What If Microsoft is Completely Pursuing the Wrong Business?

I was just re-reading Ballmer's email to employees explaining the decision to drop the Yahoo bid, and something struck me. When Ballmer detailed Microsoft's strategy, he never once used the word "software."

Check out this section from the email:

Our strategy has three components:

Deliver on the basics. We will continue to improve search relevance and build out our ad platform.

Change the game through innovation. We will expand investments in engineering and deliver transformative tools and Web experiences.

Expand our global scale and focus. We will pursue partnerships and investments to realize the competitive advantages that come with scale.

At the heart of our strategy is a commitment to bring the benefits of competition, choice, and innovation to everyone who uses the Internet--from consumers to content creators to advertisers. We are 100 percent focused on executing on this strategy and we have made good progress in a very short time.

Now, Microsoft is a software company. That is its heart and soul. Anytime a company veers from its heart and soul, it gets into trouble. (Those are lessons Jim Collins has researched and detailed in both Good to Great and Built to Last. Microsoft needs to get back to being a hedgehog!) When Lou Gerstner took charge of IBM during its crisis, he didn't rebuild the company by taking it in an entirely new direction. He took the time to understand IBM's heart and soul (data processing for large enterprises) and build on that.

Todd Bishop's Microsoft Blog has a terrific interview with MIT's Michael Cusumano, who thinks Microsoft is taking its eye off the ball with this whole Web push. "I think they believe the future of software revenues is going to be mostly advertising," Cusumano tells Bishop. "I don't actually see that in my own research."

The way to sell, deliver and monetize software may be changing, but the need for great software is only going to grow. Microsoft can't compete with Google in search because, maybe, it shouldn't be trying to. It should be able to kick Google's butt in delivering software for businesses and consumers -- IF Microsoft doesn't get distracted so it puts out products like Vista, which has made a lot of users unhappy.

I'd say that maybe, post-Yahoo, Microsoft will re-focus on its inner strength. But judging from Ballmer's email, that doesn't seem likely.

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