Services First, Technology Second, People Third

by John S. Rhodes

Microsoft doesn’t care much about shared source or Smart Tags and we are wasting our time following their marketing trail. We need to focus on Microsoft’s true goal, which is to completely dominate the internet services market. We should pay attention to how they are building a services infrastructure, not a technology infrastructure. We should figure out how they are going to use tools like Passport and Microsoft Messenger to control our personal information and various internet transactions.

Keep Your Eye on the Ball
Although Dave Winer seems to think that Microsoft “dropped a bombshell” with their .Net shared source announcement, I am not taking my eye off the ball. While we bow to Scoble because he figured everything out, I am not going to take my eye off the ball. While people flock to Slashdot to read the story and comment on it, I am not going to take my eye off the ball. While people continue to point to the original story on O’Reilly and shake their stunned heads, I am not going to take my eyes off the ball.

Listen to me very closely. Shared source is trivial. Smart tags are trivial. No big deal. What does Microsoft want? Here is the mind bomb: Microsoft’s business model no longer revolves around software. Instead, it revolves around services, transactions, and extracting value from activity on the internet.

The True Microsoft Misdirection

Some people are very upset about Smart Tags. Some people are directly fighting Smart Tags. Microsoft must love this. I suspect that they care very little about Smart Tags. They are a very useful diversion. Think about all of the energy spent on talking about them and working against them! Smart Tags are a diversion. The media has been wrapped up in Smart Tags for weeks. How very useful for Microsoft. If they keep them, so what? If they drop them, so what? In the bigger picture, for general users, they are another minor feature. Yawn. Does your grandmother care about Smart Tags? Do you? Really? If you hate Smart Tags, it is because you feel that Microsoft is abusing you and your content and your web site. Users don’t care too much either way.

User: “Oh, what are these squiggly lines? Hmm, whatever.”

Think of all the hype that Microsoft’s shared source announcement has generated and will generate. Think of all the links to the story. Think of the buzz. Bonanza! Microsoft’s marketing department is doing outstanding work. People continue to talk, talk, talk about Microsoft. About what they are doing. About what they are not doing. So much free press. So much publicity. I bow respectfully to their marketing machine. This is why Microsoft has $30 billion in cash (and growing by $1 billion per month) while their competitors suffer and die.

The funny thing is that shared source is not a big deal. It is a bastard child of Open Source, twisted to fit the needs of Microsoft and Microsoft alone. Bravo for them. They are acting just as we should expect, as capitalistic pigs hell bent on profit. If your eye is on the shared source ball, then you have succumbed again. Just as people spent weeks on Smart Tags, much more energy will be spent on shared source. If we do this, we are suckers. We are pawns.

Mind bomb revisited: Microsoft simply doesn’t care as much as they once did about technology, including Smart Tags or shared source. Technology is not their top priority anymore. Their war with AOL over content is not top priority. Instead, Microsoft’s top priority is subscribers. So, the war with AOL is interesting and gives us a glimpse of the new Microsoft.

Microsoft really, truly, deeply, madly wants us to think about technology. They want us to talk about technology. They wants us to drool over technology. The more we fight and yell, the more they will succeed.

Thief in the Night

Once upon a time, humans killed animals with clubs. Then, many moons later, came the industrial revolution. Machines replaced people. In many cases, machines augmented our physical skills. Then, mostly during this this century, machines started to augment our thoughts and emotions. We are still in the middle of this information age. Indeed, what matters more than ever is ideas, opinions, and brainpower. Along these lines, Microsoft was able to harness a lot of brainpower (i.e., their employees) to create some useful software (i.e., brainpower augmentation tools). This software generated a lot of profit for the company. Microsoft was able to extract a lot of value from the marketplace by marketing and delivering these tools. These tools, to put it bluntly, augmented our minds.

The days of rabid profits for Microsoft through certain software sales channels are almost gone. It doesn’t seem that way to us, but Microsoft knows this. And, they feel the intense heat of Open Source. So now, the software days have been replaced. Not for many years, but we are seeing the cracks in the wall.

Microsoft is concerned with the augmentation and control of many minds. They care about the connection of many minds via the huge network of installed software, i.e., the internet. The infrastructure for the giant mind meld is basically in place. It will continue to grow and they will continue to supply the software. But, the real candy is no longer the software itself.

Microsoft can’t control the internet perfectly and they can’t own it directly. But why would they want to own anything? Why would they want to carry the software inventory of the internet? Instead, right before our eyes, they are building the layer over the internet that will allow for things like micropayments, highly targeted (paid, interactive) content, security based on your economic value, and control of user information. And more.

Microsoft’s new revenue models: (1) Rent. (2) Services. It makes sense to make the transition from products to services. Right now Microsoft is basically a manufacturer. No, not of hard goods. But, they still manufacture software. Over the next decade, they will get away from that business. It is starting to stagnate; at the least it is getting to the point where they can’t make outrageous profits. So, it is time to charge infrastructure rent and sell infrastructure services.

Important twist: Actually, Microsoft wants to control the entire services infrastructure on the web. Think about that! While people sweat over shared source and Smart Tags, Microsoft is working to build their services infrastructure. You should start paying much more attention to Passport, Microsoft Messenger, and related infrastructure tools and services. I don’t think that they literally care much about these technologies. I know that sounds a bit strange, but think about it. They could give away a ton of the technology because as long as they control the flow of information and cash, they control the services infrastructure. Specifically, they control you and your online life.

Here’s something to think about. Do you think Microsoft really cares about routers, hubs, broadband, and other infrastructure issues. Sure, of course they do. However, are these things critical to them? Of course not. The infrastructure is a commodity in most respects. Now, apply this thinking to the software for the internet, and perhaps even the desktop. It is all becoming a commodity. Linux and Open Source are changing the game so that Microsoft has to zig to the zag. They have to transition from software to services. In a sense, they are transforming into the biggest ASP you have ever seen. (Whoah!)

Think of software as being a commodity, think of software as being free.

If software technology was free, or nearly free, what would you do? You’d find a way to extract value from the interconnections and intersections of the network. You’d build and support a technology infrastructure that in turn supported your ability to extract money from all the activity generated by that network. (Whoah, again!)

So, services come first, technology comes second, and you come last. Microsoft is looking for control. They have lost a lot control over the technology and the software markets, so they are shifting to an area that is not dominated. Services on the internet are not dominated by any company. They are going to fill the void. Of course, they will continue to suck life from the software industry because they can, and because there is still profit to be made. But, the big profit is going to be made by owning your information and owning the entire internet service market. We, of course, will be manipulated the entire way.

John S. Rhodes