At the start of this year I had written an opinion piece on Microsoft and the challenges it faces as the world moves away from personal computers and become more of a connected universe where networks, devices and home entertainment come together. ( Well that is happening right now, if you read the New York Times and The Wall Street Journal.) As part of following up, I got into a conversation with one of my sources at Microsoft, who has recently left the company.

What he said was most telling: in his opinion the company is going through a crisis of confidence. With over 55,000 employees, many internally have started referring to the company as the “Next Boeing.” Many of the hot shots the company had hired have left. Options which are underwater are a powerful motivator for a young turk to start looking for new opportunities. For nearly a year the stock has been trading in the high-twenties, though it certainly did a rapid climb up (and down) earlier this summer. In recent months it has sunk slowly to mid-20s and the downward trend continues. I am not the one who needs to point out the obvious at least as far as the stock is concerned, but still I have not read any good stories on the problems facing the Microsoft stock. (In fact all I keep reading are lame articles like this and this.)

Nevertheless, this source of mine who has been on the money for the longest time pointed out that even if stock was not a factor, a lot of people are leaving the company because “they don’t know where the company is going.” WHile its handheld business is beginning to take its toll on Palm, the company has failed to impress in the cell phone business. (A couple of Microsoft powered phones have hit the market recently, but the volumes are yet to ramp.) It has become a bit player in the broadband world. Security problems, countries, not companies voting in favor of Linux and those pesky viruses must have taken a big toll.It has no innovations up its sleeve – jesus even Wal-Mart announced an online music store before Microsoft.

This perhaps explains the exodus of executives. “Rick Belluzzo left the No. 3 job at Microsoft in 2002 partly because he didn’t feel like he was making an impact as an individual at the software behemoth,” reported San Jose Mercury News recently. More recently Juha Christensen, the force behind companies handheld and cellphone business quit. John Wilkerson, Microsoft’s vice president, U.S. Services is also gone, people tell me, barely a year on the job. And now there are rumors that Joseph Eschbach, vice president of the Information Worker Product Management Group, who was hired from Adobe has left as well. (Awaiting confirmation from Microsoft on this!)

Does this mean there is a crisis of confidence at Microsoft? Hopefully Bill Gates speech at Comdex today will put things back on track. At Comdex Gates waxed eloquent about what he calls “seamless computing,” and announced some new spam-filtering initiatives. But Gates and Steve Ballmer will have to do a lot more. They need to figure out a decisive strategy for Microsoft and get it back to its predatory ways. (For one, I would like to see Microsoft outline its comprehensive broadband/communications strategy.) That is the only way the “Barons of Redmond” know how to play. And perhaps it is time for all of you to read my piece on the company, written eleven months ago.