CES Showcases Big Changes Coming At Microsoft

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Part of the problem with CES is there is so much going on that figuring out what the big messages are just isn’t very easy. With announcement coming on top of announcement – and a huge focus on just surviving the week – it is incredibly difficult to see a major portion of the trees, let alone the forest.

However, in stepping back this year and simply looking for big trends I think I’ve come up with several that have been missed. The big one is the change in Microsoft approach to the consumer market, which will have a big impact on how they compete with companies like Apple and Sony going forward. Let’s chat about that this week.

Microsoft’s Changing Face

This was Bill Gates last time speaking at CES as a driver of technology. From now on he’ll be more of a consumer but, as Bill Gates, he’ll still get a disproportionately large vote as to what the future will be simply because of who he is.

Historically one of Microsoft’s greatest and least talked about assets was their sense of self depreciating humor, which you only see at events like CES. In the video showcasing Bill’s last day this aspect of the company was once again showcased. It is my belief that had they taken this aspect of their personality and reflected it more in their marketing and internal culture, the company not only would be much better liked, it would be much more successful, and a better place to work.

I worry that this may be one of the things that will go away once Bill steps fully away from Microsoft; much like the critical practices Thomas Watson Jr. brought IBM that folks took for granted and were subsequently lost when he retired.

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But, also historically, Microsoft only built parts of things, and seldom built the entire solution. Early attempts to build complete products (the initial Microsoft Phone comes to mind) weren’t particularly successful. But with the success of the Xbox and Xbox 360 they discovered they could do complete products successfully. The original Zune set them back a bit, yet in thinking through this, I believe CES showcases that they’ve begun working on a third, blended path that could generate dividends for them in the future.

Surface, IPTV, and MSN Direct: A Future for Microsoft CE Efforts

I think MSN Direct was actually the first indication that Microsoft was thinking of a blended approach to CE, and Surface will be the first big test of that approach from scratch. With MSN direct, Microsoft first created a soup-to-nuts solution focused primarily on watches and then rotated it out to partners.

However, the design work wasn’t initially really cooked and the end result on watches didn’t meet expectations. Currently MSN Direct is the wireless power inside some of the top wirelessly connected GPS systems but the watch effort has dropped to the back burner (kind of a shame because they were my favorite watches). However, it was close enough so that Surface appears to be going down a similar path.

Microsoft’s IPTV effort is actually very similar to this in practice but leapfrogs the “Microsoft does it first as a Microsoft branded product” part and moves directly to license. Microsoft’s biggest customer in the U.S. for this offering is AT&T. And it may turn out to be the biggest competitive asset AT&T has to hold off a really motivated Comcast that appears to be gearing up to kick AT&T’s butt if it isn’t already. Cable solutions in the DVR space have pretty much sucked and the IPTV solution Microsoft has licensed to AT&T appears to be vastly better.

Surface is Microsoft’s leading effort to redefine the Personal Computer into a GC or Group Computer – a shared community device that is largely connected to back end services and has UI that is very similar to what Apple has done with the iPhone. Microsoft is first creating a complete solution, which will be initially marketed to industrial buyers in food services and hospitality. Once proven successful the platform will be licensed out to third parties who will go after additional markets like consumer.

The end benefit is that the product starts out being as well cooked as an Apple product is and then goes to the partner for focused differentiating work. This could dramatically reduce the chance of product failure and dramatically increase the number of differentiated successful products using Microsoft technology. If this works, and until this process is fully proven it’s just theory, this process could give Microsoft a significant advantage against companies like Apple – and turn competitors like Sony into product partners.

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Zune and Xbox Next

With both the Zune (by the way has anyone noticed that the Zune marketing campaign is actually uncharacteristically good?) and the Xbox, Microsoft has complete offerings that could be licensed to others. The PC OEMs have already expressed interest in licensing the Xbox technology. And taking the complete Zune solution and enhancing it should be less risky by far than starting from scratch, or only using Microsoft’s Plays for Sure platform, which was widely licensed (but unsuccessful in dethroning Apple).

British Telecom is already talking about selling Xbox 360s as advanced set top boxes and such an offering would come with double subsidies. The end result would be an Xbox 360 and follow on products that could both outperform and be priced under products like the Nintendo Wii and be sold by telephone providers as they position against the cable companies.

The end result, even before the technology is licensed out for custom set top boxes (which is a likely future) would be a massive increase in the market potential for the Xbox. A potential that neither Nintendo nor Sony are set up to take advantage of.

Now we’re only seeing the very beginning of this in 2008. I wouldn’t expect this to truly ramp to a successful strategy until around 2010 on multiple products, and probably coincide with the follow on to the Xbox 360.

Wrapping Up

I think we are seeing an interesting a powerful change in how Microsoft approaches Consumer markets, one where they first fully complete an offering, then license out that complete offering rather than the historically less successful path of creating an incomplete offering and wishing for that one partner that could successfully complete it.

I do worry that with Bill Gates departure rather than seeing more of Microsoft’s sense of humor, we’ll see less, and I truly hope I am wrong here.

Overall, I think we are seeing the beginning of another massive change at the company and look forward with some anticipation to the products that result and hope that their sense of humor stays intact.