Update: Microsoft Bloggers respond:
Kevin Schofield: the improvements in technology are everywhere. A lot of it, if done right, is invisible and “just works”. And a lot of it is visible but incremental improvements. Sometimes customers want big new things; sometime they just want what they have now to work better. We try to listen to our customers and give them what they want.
Robert Scoble: I don’t remember seeing anything that compares to Visual Studio, either. I’ve just looked at the most recent Eclipse (that IBM funded). Not even close. Or, tell me again about who is doing Automotive PCs like these? I could keep going on, but that’s enough for now. (Details in the comments section of this post)
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A friend of mine, a very smart man and veteran of Silicon Valley often asks this question: what does Microsoft do with its $7 Billion research & development budget? (By the way, this is not a post to bash Microsoft, just me wondering out loud about something which had been on my mind.) Good question? What does the company really do with all that money?
“Our businesses have really been limited only by our creativity in terms of new ideas, and our ability to put together world-class teams to execute on those ideas. And the fact that new ideas keep going is very, very important,” Bill Gates recently told a bunch of financial analysts. “We have the dedicated Microsoft Research Group that we call MSR. MSR is where we have the things that are the most advanced. We don’t have a schedule, we don’t even know exactly what they’ll come up with, but we have experts in all the different areas you’d expect: graphics, linguistics, security, databases…. now the Microsoft Research Group, we try to make sure that it’s not separated from the product groups.”
But where are those brilliant ideas? Those brilliant products? Despite spending billions of dollars, I often find the company always reacting to market trends. Take digital media for example. Despite buying WebTV, it is only recently one sees a handful of offerings from the company, like Media Center PC. Which is a pale imitation of TiVo. Now news that Microsoft’s new music store is no different than ITunes music store. Imitation. After Palm proved the market for handhelds, and Symbian for smart phones, the Barons of Redmond introduced modest products, though I think Pocket PC is now a million times better than Palm.
Listen, I have no beef with imitation and other such “money making tricks.” Imitation of hot-selling products is not such a bad idea, after all the only real scarce commodity on our planet is originality. The question is if you as a company are spending $7 billion on R&D, you must come-up with some original genre defining product. [Microsoft windows and Office don’t count, because that’s the bread and butter, which pays for everything else.]
I understand that Microsoft has to spend billions on patching its operating system against all sorts of Internet attacks, including viruses and worms. I also discount that every year the company has to come up with neat tricks to enhance its core office and Windows products. But the question is – where is the knock your socks off originality, the innovation that says, “god darn it …that is brilliant.” Steve Ballmer famously said, that only the drug company Pfizer Inc. spends more on R&D. Well Pfizer produced the miracle drug, the magical blue pill, and not a day goes by when a 50-something doesn’t say hallelujah to the mighty pill.
I urge you to read the recent speech by Bill Gates. It is quite clear what he wants. Here is an old article from San Francisco Chronicle on Microsoft’s R&D spending. (Psssh! If Microsoft promotes windows media format, it is okay, Apple’s proprietary standard is bad…Huh?) Also a special Video of Steve Ballmer pitching windows via Photo Matt. People, if you are going to comment, keep the comments limited to smart ones. No Mac versus Microsoft arguments etc, please!
18 thoughts on “The $7 Billion Question”
There are 57,000 people working here. If we’re being paid an average wage of $100,000, that’s $5.7 billion. Then add in overhead like buildings, power, bandwidth, computers, copiers, etc.
Have you watched the Channel 9 video tour of Microsoft Research?
I disagree that Media Center is a poor copy of a Tivo. Have you played with one?
Have you checked out the latest portable Windows Media Centers?
What other company is doing those again?
Tell me again which company is doing a Tablet PC? Certainly not Apple. Certainly not Linspire.
I don’t remember seeing anything that compares to Visual Studio, either. I’ve just looked at the most recent Eclipse (that IBM funded). Not even close.
Or, tell me again about who is doing Automotive PCs like these?
I could keep going on, but that’s enough for now.
I forgot my favorite, Xbox Live: http://channel9.msdn.com/ShowPost.aspx?PostID=15947
But, you make a very good point. How do you have a breakout hit?
Tivo is a hit when they sell one million units.
The Tablet PC is a failure because it only has sold a million units.
The iPod is a smash runaway best seller because it sold three million units.
But when the Xbox sells three million units it’s a total money-losing failure.
Oh, one last thing. Check out the Windows Embedded Lab tour:
Now, compare the number and variety of devices in JUST THIS ONE LAB to any other software or hardware company.
