The software experience

REDMOND, Washington--In the middle of this sprawling corporate campus just outside Seattle is a laboratory for Microsoft's future. While its exterior is virtually indistinguishable from the other white concrete structures, Building 25 is very different inside. Unlike the quiet, cubicle-encrusted quarters that characterize the rest of the grounds, the cavernous media center looks more like a cross between a network TV studio and an air traffic control room. "We've got people in Redmond working online and in television. We have a media area and a copyediting area," said Peter Neupert, vice president of news, sports, and commentary for MSNBC, describing the frenetic "open bullpen" setting. "We had to take down a bunch of walls from private offices to form a news desk." Breaking down walls is nothing new to Microsoft (MSFT), a company that has built its reputation on changing quickly to seize new markets and the technologies that drive them. But the way Building 25 was reconstructed is also a metaphor for the company's ventures into mass media and other foreign territory: Instead of starting from scratch, it adapted its software facilities for new uses. That is precisely what Microsoft is doing as it faces continuing saturation of its core businesses. Contrary to the common perception that it is redefining itself as a media company, Microsoft is incorporating its disparate publication and broadcast operations into a gigantic software machine designed to churn out everything from entertainment to local community information. Key to this strategy is Microsoft's Sidewalk series of regional guides, an ambitious national project scheduled to open tomorrow in Seattle, the first of several major cities. Enormous endeavors such as the NBC cable partnership MSNBC, Slate magazine, Microsoft Network, and its arrangement to offer Disney's new children's service may look and feel like competition to other media companies, but Microsoft says they are actually just components of its overall technology model. "We are not investing in media. We are a company that believes in a new interactive media world driven by software," CEO Bill Gates told an Indian journalist in an interview during his recent world tour. "We are investing in the Internet, which is something new. Who is qualified to do that? No one! Is a newspaper qualified to do that? Is a software company qualified to do that? Is a phone company qualified to do that? Absolutely not." "It is a new business," the king of modern entrepreneurialism decrees, "so everyone is disqualified." If there is a secret to understanding this stated focus on technology, it lies in the company's unique definition of software. To those who think grand thoughts amid the lush forestry surrounding the Redmond compound, "the software experience" has come to mean far more than spreadsheet applications and operating systems. In Redmondian philosophy, it has come to mean nothing short of an interface between people and their daily lives. "We believe we can use the Web to build a 'decision support system' for consumers trying to make decisions: What restaurant I should go to, I need to buy a car, how to get a good idea, I need to plan a trip," said John Neilson, vice president of information products in the interactive media division. Neilson started with Microsoft as a product manager for Flight Simulator and Works ten years ago and is now in charge of the Sidewalk project. "The most important cultural change is an evolution where we understand how to weave content into the software experience." Microsoft and the software experience Introduction Executives: Engineering to editorial Microsoft as media mogul Split personality Microsoft's strategy to see its future through the lens of technology poses a fundamental question of corporate priorities: Does it make sense for technology to take the lead in providing news and other information, or should it be the other way around? Microsoft's finished goods Microsoft Network 2.3 million subscribers Expedia More than 1 million hits per day Encarta Encyclopedia More than 10 million copies sold Flight Simulator More than 4.5 million copies sold Excel More than 30 million copies sold (May 1996) Source: Microsoft Microsoft's insistence on maintaining its software focus is evident in many places, but nowhere is it more obvious than in the roster of senior executives that Gates has put in charge of his media domain--all of whom come from the company's ranks and none of whom has any discernible experience running media operations. Within Microsoft, editors, writers, producers, and the like are viewed as "content developers" who contribute to the ultimate product, software. That is directly contrary to the view of, say, Hollywood studios that think of new technologies only as vehicles for distributing their primary concern, which is the artist. "The vision of Microsoft has always been a computer in every desk and every home. The Internet enables new classes of products that make the PC all that much more valuable to consumers," said Pete Higgins, vice president of Microsoft's interactive media division, which includes its broadcast and online ventures. "We're aggressively hiring and partnering with a number of people who can provide some of the content skills who