Can Microsoft Outflank Apple, Facebook, and Google? A Strategy Update

I left Seattle just over a month ago, and people keep asking if I miss anything about it. Yes, I say. But it’s not the amazing coffee, the great food, the nice people, or the beautiful scenery. I miss Microsoft.

I’m only half-kidding. I don’t miss hearing about Steve Ballmer’s iPhone and every turn of the Microsoft product screw on a daily, up-close basis. And Microsoft serves as a punching bag (or a crutch) for the media and business community way too often for my tastes. But a tech community needs a giant like that to anchor it, and keep it grounded. wouldn’t be in Seattle if not for Microsoft’s talent pool. RealNetworks wouldn’t be there either. Every other techie you meet in Seattle has a Microsoft connection.

Nothing like that exists in Boston. There’s a community around IBM and a bunch of hardware and data storage companies. There’s an entrepreneurial network around MIT, Harvard, Boston University, Northeastern, and many other schools in the area. There are big companies like EMC, Nuance, and Raytheon. But there isn’t one overarching technology presence.

And yet, on a national scale, Redmond, WA-based Microsoft (NASDAQ: MSFT) has been quiet lately. Too quiet. All the noise in the tech industry is being made by the likes of Facebook, Google, Apple, and even IBM these days. Under the surface, though, big things are happening across the cities in Xconomy’s network. We might even look back at 2010 and say it was the turning point for Microsoft’s new businesses.

Here are a few dots to connect:

—Microsoft’s big Web search project known as Bing is just over a year old. Doesn’t it feel like longer than that? Credit Microsoft’s marketing efforts for getting the word out about this, the most dangerous competitor to Google’s core business. Bing has slowly but steadily gained market share in search—up to 12.6 percent this summer, while Google has 65.8 percent (according to comScore). Just yesterday, Bing announced it is officially powering all of Yahoo’s search capabilities in the U.S. and Canada. Next up: integrating Yahoo with Microsoft’s search advertising platform, and trying to make some real money.

—Other than Bing, Microsoft’s best chance to capture the online consumer crowd might be to work more closely with Facebook, in which it owns a small stake. (Ironically, I use Microsoft products every day but don’t touch Facebook. That says more about me than Microsoft, though. Moving along…)

Last month, my colleague Wade reported on a Microsoft project, led by a FUSE Labs team in Redmond, WA, and Cambridge, MA, to build Office Web Apps for Facebook users. Wade wrote of Microsoft, “To prop up cash cows like Office and compete with all the other Web companies muscling in on its productivity-apps territory…the company needs a way to capture a Facebook-sized chunk of the Internet crowd. And working with Facebook on shared documents could lead to collaborations in other areas like social search, gaming, and communication.” Microsoft just released an updated version of the app this week. (One Microsoft vice president, when asked whether the company wants to buy Facebook, told me, “Mark [Zuckerberg], name your price.”)

—As for corporate customers, we all know Microsoft is betting big on the “cloud.” Windows Azure, the company’s cloud-computing platform, has made a fair bit of progress toward becoming a mainstream product in the past year. It has also morphed a fair amount from its original vision, and its growth has exposed some internal tension between selling software the traditional Microsoft way, and selling cloud services.

At the same time, cloud computing is a clear business area in which Microsoft’s partnerships with universities and agencies like NASA could pay off. Last month, Tony Hey, Microsoft’s vice president of external research, told me the company’s research collaborations could “show to industry that some things are best done in the cloud, and some are best done in situ.” Hey added that the research could “tune Azure to be more useful.”

—The mobile front is where Microsoft has had the weakest presence—and where competitors such as Google and Apple have surged ahead the farthest. The abrupt cancellation of Microsoft’s new Kin phones, which Wade had praised for their innovative cloud-based “Studio” feature, provided more evidence of the strife and indecision that seem to plague the company’s mobile division. Yet there are signs of hope in Redmond, in the form of Windows Phone 7, the mobile operating system slated to become available later this year. In the past month or so, Microsoft has been touting the new OS’s ability to download and sync music, video, and photos between smartphones and PCs. We’ll see how fast Microsoft can make up ground against Android and the iPhone. But consumer cloud services might be a good spot to hammer on, especially against Apple. (Analysts also have been making a lot of the fact that Windows Phone 7 will integrate with Xbox Live—so Microsoft apparently wants to make a big push in mobile gaming by building on the success of Xbox.)

—Indeed, Microsoft touches all the nodes in the Xconomy network, across different fields. The company opened a retail store in San Diego in June (just its fourth location around the country), to much fanfare. Reporters had a field day with the fact that it opened just four doors down from an Apple store—and looked pretty familiar, if “slightly more homey.” The aim of these Microsoft stores is apparently to drive sales and revenues for the company, not just branding.

Meanwhile, in Detroit, Microsoft’s partnership with Ford is humming along quietly. The companies are currently working to deliver Web-based energy management software to electric and hybrid vehicles. They also work together on Ford SYNC, an in-car communications and entertainment system that gives drivers voice-activated control over mobile phones and media players. There’s some personal history here too: Steve Ballmer is a Detroit-area native (his father worked for Ford), and Alan Mulally, Ford’s CEO, was a longtime Seattle-area resident and was formerly CEO of Boeing Commercial Airplanes.

Gregory T. Huang is Xconomy's Editor in chief. E-mail him at gthuang [at] Follow @gthuang

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