Yeah, we’re just sitting around doing nothing.
Well, I’m not impressed; what I saw was a list of improvements, not defining new products. You can tell TiVo’s impact when TiVo is turning into a generic word for all PVR’s.
The iPod re-defined the MP3 player category, and last I saw is still by far the dominant sales leader. I lust after the iPod mini, despite it’s 4G HDD. It just feels right in the hand, and feels like a high quality product (yes, I love anodized aluminum).
When was the last MS product that got people excited? Windows 95?
A couple other comments: you have to compare the XBox to its competition. Let’s see, over 70 million PS/2’s sold…3 million doesn’t look so good. And, yes, last I heard, PS/2 was profitable and XBox was not.
Portable Media Center have been around for a few years; e.g. see Archos. Maybe they’re not as good, but I don’t know, since I’m not willing to spend $700 to watch movies on a tiny screen. I doubt they’ll really take off…until they get 7″ screens and reach $200 (like portable DVD players are doing).
As a working software developer, I’m not particularly impressed with the VS.net. Frankly, I think MS’s hiring of Jim Hugunin is more important (and a very good thing), because the programming language buzz recently has all been about dynamic or scripting languages (Perl, Python, Ruby, etc). They really are much more productive than VB, C++, etc.
Then again, I can’t think of ground breaking new products from very many big companies; IBM doesn’t do any better.
“since Apple tightly controls the hardware in ther systems, there is an order of less work to do in OS X.”
Exactly! Which is why Apple can blow Microsof tout of the water with things like iPod, iTunes, iTunes Music Store, Rendezvous, Wi-fi, Firewire, OS X, Safari, iPhoto, iDVD, GarageBand, etc.
With a tiny fraction of the $. Where would you rather be?
>With a tiny fraction of the $. Where would you rather be?
Um, as a business there is no comparison. Bill Gates said it best: he has no interest in trading places with Steve Jobs.
Now, if it’s all about impressing your friends…
“Tell me again which company is doing a Tablet PC? Certainly not Apple. Certainly not Linspire.”
… and certainly not Microsoft.
Embrace and extend is not innovation. Fujitsu has been a leader in this area since the early 90s. There are many units in field use today that where built in the late 90s.
Microsoft has done a good job though in finally optimizing an OS for such devices. Sadly, a lot of what they did came through other companies time tested work.
Frankly, your “when the Xbox sells three million units it’s a total money-losing failure” comparisons come across as highly disingenuous. TiVo and the iPod are breakout hits because of what Om’s original point was all about: innovation. Both products re-defined the markets themselves and were produced by companies that are a small fraction the size of Microsoft. Innovation, not incremental improvements.
“You can count on one hand the number of ‘big breakthroughs’ that have occurred in the computer industry in its entire 50+ year history.”
This is an issue of semantics. Clearly your definition of “big breakthrough” is different than others represented here. TiVo and the iPod are, in my opinion, big breakout hits. On the other hand, you probably wouldn’t include them in your list.
“In Windows, the thing that strikes me most is the progress is auto-recognizing and auto-configuring hardware — and especially wired and wireless networking. 99% of the time it just works.”
Not in my experience, it doesn’t. I agree that MS has its work cut out for itself by supporting so many different hardware combinations, but my experience is that it just “doesn’t work” almost as often as it does.
None of the products you mention are innovative — they are all iterative improvements. Which is, of course, your entire point — that most of what MS does involves incremental improvements. You seem to think this is as it should be, while what *we’re* talking about is true out-of-the-ballpark home run innovations.
“IME support for Chinese and Japanese that’s best of breed.”
Ugh. With all due respect, the Windows Japanese IME is atrocious. Take a look at OS X sometime, and you’ll see what a best-of-breed Japanese IME looks like. And it *just works* right out of the box, with no installation or configuration required. If I had a nickel for every time I had to help someone get the Japanese IME to work properly on WinXP…
“Bottom line: the improvements in technology are everywhere. A lot of it, if done right, is invisible and “just works”. And a lot of it is visible but incremental improvements. Sometimes customers want big new things; sometime they just want what they have now to work better. We try to listen to our customers and give them what they want.”
That’s great. To paraphrase in a way that more directly answers Om’s original question:
“Microsoft’s $7 billion R&D budget is spent on incremental improvements, not innovative new technologies. We don’t invest in brilliant ideas or innovative new product categories. The risk/reward proposition of such endeavors simply can’t compare to taking an existing idea, making a few changes, and putting a Microsoft label on it.”
