10 Things Microsoft did wrong in fiscal 2010

Late last week, I posted a top-10 list of things Microsoft did right during fiscal year 2010, which ended on June 30. With every right there must come a wrong. What will surprise some readers is how some actions fit into both categories. A number of "wrongs" on this list also appear on my "did right" list but put into different context. With that introduction, during fiscal 2010, Microsoft wrongly:

1. Revamped its cloud computing strategy. Azure debuted a month late and a whole vision short. In 2008, Microsoft Chief Software Architect Ray Ozzie laid out a startling and potentially revolutionary cloud computing vision. Developers would write to the datacenter much as they did to the desktop operating system. I likened the approach to an operating system in the sky -- to a truly cloud OS.

But Azure turns out to be something much different, and not because Microsoft mismanaged the project like Windows Vista. Clearly something else changed. The Office and Windows hawks beat out the cloud OS doves. Azure is now more like a cross between Amazon cloud services and hosted Microsoft everything else, as the company seeks to extend its Office-Windows-Windows Server applications stack to the datacenter. Microsoft had a chance to do something quite revolutionary with Azure. The revolution is now nothing more than a resolution to protect the status quo.

No. 1 is the "wrong" of No. 1 ("launched Azure") and No. 2 ("revamped its cloud computing strategy") from the "did right" list.

2. Backed away from interoperability as an enterprise priority. Haven't you noticed that Microsoft beat the interoperability drum much less loudly -- often not at all -- during second half fiscal 2010? In No. 3 of the "did right" list, I called the interoperability rollback "a smart approach." It's also a mistake. Most enterprises won't soon abandon non-Windows software. Interoperability will matter to them, but it's no longer as important to Microsoft.

The revamped cloud computing strategy connects to a bigger push to establish a tighter integrated applications stack, of which there are five pillars: Azure, Internet Explorer 9, Office 2010, SharePoint 2010, Windows 7 and Windows Server 2008 R2. The stack is more modular in that an enterprise might choose to build the stack from the cloud data center rather than Windows Server. I presume Microsoft executives are betting the integrated cloud stack will pull some enterprises away from Linux. Integration will define fiscal 2011, as it already started to during FY2010.

3. Killed KIN. There are no words to appropriately describe the KIN debacle. Less than two months after Verizon started selling KIN, Microsoft officially killed the smartphone. The move was wrong for so many reasons: Public relations, carrier relations, customer relations, developer relations, manufacturer relations (Sharp made the smartphone), branding, marketing (Microsoft ran a TV ad campaign when killing KIN), employee morale and financial and resources investment. The move also unravels confidence that Microsoft can deliver in Windows Phone 7 a game-changing platform and supporting strategy.

4. (Unofficially) fired J Allard and Robbie Bach. This one is No. 4 on the "did right" list, too. Entertainment and Devices division has demonstrated vision when other Microsoft groups clung to Office, Windows and Windows Server. E&D broke the chains that demanded new products be tied to twin monopolies Office and Windows. The Allard and Bach departures signal that the Office and Windows hawks killed yet more breakaway doves (not just the cloud dreamers). Timing is terrible as Microsoft seeks to recover massive lost momentum in the mobile market, where upstarts Apple and Google are screeching butt kickers.

Allard and Bach are visionaries lost, and their departures signal that a renewed Office and Windows tunnel vision has returned (See #1 and #2). For other closeted Microsoft visionaries, the departures can only be morale sapping. Who now will dare come out of the closet and admit their true developer lifestyle orientation isn't Office or Windows?

5. Announced volume licensing changes. For years, Microsoft has used extras to justify raising annuity licensing fees during the early Naughties. Now the great software giant is preparing to take away one of the most obviously tantalizing benefits -- discounted to free software for employees. The actual change is months away, but the announcement came during fiscal 2010.

To be clear, Microsoft is ending the Employee Purchase Program but not the Home Usage Program for Office. Microsoft claims much less interest in EPP, which is reason enough to keep the program. If demand has lessened, Microsoft loses little by keeping something rather than taking it away. It's better customer relations to give, or at least keep, something rather than take it away.

