November 9, 2005 3:19 pm

The Microsoft memos revealed

Two themes are dominant in the lengthy emails from Bill Gates, Microsoft chairman, and Ray Ozzie, chief technology officer. One is the advertising-supported business model for software distribution - for example, Google’s search and email products, which are free to use but earn money for Google by providing contextial advertising links alongside search results or emails.

The second is “grassroots”, a word which appears numerous times throughout the emails. It’s used to refer to the way in which many of the new web technologies - such as blogging, RSS feeds and tagging - are rapidly taken up by internet users with little or no marketing. It also touches on the kind of credibility afforded to open source technologies - software that is developed as a community effort for free use and distribution - which Microsoft has long seen as its nemesis.

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Below are excerpts and summaries of the emails - which are about 800 and 5,000 words, respectively - from Gates and Ozzie. Full text versions are available on FT.com (Gates and Ozzie).

The Bill Gates email

Bill Gates begins his email to Microsoft’s executive staff, direct reports and “distinguished engineers” by noting it is almost 10 years since his now infamous memo, “The Internet Tidal Wave”, which described how the internet was going to forever change the landscape of computing.

Mr Gates then describes the launch of the group’s .NET strategy five years ago, based on XML and a group of technologies known as web services, which allow programs to exchange data over the web. “We were a leader in driving these standards and building them into our products and again this has been key to our success. Today, over 92% of the Fortune 100 are utilizing .Net and our current wave of products have XML and Web services at their core and are gaining share because of the bold bet we made back in the year 2000.“

He says Microsoft has been a pioneer in many aspects of today’s online world with products such as MSN Messenger and Hotmail, but adds:

“However, to lead we need to do far more. The broad and rich foundation of the internet will unleash a “services wave” of applications and experiences available instantly over the internet to millions of users. Advertising has emerged as a powerful new means by which to directly and indirectly fund the creation and delivery of software and services along with subscriptions and license fees. Services designed to scale to tens or hundreds of millions will dramatically change the nature and cost of solutions deliverable to enterprises or small businesses.

“We will build our strategies around Internet services and we will provide a broad set of service APIs and use them in all of our key applications.

“This coming “services wave” will be very disruptive. We have competitors who will seize on these approaches and challenge us – still, the opportunity for us to lead is very clear. More than any other company, we have the vision, assets, experience, and aspirations to deliver experiences and solutions across the entire range of digital workstyle & digital lifestyle scenarios, and to do so at scale, reaching users, developers and businesses across all markets.”

Mr Gates exhorts senior staff to “act quickly and decisively” to take up the opportunities presented by the “grassroots” adoption that he says is shaping the next generation of the internet. He then refers to an email from Ray Ozzie, whose role as CTO was recently expanded to cover all services strategies across the three divisions into which Microsoft was divided in September.

He signs off with these words: “The next sea change is upon us. We must recognize this change as an opportunity to take our offerings to the next level, compete in a manner commensurate with our industry responsibilities, and utilize our assets and our broad reach to reshape our business for the benefit of the users of our products, our customers, our partners and ourselves.“

Ray Ozzie

Mr Ozzie’s 5000-word email begins, like Mr Gates’, with descriptions of how far the internet has come in 10 years, and the many contributions Microsoft has made.

He cites Microsoft’s efforts with .NET, XML, RSS (technology for gathering headling feeds from websites) and SIP (a voice over internet protocol).

However like Mr Gates, Mr Ozzie says Microsoft has not done enough.

But for all our great progress, our efforts have not always led to the degree that perhaps they could have“ he says.

“We should’ve been leaders with all our web properties in harnessing the potential of AJAX, following our pioneering work in OWA. We knew search would be important, but through Google’s focus they’ve gained a tremendously strong position. RSS is the internet’s answer to the notification scenarios we’ve discussed and worked on for some time, and is filling a role as ‘the UNIX pipe of the internet’ as people use it to connect data and systems in unanticipated ways. For all its tremendous innovation and its embracing of HTML and XML, Office is not yet the source of key web data formats – surely not to the level of PDF. While we’ve led with great capabilities in Messenger & Communicator, it was Skype, not us, who made VoIP broadly popular and created a new category. We have long understood the importance of mobile messaging scenarios and have made significant investment in device software, yet only now are we surpassing the Blackberry.“

And while we continue to make good progress on these many fronts, a set of very strong and determined competitors is laser-focused on internet services and service-enabled software.

Mr Ozzie goes on to list efforts from not only Google, Yahoo, and Apple, but also “grassroots” start-ups that are not considered big competitors to Microsoft.

“Only a few years ago I’d have pointed to the Weblog and the Wiki as significant emerging trends; by now they’re mainstream and have moved into the enterprise. Flickr and others have done innovative work around community sharing and tagging based on simple data formats and metadata. GoToMyPC and GoToMeeting are very popular low-end solutions to remote PC access and online meetings. A number of startups have built interesting solutions for cross-device file and remote media access. VoIP seems on the verge of exploding – not just in Skype, but also as indicated by things such as the Asterisk soft-PBX. Innovations abound from small developers – from RAD frameworks to lightweight project management services and solutions.”

Three key tenets

Mr Ozzie makes three points:

1. The power of the advertising-supported economic model.

2. The effectiveness of a new delivery and adoption model.

3. The demand for compelling, integrated user experiences that “just work”.

He then lists “opportunities” for “seamlessness”: Seamless operating system, seamless communications; seamless productivity; seamless entertainment; seamless solutions; seamless IT.

“In assessing where we are and where we need to be, some new efforts will surely require incubation,” Mr Ozzie says. “But in many areas we have 80% of the product and technical infrastructure already built – we just need to close the 20% gap.”

He then outlines efforts needed in each of Microsoft’s three divisions. Key items are: - the “connected office” - making Microsoft’s Office programmes more able to work together and over the web.

Telecom Transformation: “How can RTC [Microsoft's VoIP technology] begin as an individual phenomenon, growing into a small business offering with a level of function that they’d never imagine possible, growing into the enterprise?”

Gaming : Mr Ozzie suggests allowing the Xbox game console to connect to other services, such as PC or mobile phone-based instant messaging and VOIP.

“Grassroots mobile services” are also flagged.

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