That may not sound as rosy, but I believe it’s a more direct answer to the original question.
Robert, thanks for the comment and information. I am not talking about tablet PCs etc. Well you score one, though I still think the “so called pen computing” was invented elsewhere and finessed by Microsoft. I like Tablet PCs and I think they will finally be everywhere, and the problem is designing not functionality.
I have tried Media Center PC, and yet it still is work in progress, and no i don’t think Microsoft came up with the big idea here. I guess you don’t see it this way – my post is not about incremental improvements on other people’s ideas – but that one sweet microsoft product that they think of first. On the VisualStudio, well grant you that one. No contest. I did not say you folks are sitting arund in the labs.
i am amazed by the sheer brain power in the company, which means ideas should flow new products should emerge. I think there must be a million great ideas, but why aren’t they in the market? why is microsoft not taking chances with category defining innovations? it still has the money?
isn’t that something to ponder about?
I realize that this is a no-win argument, but I’ll plow ahead anyway.
A large portion of Microsoft’s $7B R&D budget is spend on innovative new technologies that incrementally improve existing products. There are lots of things that people like about MS products; they don’t want to throw them out, but they do want them to get better. We try to do that.
And a portion of MS’s R&D budget does go to new products, like Tablet, like SPOT, like OneNote, like Media Center, like a whole bunch of things. Some of them succeed. Some of them fail. If you’re going to hold a company to the test of “do they introduce new products” you need to give them at least some measure of credit for the ones they introduce that fail in the market too. That incudes Apple Newton and Lisa too. The Lisa is an important data point: sometimes you have to introduce a product and have it fail to learn how to fix it and make it succeed.
And it’s also important to note that just as 95% of all startups fail, probably 95% of all new products fail.
We absolutely invest in brilliant ideas and innovative new product cateogries. Some get cancelled before they ever get to beta test. Some make it to alpha or beta. Some only live through one generation — like the Phone, or the digital speakers. And some turn into whole new products and thrive.
So first of all, just to clarify, the $7B number refers to all of Microsoft’s R&D, including all of the product development — MSR is only 700 people, and a small fraction of the $7B.
But to the main point: the most common question we (MS and MSR) get is “where are the big breakthroughs?” which shows a fundamental misunderstanding of how technology research and industry work. You see this most clearly on the research side: 99% of all research (everywhere — not just at MSR) is incremental, building on the good work and body of knowledge that came before and extending it to the next logical step. You can count on one hand the number of “big breakthroughs” that have occurred in the computer industry in its entire 50+ year history.
And yet there has been tremendous progress. Sit down for an hour with a copy of Windows 95, or Office 95. You’ll be amazed at how far we’ve come. In Windows, the thing that strikes me most is the progress is auto-recognizing and auto-configuring hardware — and especially wired and wireless networking. 99% of the time it just works. There’s a huge amount of work under the covers to make that happen, and almost all of it is invisible to the user. And by the way, since Apple tightly controls the hardware in ther systems, there is an order of less work to do in OS X — MS has committed to supporting the widest variety of hardware possible, and most days it’s the bane of our existence because of all the special cases and incompatibilities that one decision entails.
In the last 9 years, Office has quietly evolved from a typing tool to a language tool. The spelling checker (and “auto-correct”) has become anazingly good, through a series of evolutionary steps that most people missed. Try this experiment: turn off the spelling checker for a day, then look back at the end of the day and count the typos in the email and documents you’ve created — you’ll be shocked at how much work Office does behind the scenes that you don’t even appreciate. Office can also detect which language you’re typing in, and automatically apply the right proofing tools for that language — even if you change languages in the middle of a paragraph. In the US, that doesn’t matter much, but around the world that is a HUGE thing.
Windows Media codecs. Data mining algorithms built into SQL Server. IPv6 support. “PhotoStory” in Windows Movie Maker. Graphics libraries in XBox. Software development tools (not to mention language extensions) in Visual Studio. IME support for Chinese and Japanese that’s best of breed. Image correction in Digital Image Pro.
Visual Basic was a toy language before Microsoft made it a real development tool that you could use to build real IT applications.
Microsoft was a pioneer in introducing CD-ROM as a medium for software — which meant partnering with OEMs aruond the world to build the right support into the OS and arm-twisting them into shipping PC’s with CD-ROM drives.
We’ve invested in search technologies for over 10 years, inrementally improving over the years the indexing in IIS and Commerce Server — and you’re going to see some great stuff in MSN Search in the near future.
Anti-spam technologies — which we actually started developing back around 1997.