6. Launched Office 2010 without adequate marketing support. Microsoft put some real advertising muscle behind Bing, Windows 7 and more recently Internet Explorer 8. The adoption rates tell a story of successful marketing. But behind Office 2010, Microsoft has taken its more typical subdued approach. Yes, there are Web ads (yawn) but what major magazine, newspaper or TV marketing is there? Early US retail Office 2010 sales are "disappointing," according to NPD. Office 2010 isn't that apparently different from version 2007. How will potential customers know the differences, and more importantly the benefits, if Microsoft doesn't sell them? Advertising sells. Non-marketing smells.

7. Withheld financial guidance. Starting in January 2009, Microsoft stopped giving financial guidance to Wall Street. It was simply a disastrous decision that established an even worse precedent. Sure, the guidance couldn't be good (given sagging sales) and risked further run on the stock, as if the last quarter of 2008 wasn't bad enough for Microsoft and nearly every other public company. But bad guidance would have been better than none. Successful public companies don't just manage finances, they manage perceptions about their performance.

Microsoft had a chance to resume guidance with start of fiscal 2010, in July 2009, but failed to. By withholding guidance, Microsoft let uncertainty and gossip determine perceptions about its sales and earnings performance. By comparison, Apple continued to release guidance and, combined with marketing and product launches and leaks, generates positive perceptions. These perceptions helped to lift Apple's share price to new heights during Microsoft's FY2010. Meanwhile, Microsoft shares remain in the doldrums, even while quarterly results set new records. Given fiscal fourth quarter's smashing results, there is simply no reason for Microsoft not to offer Wall Street guidance during fiscal 2011.

8. Failed to buy Palm. In December 2009, I gave 10 good reasons why Microsoft should buy Palm. Microsoft's failure to seize the opportunity led to a bidding war (which included Apple) that ended with HP buying Palm. HP was Microsoft's principle Windows tablet partner and a major Windows mobile licensee . Suddenly HP is a mobile competitor. A Microsoft Palm acquisition would have instantly given Microsoft's renewed mobile strategy a jumpstart. Now Microsoft struggles on two mobile fronts -- smartphones and tablets.

In a startling trend, four of the top 10 smartphone vendors in second quarter predominately shipped Android handsets, according to IDC. These vendors had 100 percent year-over-year growth rates. As for tablets, Apple shipped 3.2 million units in the launch quarter, encroaching on a category Microsoft had been trying to build up for nearly a decade. The point: Mobile competition is stiffer than ever, and Microsoft needed something in fiscal 2010; Palm could have been it.

9. Cut search deal with Yahoo. Last year, I called the agreement "Google's Christmas-in-July present." As recent ComScore numbers show, Microsoft doesn't need Yahoo all that much. Microsoft argues that combined scale will help improve Bing search and gain share against Google. But Bing advertising already has significantly improved Microsoft search share, which rose from 8.4 percent in June 2009 -- the first full month Bing TV spots aired -- to 12.7 percent in June 2010. Combined Microsoft-Yahoo search share would be more than 31 percent, or about half of Google. While the numbers are seemingly good, the Yahoo deal:

• Initially costs Microsoft more than it financially gains
• Imposes logistically difficult integration hampering search platform advancement and acquiring new ad customers
• Distracts the company from the more important priority of expanding its mobile advertising platform efforts

10. Let Don Dodge and Chris Liddell get away. Liddell proved to be an exceptionally adept Microsoft CFO. He managed Microsoft finances in better times and bad, doing a resoundingly good job overseeing difficult cost cutting as global economic crisis sapped software sales. Liddell has an excellent relationship with Wall Street analysts. There is simply no excuse for Microsoft CEO Steve Ballmer and his board of directors letting Liddell leave for General Motors. No incentive should have been enough to keep him, although given Liddell's tight-fisted financial operations during the econolypse, as CFO he might not have allowed it. How ironic is that?

Dodge, Microsoft's ambassador to Silicon Valley, was the most surprising of the company's fiscal 2010 layoffs. Microsoft lost three things with Dodge:

• Vital experience sussing out good startups
• Someone well respected in Silicon Valley
• An ally, who became a competitive enemy

In mid November 2009, less than two weeks after being laid off by Microsoft, Dodge took a job with Google. How the frak did Microsoft executives not see that one coming?