10 things Microsoft did wrong in 2009

Earlier today, I posted "10 things Microsoft did right in 2009." I originally planned to post the did-wrong list tomorrow. But in view of today's news about Microsoft's out-going chief financial officer, Chris Liddell, I changed the timetable. Liddell's departure is one of the things Microsoft did wrong in 2009 (He will become CFO at GM).

The did-wrong list was way too much easier to compile than the did-right list. I could easily put 20 items here. The year 2009 was perhaps the most difficult for Microsoft since Bill Gates and Paul Allen founded the company nearly 35 years ago. Company executives can thank economic turmoil for the hardships. But Microsoft could have handled 2009 much better than it did. Hopefully, 2010 will be better.

I present the list of 10 things Microsoft did wrong in 2009 in no order of importance. They're all important. Microsoft:

1. Let Chris Liddell get away. Liddell has proven to be an exceptionally adept Microsoft CFO. He managed Microsoft finances in better times and bad, doing a resounding good job overseeing difficult cost cutting as global economic crisis sapped software sales. Liddell has an excellent relationship with Wall Street analysts and -- until January (see #4) -- he offered continually conservative guidance to them. His departure is a huge loss at Microsoft's highest executive level.

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?

2. Offered no direct Windows XP to Windows 7 upgrade. Some Betanews readers will be surprised to read that this only marginally makes the list. From a customer relations and software sales perspective, the Windows XP upgrade path to 7 is a frak up. Windows XP users shouldn't have to backup everything, do a clean installation and restore data from backup. For many enterprises, a fresh image would be business as usual. For consumers and small businesses, Microsoft has placed a huge deterrent to Windows 7 upgrades.

But like with Zune HD (see #7 in the did-right list), Microsoft backed away from the shackles of its longstanding practice of putting backwards compatibility before anything else. From that perspective, the Windows XP to Windows 7 upgrade is something Microsoft did right -- and hopefully foreshadows more of it. Microsoft can't support every customer running any old version of its software. Such practice keeps Windows from being the modern operating system it needs to be.

3. Laid off Don Dodge. Microsoft's January announcement of 5,000-plus layoffs showed how quickly the economic crisis waylaid the company. Or did it? In a future post I will apply a magnifying glass to Microsoft layoffs, which appear to have been more about firing highly paid, tenured staff than making necessary cuts of employee fat. Microsoft's ambassador to Silicon Valley, Don Dodge, was the most surprising of the layoffs -- and yet from the perspective of lopping big salaries it was not. 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, 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?

4. Withheld financial guidance. Starting in January, 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.

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, generated positive perceptions. These perceptions helped to lift Apple's share price to new heights. Meanwhile, Microsoft shares remained in the doldrums, even while quarterly results remained relatively buoyant considering economic conditions. Microsoft lost opportunity to generate really positive perceptions on Wall Street during Windows 7's late development and October launch.

5. Botched the mobile phone strategy. Earlier this month, I encouraged Microsoft not to hang up on its mobile phone strategy. But the company has fewer options by the day, as hardware manufacturers hang up on Windows Mobile and shift to Google's Android. In October and mid-December posts, I observed how Google has put together a winning mobile strategy -- in third quarter, according to Gartner, reaching 3.5 percent smartphone market share, up from zero a year earlier.

Meanwhile, Microsoft has got simply nothing to offer. Windows Mobile 6.5, which launched in October, lags behind Android and iPhone OS in critical areas of innovation. Meanwhile, Windows Mobile 7.0 is MIA, with rumors running about delays into late 2010 or early 2011. Microsoft's mobile browser is oh-so early century, and the company is rapidly losing developers to Apple and Google. With sophisticated handsets and smartphones poised to be, with cloud services, the next-generation computing platform, Microsoft's disastrous, run-aground mobile strategy is just short of corporate malfeasance against shareholders.

6. Chased Google in search -- again. Microsoft should just give up its pursuit of Google in Web search from PCs. Google's search share lead is insurmountable. Microsoft's only real hope is mobile, which will be the future of search, but the company's mobile strategy is hosed (as explained in #5). Microsoft frittered away 2008 chasing Yahoo, only to bag a Yahoo search deal in July of this year.

I called the agreement "Google's Christmas-in-July present." As I predicted then, and as recent ComScore numbers show, Microsoft can only take search share from Yahoo; when the deal is complete and implemented, Microsoft will cannibalize Yahoo share rather than combine with it. Microsoft's Google search obsession distracts the company from what's important: Mobile and the cloud, which will be the next-generation computing platform.

7. Retrenched into enterprise. Microsoft responded to the economic crisis by doing exactly what Ballmer recommended against. In January, during his Consumer Electronics Show 2009 keynote, Microsoft's CEO extolled the importance of investing during hard times -- that historically successful companies reaped from research and development and other investments sowed during recessions. But Microsoft did something else: Retreat to the enterprise. Microsoft also killed vital incubation projects (see #9).

Nearly as bad (reiterating #6), Google continued to set the development agenda, with Microsoft again chasing the search giant's every cloud software or service. Aside from some modest Bing features and user interface changes, Microsoft failed to leap ahead of its rival.

8. Allowed netbooks to grow unchecked. Netbooks are a plague, sucking the margins out of the PC industry and from Microsoft. The company should have used every means imaginable to discourage these pesky, cheap underpowered portables. But somewhere inside the hallowed halls of Microsoft's corporate campus, someone freaked about all those early netbooks running Linux, resulting in the disastrous 2008 decision to license Windows XP Home for the little buggers. If Linux on netbooks is so bad an experience, as Microsoft product managers claim, sales collapse should have been the future without Windows licensing.

Instead, Microsoft encouraged netbooks' continued sales surge by licensing Windows 7 Starter Edition for them, all the while pushing costlier, thin-and-light laptops as the better alternative. Cheap rules the day. Gartner predicted that netbooks -- and not Windows 7 -- would lift sagging 2009 PC sales.

9. Killed incubation projects. Microsoft didn't just wield the cost-cutting axe against valuable employees, it whacked vital incubation projects. The nastiness started in earnest with April's gutting of Live Labs. As I blogged then: "Stupid, stupid, stupid, stupid. Did I not say stupid?" Microsoft continued jettisoning projects all year, again, contradicting Ballmer's January assertion "that companies and industries that continue to pursue innovation during tough economic times will achieve a significant competitive advantage positioning themselves for growth far more effectively than companies that hold back. That's why Microsoft continues to focus on R&D."

Oh, yeah? How is killing incubation projects investing in R&D? Some of Microsoft's best product development over the last three years came from incubation groups that acted more like internal startups. Who's running this company, if the CEO says one thing and underlings do something else -- or, worse, he is the contradiction?

10. Licensed ActiveSync to Google. Synchronization is the killer application for the connected world. So why in hell would Microsoft license its synchronization protocols to competitor Google? Perhaps someone at Microsoft saw advantage for Exchange Server. That's one way Google used ActiveSync, but not where the company got the real bang.

Immediately, Google used ActiveSync for e-mail, calendar and contact synchronization from its cloud services to iPhone and Windows Mobile handsets. Google also used the technology to provide Exchange Server sync with Google Apps, so that businesses could use the hosted service instead of Outlook. Sync is quickly defining Google's mobile handset and mobile cloud strategies, and Microsoft helped move it along faster. How dumb is that?