which is what actually built Microsoft’s success in the first place. What drove us was end users. Open source has re-ignited the value of developers and has given us a wake-up call.

“The second thing we learnt,” he continues, “is that in certain circumstances it’s a good idea to give people source code. We’ve started to do that with governments and independent software vendors — they need it for reintegrating with our platform. We’ll give people secure access to our code where they have a real need.”

Where Macri has little truck with open source is when it comes to intellectual property. This, after all, is fundamental to the Microsoft proprietary software business model (and the reason it has such a healthy bank account).

“We believe in the commercial software industry. It’s driven the whole information and communications technology (ICT) sector and it isn’t specific or unique to the IT sector. It’s what the pharmaceutical business runs on, or any innovation business. You invest in R&D; develop intellectual property and hopefully it’s something people value and will be willing to pay for…,” he starts smiling at his own unassailable logic, “…and if you do it well enough, you sell it for more than it costs to make. Profit is good! We believe in profit. Why? Because profit equals jobs. We recommend it to all our friends out there!”

He stops short of telling me that lunch is for wimps and makes his main point: “Fundamentally, you have to protect the intellectual property rights. The commercial software industry is a proven business model and it will be here for a long time. Open source is an unproven model. Maybe it will prove itself; maybe it won’t.”

Leaving global strategies aside, the most striking thing about Microsoft Ireland is how it has increased its local profile since Macri became general manager in July 2000. In this time, his sales and marketing department has increased its business by around 150pc and grown in staff from 12 to 50. Part of the process has been an apparent change in corporate culture.

At a Microsoft product launch it’s not uncommon for Macri to share centre stage with colleagues from other multinationals or representatives from the indigenous software community. Microsoft, it seems, is just one of the guys in the gang, albeit the biggest one that it’s best not to mess with.

Macri is not just extending a hand of friendship to the local sector, he’s also charged with the job of creating an autonomous business division as opposed to the box-shifting subsidiary of the UK company, which is what the Dublin office used to be.

Now, when he reports to Europe it’s as part of a group consisting of smaller territories such as the Scandinavian countries. This has the added benefit of sharing experience and models that are appropriate to the size of the country.

Inevitably, talk turns to local issues and Macri identifies double standards in the Irish Government’s commitment to technology. “If you look at the decisions it has made from a policy point of view to attract inward investment, it’s fantastic,” he says. “Every time we’ve gone to the Irish Government and said we want to do something to bring further investment to this country, it has responded. It is the most responsive government we deal with in the world. That needs to be recognised.”

He continues: “Now, look at the other side of the coin — local infrastructure. We’re in a totally different place there. We have the lowest PC penetration in western Europe, the highest software piracy rate in western Europe and the lowest rollout broadband and internet services in most of Europe.”

He sums up the dichotomy: “The focus on policy has been on inward investment but it needs to balance between the needs of getting the multinationals to come in versus the needs of the local SME [small to medium-sized enterprise] sector.”

As an instrument for solving this problem he believes there should be a dedicated e-minister. “We obviously respect Minister Hanafin’s position, but we would still lobby for as much as we can get in terms of a real vision and drive. It’s started but what we need as a country is to accelerate and show more agility in these areas,” he says. “We supported IBEC’s position and feel strongly that having a cabinet minister as an e-minister is the right way forward.

“If we could supply the same vision, flexibility and drive that the government clearly had around when it came to attracting inward investment to the local ICT market then we’d be in a fantastic place.”

Ending on what seems like a wish list, Macri has a word to say about some of his competitors. “As a sector we have to focus on proving value. I get very disappointed when they start shooting arrows at us,” he adds.

He would say that, wouldn’t he, standing in the Atrium Building. People who live in glasshouses…

By Ian Campbell