And of course there’s speech technology, now shipping in Office, Tablet PC and Windows Mobile.
Don’t forget OneNote, which is a powerful application even if you don’t have a Tablet PC.
Bottom line: the improvements in technology are everywhere. A lot of it, if done right, is invisible and “just works”. And a lot of it is visible but incremental improvements. Sometimes customers want big new things; sometime they just want what they have now to work better. We try to listen to our customers and give them what they want.
You seem to be suggesting that Microsoft shouldn’t create value for their shareholders.
“And a portion of MS’s R&D budget does go to new products, like Tablet, like SPOT, like OneNote, like Media Center, like a whole bunch of things.”
When the new products are so often BASED on the existing work and products of others, it’s hard to call them “new.” There are many companies that have created products that truly changed the way people use technology. Just for example, if TiVO or the iPod didn’t exist, would those devices exist with equal usability and market dominance simply with another name? If Microsoft didn’t exist to “enhance” all the good ideas, other companies would be doing it. Some might even suggest there would be more innovation without Microsoft around to buy up or burn out the smaller companies with great ideas…
“You seem to be suggesting that Microsoft shouldn’t create value for their shareholders.”
Oh no, no one would ever want to suggest Microsoft’s goals are not 100% modivated by money. And that leaves 0% for anything else.
I think you guys are mixing up two things: innovation and research. Research means that you go off and develop a technology – it doesn’t define that technology as first mover. You may have to research technology that a competitor has already come out with in order to compete. That’s still research – but it doesn’t necessarily lead to innovation.
Microsoft has always been a late player (and people have argued that it’s because MS doesn’t have “vision”. I would disagree – they don’t have consumer vision, but they definitely have business/enterprise vision), and while people criticize them for it, it’s an approach that has helped them become one of the biggest companies in the world. Microsoft has realized the business advantage of being a fast (or slow) follower.
It doesn’t always work – naturally a company like EBay, with a big head start and a network effect, is essentially unstopable. But as a business practice, being a second player makes sense: let someone else test the market, and then come in. It has the disadvantage of sometimes having a higher cost of capital, but then again, MS doesn’t have that problem.
Apple has traditionally had the opposite problem which is to be a great innovator, but bad at follow-on execution to keep products competitive. I think the iPod will show if they’ve changed or not.
I don’t know how anyone could called TiVO a success – except in terms of buzz – I haven’t seen a company execute as badly as TiVO in a long, long time. It’s just amazing to me that a company could have so much buzz, so much free press and still not be able to sell more of these things. Great product, bad strategy, bad execution. As someone else has said, the word TiVO will probably far outlive the company and the product.
Agreed Andy – one add-on point: my point about first mover advantage/innovative products doesn’t pay off a lot of the time – rather, let the start-ups kick out and test products with the general population, then either buy the company or come out with a competitive product. TiVO is a perfect example of this…
I really don’t want to help this discussion become a run-of-the-mill Apple vs. MS innovative conversation, but because people keep using it as an example, is the iPod such a great example of innovation (as opposed to iterative improvement). I’m pretty sure it wasn’t the first harddrive based mp3 player, rather its gained dominance through typically great Apple design and a (possibly innovative) fantastically usable interface.
I’ve really got to agree that research doesn’t equal innovative, maybe we should be saying, revolutionary products. Innovation can come from a lot of other places (for example, inspiration or using existing components to create something new – neither neccessarily the result of traditional research).
Infact MS research produces a lot of very “innovative” but also theoretical work. For example, look no further than Hughes Hoppe who was Computer Graphics Achievement award at SIGGRAPH this year. A lot of MSRs work is like this and gradually finds its way into MS mainstream products (in Hughes case Direct3D).
Perhaps we should be asking why MS with its immense revenues hasn’t got any out and out (unarguably) revolutionary products out there (rather than pinning it on MSR specifically)?
Disclaimer: I’m ex-MSFT, although now find myself working on opensource based solutions running under Linux.
What benefit would Microsoft have from innovating anything new, especially since they’re not good at it (Microsoft Bob etc). Just let smaller start-up’s do the innovating, once the market is proven, Microsoft releases a foundation product, nothing fancy but something to start. Then MS can leverage windows and outspend to easily overtake the smaller company.
Lots of heavy debate here. I do not agree that MS/MSR is not innovating. True, MS has till now followed the safe late entry method but we should give MSR more time. How long has it been around? If you look at things like MyLifeBits, it will tell you that they are all about making software jusr work. Not a bad goal in my opinion
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