Microsoft is not about to change its aggressive ways just because a potential breakup is hanging over its head.
Microsoft is a company that must continue to grow in every way to meet shareholder expectations and, like a shark, move forward to keep itself alive. The company is not about to change its ways just because a potential breakup by the Justice Department edict is hanging over its head. So it's trying to tackle three monster markets. Its success is doubtful -- but possible.
Here comes the Microsoft Xbox, which the company is going to sink millions into to promote as the latest competitor in the game console world. Watching this scenario unfold is interesting, since it seems to parallel the development of the first IBM PC. The game folks were left alone in a skunk works environment, similar to the Boca Raton segregation given to the IBM PC folks in the early 1980s, and weren't bothered by the same corporate meddling that has sidetracked many good ideas at Microsoft.
Xbox marketing already shows indications of being phenomenal. For example, without one Xbox on the street, gamers are saying that this will be the machine to compete with the Sony Playstation 2. Sheesh, without one machine being sold!
Microsoft has been squeamish when profit models don't match those that the company is comfortable with in its software and software-licensing business. Microsoft's botched attack on AOL -- when it held a large stake of UUNET but didn't see any future in becoming a competitive ISP -- is a perfect example.
This screwup was largely dictated by Microsoft's failure to understand the profit model of the ISP world, as well as its belief in the propaganda that AT&T would be the last ISP standing. Thus blinded, Microsoft left AOL to grow into the world's biggest ISP. That same executive skittishness can hurt the Xbox.
Furthermore, Microsoft has always avoided deep forays into hardware, and this Xbox development looks like something the company will quickly license to Matsushita or some other lucky Japanese company. In fact, the Xbox strategy is somewhat flawed, since it's ignoring numerous market trends, including the full integration of a PC, game console, and DVD player into a single box at a low price.
The idea is that for not much more money you can turn any DVD player into a game machine and computer and sell it as an advanced DVD player in parts of the world where the public cannot afford to have three separate devices.
The decision not to put Windows on the Xbox makes sense. If the loss-leader Xbox is designed to generate profits by selling games, then there's no reason to make it into a Windows machine, which may be purchased and used only as a computer.
But this creates another odd dilemma: Because the machine has a normal computer subsytem, including a hard drive, very little effort would be needed for hackers to find a boot ROM or some aspect of the machine that would turn it into a cheap Linux box with a little reprogramming. I suspect that the Xbox, once it arrives, will become the most hacked and modified computer in history, much to Microsoft's dismay.
Then there's the set-top box
Microsoft still has its eyes on the set-top box business, fearing that there will be a revolution as predicted. Of course, we've seen how the TV and cable folk have been promising for years to create a revolution in television by making it more interactive and usable. To me, the kind of smart folk who would like a more powerful TV system are the same ones who don't have that much time to waste watching TV. All the set-top box pitches I've seen just make things too complicated for the average user, who simply wants to turn to a channel and sit down.
What's next? Cell phone software?
Microsoft hopes the next big thing will be cell phone software. Competing with smaller players for the 3G and WAP cell phone browsers, Microsoft has a couple of advantages. First, there's its worldwide brand name. But a bigger advantage is that the cell phone vendors have never worked fully with Microsoft before.
If Microsoft can manage to get monopoly control over cell phone software, you can be sure that it will use that control to promote the Microsoft logo on the cell phone start-up screen rather than that of the service provider or the cell phone maker. That will be just the beginning.