Microsoft went from a fledgeling purveyor of a BASIC for the Altair to a force to be reckoned with. The biggest growth hack was when they teamed up with IBM to usher in the rise of the personal computer. They released apps and an operating system and by licensing DOS to anyone (not just IBM) and then becoming the dominant OS they allowed clone makers to rise and thus broke the hold IBM had on the computing industry since the days the big 8 mainframe companies were referred to as “Snow White and the Seven Dwarfs.”
They were young and bold and grew fast. They were aggressive, taking on industry leaders in different segments, effectively putting CP/M out of business, taking out Lotus, VisiCalc, Novell, Netscape, `and many, many other companies.
Windows 95 and Microsoft Office helped the personal computer become ubiquitous in homes and offices. The team knew about the technical debt they were accruing in order to grow fast. So they began work on projects that would become Windows NT and that kernel would evolve into Windows 2000, phasing out the legacy operating systems. They released Windows Server, Microsoft Exchange, Flight Simulators, maps, and seemed for a time to be poised to take over the world. They even seemed to be about to conquer the weird new smart phone world.
And then something strange happened. They entered into what we can now call a lost decade. Actually there’s nothing strange about it. This happens to nearly every company.
Innovation dropped off. Releases of Windows got buggy. The market share of their mobile operating system fell away. Apple and Android basically took the market away entirely. They let Google take the search market and after they failed to buy Yahoo! they released an uninspired Bing. The MSN subscriptions that once competed with AOL fell away. Google Docs came and was a breath of fresh air. Windows Servers started moving into cloud solutions where Box or Dropbox were replacing filers and Sharepoint became a difficult story to tell.
They copied features from other companies. But were followers - not leaders. And the stock barely moved for a decade, while Apple more than doubled the market cap of Microsoft for a time. What exactly happened here? Some have blamed Steve Ballmer, who replaced Bill Gates who had led the company since 1975 and if we want to include Traf-O-Data - since 1972.
They grew fast and by Y2K there were memes about how rich Bill Gates was. Then a lot changed over the next decade. Windows XP was released in 2001, the same year the first Xbox was released. They launched the Windows Mobile operating system in 2003, planning to continue the whole “rule the operating system” approach. Vista comes along in 2007. Bill Gates retires in 2008. Later that year, Google launches Chrome - which would eat market share away from Microsoft over time. Windows 7 launches in 2009. Microsoft releases Bing in 2009 and Azure in 2010. The Windows phone comes in 2010 as well, and they would buy Skype for $8.5 billion dollars the next year. The tablet Microsoft Surface coming in 2012, the same year the iPad was released.
And yet, there were market forces operating to work against what Microsoft was doing. Google had come roaring out of the dot com bubble bursting and proved how money could be made with search. Yahoo! was slow to respond. As Google’s aspirations became clear by 2008, Ballmer moved to buy them for $20 billion eventually growing the bid to nearly $45 billion - a move that was thwarted but helped to take the attention of the Yahoo! team away from the idea of making money. That was the same year Android and Chrome was released. Meanwhile, Apple released the iPhone in 2007 and were shipping the 3G in 2008, taking the mobile market by storm. By 2010, slow sales of the Windows phone were already spelling the end for Ballmer.
Microsoft had launched Windows CE in 1996, held the smaller Handheld PC market for a time. They took over and owned the operating system market for personal computers and productivity software. They were able to seize a weakened and lumbering IBM to do so. And yet they turned into that lumbering juggernaut of a company. All those products and all the revenues being generated, Microsoft looked unstoppable by the end of the millennium. Then they got big. Like really big. And organizations can be big and stay lean - but they weren’t.
Leaders fought leaders, programmers fled, and the fiefdoms caused them to be slow to jump into new opportunities. Bill Gates had been an intense leader - but the Department of Justice filed an anti-trust case against Microsoft and between that and just managing hyper-growth along the way they lost a focus on customers and instead focused inward. And so by all accounts, the lost decade began in 2001. Vista was supposed to ship in 2003 but pushed all the way back to 2007. Bing was a dud, losing billions out of the gate. By 2011 Google released Chrome OS - an operating system that was basically a web browser bootstrapped on Linux and effectively what Netscape founder Marc Andreesen foreshadowed in a Time piece in the early days of the browser wars.
Kurt Eichenwald of Vanity Fair wrote an article called MICROSOFT’S LOST DECADE in 2012, looking at what led to the lost decade. He pointed out the arrogance and the products that, even though they were initially developed at Microsoft, would be launched by others first. It was Bill Gates who turned down releasing the ebook, which would evolve into the tablet. The article explained that moving timelines around pushed developing new products back in the list of priorities. The Windows and Office divisions were making so much money for the company that they had all the power to make the decisions - even when the industry was moving in another direction.
The original employees got rich when the company went public and much of the spunk left with them. The focus shifted to pushing up the stock price. Ballmer is infamously not a product guy and he became the president of the company in 1998 and moved to CEO in 2000. But Gates stayed on in product. As we see with companies when their stock price starts to fall, the finger pointing begins. Cost cutting begins. The more talented developers can work anywhere - and so companies like Amazon, Google, and Apple were able to fill their ranks with great developers.
When organizations in a larger organization argue, new bureaucracies get formed. Those slow things down by replacing common sense with process. That is good to a point. Like really good to a point. Measure twice, cut once. Maybe even measure three times and cut once. But software doesn’t get built by committees, it gets built by humans. The closer engineers are to humans the more empathy will go into the code. We can almost feel it when we use tools that developers don’t fully understand. And further, developers write less code when they’re in more meetings. Some are good but when there are tiers of supervisors and managers and directors and VPs and Jr and Sr of each, their need to justify their existence leads to more meetings.