can develop some of these products." The lack of media background among top executives doesn't seem to bother Higgins much. Like others at his company, he is confident that Microsoft will find its way, as it has so many other times. "You try a lot more things that don't work. The challenge is having the discipline to decide something is not working and move on," said Higgins, 39, who started with Microsoft in his mid-20s and rose steadily through the ranks to become group vice president of the applications and content group before switching over to interactive media. "The world doesn't end when you have unsuccessful products." Good thing for Microsoft, given ill-fated projects like its "social interface" called Bob, created as an attempt to hook people not familiar with computers. Microsoft hired a phalanx of psychologists and other researchers to tell them what a newbie would want from Bob, a software system that hit the market in 1995 to manage everything from vacation plans to checkbook balances and other household chores. The result was disaster. Among its various problems, people were turned off by the patronizing cartoonlike characters that Microsoft's focus groups said would appeal to customers. The Bob experience is significant because it reflected a major attempt to reach the broad consumer market, consumers not necessarily familiar with the Microsoft brand name. It showed that Microsoft has some serious limitations when it comes to understanding regular folks. Such miscalculations could be magnified exponentially in the company's multimillion-dollar media ventures. That is where Sony ran into trouble in the '80s. Like Microsoft, the Japanese electronics giant saw the value of owning the entertainment that it played on its video and audio products. But it didn't know Hollywood, and the resultant clash of business styles and values continues to dog the company more than a decade after it incorporated movie and recording studios into its business strategy. This kind of failure often occurs when a company puts its own established executives in charge of a new business. "It's an arrogant thing to do," said professor Robert Sobel, a historian at Hofstra University in New York who has spent much of his career studying the growth of businesses. "The first thing to ask is: 'Is there anyone here who can do it? Do we have the talent we need?'" he asked. "The next thing is: 'How do we get these people?' You buy a company not so much for the business but for the people. You have to know what you know and what you don't know." Michael Kinsley found out what Microsoft didn't know about publishing not long after he made the long journey from Washington, D.C. to Seattle. He is one of the few examples where Microsoft found an outside expert to head up a new project, in this case, an online magazine called Slate. "There are occasional--how shall I put this?--there are things Microsoft doesn't know that Time Warner would know," said the former editor of the New Republic and political commentator for CNN. "But they have a wonderful attitude of knowing what they don't know and being eager to find out what they don't know." For Kinsley, this can provide an advantage that wouldn't be possible with an established publishing conglomerate. "There are things they know that a media company would not know, such as how to put together a server site," he said. "It's wonderful to be able to say, 'I wonder if we could have music or do such-and-such.'" Microsoft and the software experience Introduction Executives: Engineering to editorial Microsoft as media mogul Split personality As an example of its ability to work with content, Microsoft executives often point to the success of its Encarta CD-ROM encyclopedia, whose compelling multimedia features have made it the best-selling encyclopedia--a status that seemed impossible only a few years ago given the dominance of such long-standing companies as Encyclopedia Britannica. But many of those in the media establishment say this is no proof that Microsoft will succeed in a "live" information business. Comparative costs Microsoft's total operating expenses for FY '96 $5.59 billion Interactive Media Group's spending over the next three years $1 billion Source: Microsoft "Collecting reference data, compiling it into a database, and dishing it out on platters or over the Net makes sense. Microsoft has done a good job here where creativity takes a back seat to utility," writes journalist Jeffrey Young in a scathing critique of Microsoft that appeared in Upside magazine. However, "just because Gates can buy great photo archives from Corbis [which he founded to develop new ways to access and distribute digital images], that doesn't mean Higgins can contract with 20 great photographers and inspire, cajole, browbeat, and seduce--in truth, partner with--them into creating that body of work in the first place." Even interactive media's Pete Higgins, who reports directly to Gates, concedes that "there's a little more art to it than perhaps the science of spreadsheets and word processors." But this is exactly the kind of comment that makes people like Roy Clark shudder. The associate director and senior scholar for the Poynter Institute for Media Studies sees a danger in the profit-driven nature of ventures like Microsoft. "When