The company is losing ground to Google. It's time to pay attention to issues of privacy, security—and simplifying things for PC users

by Greg Blonder
originally published in Business Week Online, Sept 2008

Other than another profitable quarter, Microsoft (MSFT) has little to celebrate these days. The company is falling sadly behind, serving fewer ads, video clips, search results, or personal Web pages than rival Google (GOOG). Microsoft's $300 million ad campaign humanized Bill Gates but left consumers wondering, Where's the beef? The company can't even seem to buy up competitors (Yahoo! (YHOO), anyone?).

And the world is moving away from the kind of desktop-based software that makes up Microsoft's bread and butter, shifting toward a more distributed form of computing that exists in the so-called cloud, where the operating system (OS) disappears into a fog of user-friendly online applications and servers, scattered across the Internet.

In the midst of so much upheaval, what's an 800-pound gorilla to do?

Fortunately, large monopolies can reinvent themselves. IBM (IBM) did it. Twice. How else could the company that dominated the mechanical punch-card market have crossed the chasm to dominate electronic computers? And reinvention is precisely how the company known for mainframes—those mammoth, centrally located machines supporting thousands of users—pioneered the personal computer.

Start with Privacy

Microsoft must draw on its experience, market share, and cash that's not tied up in buybacks to define the computer of the future. Here is my three-point plan:

1. Take the lead on privacy: What, trust Microsoft? But who else are you going to trust? Google, the company that scans your e-mail and every mapping request to determine which ads to send your way? Or what about Facebook, which has a hard time keeping pictures of your drunken escapades hidden from potential employers? Remember that it was President Richard Nixon, a Republican, who opened communist China, and it was Lyndon Johnson, a southern Democrat, who passed major civil rights legislation. So the idea isn't crazy.

What's more, protecting privacy is in Microsoft's interest. It's the perfect act of jujitsu against Google, which has much to gain from the ad targeting techniques that put privacy in jeopardy. Microsoft, on the other hand, has a secure desktop revenue stream, which means it can temporarily accept lower ad rates. By taking the high road and refusing to analyze the minutiae of personal Web surfing behavior, Microsoft could even reduce the value of Google's targeted ad placement, becoming the friend of the very customers who might otherwise find PCs anything but "PC."

Enhanced privacy controls on Internet Explorer 8 Beta are a first step. But these controls are hardly more than opaque and confusing Band-Aids. Microsoft should redesign its software to allow anonymous surfing by default. It should make passwords secure, perhaps by offering physical devices that sit on a key ring or reside as software in a cell phone, spitting out new passwords daily.

2. Build software around the way we actually use computers: Today's computer world is miles advanced from even a decade past. No longer a restricted business tool, computers are now a social common where our kids graze and our companies transact business. I haven't taken a film-based photograph in five years, and I haven't written a first draft on yellow legal paper in 10. My computer contains my most tangible and important records—and yet Microsoft Windows treats that information as if it were disposable.

Instead, it should:

•Treat upgrades as habitual. The first PCs were built as if they were your last. Data were spread like dandelion seeds across the hard drive in perishable formats reliant on buggy programs for access and interpretation.

Well, in the real world we upgrade every other year, outrun disk capacity storing photos and movies, and try out the latest software package weekly. Microsoft should rebuild Windows from the ground up—ripping out DOS, eliminating the software La Brea tar pit known as "The Registry", and better compartmentalizing applications and data. Just drag your app from your 2009 computer to the 2010 model, and all the data are swept along, automatically upgrading the software and refreshing file formats. No fuss, no muss. Like a routine oil change.

•Secure your data: The current Windows firewall is a joke, basically nagging you into allowing all programs to run, while still requiring weekly security "patching" to fix an old and teetering OS security model. The problem is too much integration with the OS. A better system would loosely couple software, data, and OS so there is no single point of failure or easy entry for hackers.

•Fix the user interface: Do you have any idea what the difference is between a "preference," an "option," a "customization," or a "settings" menu? Well, neither do I (though I expect they just ran out of space on the option menu and created the others to make room). Microsoft should take the bold position of simplifying its products. Yes, people are always requesting new features, and yes, those features are sometimes valuable. But no one person uses all the capabilities. Apps should be simple, light, and modular, so users can install a few small add-ins— as needed, and only when needed.

3. The cloud is the computer: There is little doubt that most software innovation is happening in the "cloud," that loosely connected network of Internet services, software, machines, and people. Yet most people still access the cloud through their PC, and probably rely on their computer for word processing and games. Microsoft could (and to some extent is) offering Web-based versions of its applications. But it's a restricted set that lacks the innovation engine powering the cloud.

While it still has time, Microsoft should transform its physical PC platform into a cloned mirror, living inside the cloud. That is, you could own a virtual PC hosted within the Internet—where you install any desired program, store your pictures in the "My Photos" folder, play games, and so on. Over time, the lines would blur between the cloud and the virtual PC, but by then Microsoft would have taken the lead from the deficient first-generation Web 2.0 programs now running amok inside the cloud.

Consider the advantages. Microsoft wouldn't have to develop a separate version of each app for Windows and MS Live, and developers could offer an iTunes-like store of cool apps that run on the virtual processor. Such a setup would also more energy efficient.

For the user, the PC-in-the-cloud approach provides unlimited disk space, and your most precious files automatically are backed up. If a virus invades your virtual computer, just "roll back" to the previous day's clean version. You could access your virtual computer through any browser, even on your smart phone; easily share data with family and friends; and run Internet services like any other desktop app. And you could clone the virtual computer back into your physical laptop, so you have the same environment and data available even when traveling. And its affordable- instead of buying a $1000 computer every three years, you'd lease the virtual computer for $300/year...

Radical suggestions? Perhaps. But few large companies survive the transition from their original founders. Gates is out at Microsoft. The time is ripe for bold thinking while Microsoft's incumbency is a strategic asset, rather than a liability that renders the world's biggest software maker a prisoner of its own history.

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