The Vanity Fair piece also points out that times changed. He called the earlier employees “young hotshots from the 1980s” who by then were later career professionals and as personal computers became pervasive the way people use them changed. And a generation of people who grew up with computers now interacted with them differently. People were increasingly always online. Managers who don’t understand their users need to release control of products to those who do.
They made the Zune 5 years after the iPod was released and had lit a fire at Apple. Less than two months later, Apple released the iPhone and the Zune was dead in the water, never eclipsing over 5 percent of the market and finally being discontinued in 2012. Ballmer had predicted that all of these Apple products would fail and in a quote from a source in the Vanity Fair article, a former manager at Microsoft said “he is hopelessly out of touch with reality or not listening to the tech staff around him”.
One aspect the article doesn’t go into is the sheer number of products Microsoft was producing. They were competing with practically every big name in technology, from Apple to Oracle to Google to Facebook to Amazon to Salesforce. They’d gobbled up so many companies to compete in so many spaces that it was hard to say what Microsoft really was - and yet the Windows and Office divisions made the lions’ share of the money. They thought they needed to own every part of the ecosystem when Apple went a different route and opened a store to entice developers to go direct to market, making more margin with no acquisition cost to build a great ecosystem.
The Vanity Fair piece ends with a cue from the Steve Jobs biography and to sum it up, Jobs said that Microsoft ended up being run by sales people because they moved the revenue needle - just as he watched it happen with Sculley at Apple. Jobs went on to say Microsoft would continue the course as long as Ballmer was at the helm. Back when they couldn’t ship Vista they were a 60,000 person company. By 2011 when the Steve Jobs biography was published, they were at 90,000 and had just rebounded from layoffs.
By the end of 2012, the iPhone had overtaken Microsoft in sales. Steve Ballmer left as the CEO of Microsoft in 2014 and Satya Nadella replaces him. Under his leadership, half the company would be moved into research later that year. Nadella wrote a book about his experience turning things around called Hit Refresh. Just as the book Microsoft Rebooted told the story of how Ballmer was going to turn things around in 2004 - except Hit Refresh was actually a pretty good book.
And the things seemed to work. The stock price had risen a little in 2014 but since then it’s shot up six times what it was. And all of the pivots to a more cloud-oriented company and many other moves seem to have been started under Ballmer’s regime, just as the bloated company they became started under the Gates regime. Each arguably did what was needed at the time. Let’s not forget the dot com bubble burst at the beginning of the Ballmer era and he had the 2008 financial crises. There be dragons that are micro-economic forces outside anyones control.
But Nadella ran R&D and cloud offerings. He emphasized research - which means innovation. He changed the mission statement to “empower every person and every organization on the planet to achieve more.” He laid out a few strategies, to reinvent productivity and collaboration, power those with Microsoft’s cloud platform, and expand on Windows and gaming. And all of those things have been gangbusters ever since. They bought Mojang in 2014 and so are now the makers of Minecraft. They bought LinkedIn. They finally got Skype better integrated with the company so Teams could compete more effectively with Slack.
Here’s the thing. I knew a lot of people who worked, and many who still work at Microsoft during that Lost Decade. And I think every one of them is really just top-notch. Looking at things as they’re unfolding you just see a weekly “patch Tuesday” increment. Everyone wanted to innovate - wanted to be their best self. And across every company we look at in this podcast, nearly every one has had to go through a phase of a lost few years or lost decade. The ones who don’t pull through can never turn the tide on culture and innovation. The two are linked.
A bloated company with more layers of management inspires a sense of controlling managers who stifle innovation. At face value, the micro-aggressions seem plausible, especially to those younger in their career. We hear phrases like “we need to justify or analyze the market for each expense/initiative” and that’s true or you become a Xerox PARC or Digital Research where so many innovations never get to market effectively. We hear phrases like “we’re too big to do things like that any more” and yup, people running amuck can be dangerous - turns out move fast and break things doesn’t always work out.
We hear “that requires approval” or “I’m their bosses bosses boss” or “you need to be a team player and run this by other leaders” or “we need more process” or “we need a center of excellence for that because too many teams are doing their own thing” or “we need to have routine meetings about this” or “how does that connect to the corporate strategy” or “we’re a public company now so no” or “we don’t have the resources to think about moon shots” or “we need a new committee for that” or “who said you could do that” and all of these taken as isolated comments would be fine here or there. But the aggregate of so many micro-aggressions comes from a place of control, often stemming from fear of change or being left behind and they come at the cost of innovation.
Charles Simonyi didn’t leave Xerox PARC and go to Microsoft to write Microsoft Word to become a cog in a wheel that’s focused on revenue and not changing the world. Microsoft simply got out-innovated due to being crushed under the weight of too many layers of management and so overly exerting control over those capable of building cool stuff. I’ve watched those who stayed be allowed speak publicly again, engage with communities, take feedback, be humble, admit mistakes, and humanize the company. It’s a privilege to get to work with them and I’ve seen results like a change to a graphAPI endpoint one night when I needed a new piece of data.
They aren’t running amuck. They are precise, targeted, and allowed to do what needs to be done. And it’s amazing how a chief molds the way a senior leadership team acts and they mold the way directors direct and they mold the way managers manage and down the line. An aspect of culture is a mission - another is values - and another is behaviors, which make up the culture. And these days I gotta’ say I’m glad to have witnessed a turnaround like they’ve had and every time I talk to a leader or an individual contributor at Microsoft I’m glad to feel their culture coming through.
So here’s where I’d like to leave this. We can all help shape a great culture. Leaders aren’t the only ones who have an impact. We can all innovate. An innovative company isn’t one that builds a great innovative product (although that helps) but instead one who becomes an unstoppable force due to lots of small innovations at every level of the organization. Where are we allowing politics or a need for control and over-centralization stifle others? Let’s change that.