journalism becomes submerged in a larger media culture, very often news is thought of primarily as a profit-generating enterprise," he said. At most newspapers, on the other hand, "there is a commitment in the culture to make money in order to convey news, as opposed to using news to make money." For this reason, Clark adds, Microsoft's media offerings will suffer a credibility problem with the general public. But others say the perception of Microsoft's journalistic integrity cannot be much worse than that of the established news media. "There has been a rising mistrust of the media in general," said Jay Rosen, associate professor of journalism at New York University. "I think the public thinks about it differently than journalists do. The question of Microsoft's credibility exists mostly in journalists' minds." Slate's editor Michael Kinsley agrees, to say the least. "I think that's crap," he said of questions about whether or not Microsoft will monopolize media. "The content business is dominated by these media giants--News Corporation, Time Warner, Cap Cities, Disney, and so on. How can the entry of a brand-new company with money to spend reduce the diversity of voices in the media? I think it's only going to increase it." Also lost on many critics is the fact that creativity is not the exclusive domain of writers and artists. "Even though some of it might seem cut-and-dried, making software is a creative process," said Jeff Sanderson, general manager of marketing for Microsoft Network. "That is the spirit and culture of Microsoft." Microsoft and the software experience Introduction Executives: Engineering to editorial Microsoft as media mogul Split personality The corporate culture of Microsoft, like the rest of the high-technology industry, is a work in progress. And these days, that means something of a split personality. The joke is that the liberal arts majors are found over in "Red West," where most of the interactive media group is located, while the engineering majors reside elsewhere. According to one Silicon Valley CEO who has inked a partnership deal with Microsoft, there is some tension between the company's platforms group and the interactive media group because of different priorities. The platform people, for example, want to push Windows and will make whatever deals help them do that, the CEO said. For example, he said, the browser product managers might work a deal to provide CNN content through Internet Explorer 4.0 without worrying that the interactive media people would rather have MSNBC be the exclusive news channel on the Windows desktop. But there is little other evidence of animosity or professional jealousy between the two groups; in fact, executives say the unlikely relationship could be a source of strength for Microsoft's synergy. "My object is to try to merge the two environments," said MSNBC's Peter Neupert, who joined Microsoft 11 years ago with its operating systems group. "I need both skill sets: writers and editors who understand what HTML means, while my technology people need to have a deep understand and intuition of what editorial values mean. I'm doing a lot to cross-train and cross-fertilize." The melding of these cultures yields some tangential benefits. For example, the interactive media group has served as in-house beta testers for the company's nascent technologies. That can create occasional friction, but in the end is likely to create better products for consumers once they are put on the market. Despite their difference in backgrounds, both groups bear the traits of the typical Microsoft worker, if there is such a thing: bright, energetic, creative, and not afraid to try something new. At the same time, there are those who wonder whether these jobs are as interchangeable as Microsoft makes it seem. "Entertainment is not like software," Upside's Jeffrey Young writes. "Ownership and individuality are the most crucial components of creativity. But in Microsoft's view, a programmer can work on any project, and a marketing manager can be reassigned to any new product, so why not creative types?" Microsoft's income Microsoft has already assigned 2,000 people to its interactive media group. It expects to spend more than $1 billion on the group during the next several years and to turn a profit by the year 2000. Microsoft executive vice president Steve Ballmer has estimated that the company will spend "billions in years to come." In spite of these investments, Microsoft executives say they are mystified by all the attention the company's media forays have gotten. Interactive media chief Pete Higgins says that the only difference between what he is doing now and what he did before is that his clothes are different. "I've had to change all my clothes to seem very hip," Higgins joked at a recent conference in New York. "This is a media-approved blue blazer." Slate's Kinsley agrees. "We all have an exaggerated notion of Microsoft's image as the evil empire," he said. "In most of the country, Microsoft doesn't have that image at all. Rightly or wrongly, the image is of an incredibly exciting, prosperous company." Senior Producer Susan Choy contributed to this report Microsoft and the software experience Introduction Executives: Engineering to editorial Microsoft as media mogul Split personality