Could Popfly's pop out be game over for Microsoft?

There's a strange foreshadowing in Microsoft naming its social mashup service Popfly. In baseball, pop fly is a ball hit straight up that comes straight down, usually into the catcher's mitt and to an out. Popfly is out, with Microsoft's decision to close down the service on August 24th.

I'm really bugged about the shutdown, because of what it represents:

• The Bill Gates era really is over. In the year since the cofounder's full-time departure, Microsoft has shuttered many of its best incubation projects or consumer products.
• The closure is yet another sign that Microsoft doesn't really get social media, in part by taking design approaches too closely tied to its stuff and not extensible enough to other Web services.
• Microsoft is more aggressively trying to protect and to extend its existing Office-Windows-Windows Server applications stack. There is ever increased emphasis on enterprise computing.

I believe that in 2009 Microsoft has turned a direction that is scarier than movie "Quarantine." Without a course correction, Microsoft in the 2010s will be very much like IBM was in the 1990s.

It's a Top-Down Problem
I like Microsoft CEO Steve Ballmer. He's a heart-on-the-sleeve kind of guy who speaks his mind whenever the PR minions don't interfere. But Steve Ballmer's strength also is his weakness. As I explained last week, the chief executive is too focused on giving customers what they want instead of innovating what they need. Everything about his leadership -- and how Microsoft now develops products -- is about preserving the status quo, whether the company's existing products or enterprises' entrenched business processes.

By comparison, Bill Gates is more visionary. He may talk and walk like a geek, but he's prescient. For example, he rightly recognized, if somewhat belatedly, what the Web would mean for Microsoft, which he aptly expressed in the May 1995 "Internet Tidal Wave" letter.

Bill Gates' post-2000 impact on Microsoft really started manifesting about four years ago, after the company brought on Ray Ozzie with the acquisition of Groove Networks. Perhaps the two men are like minds about software development. After all, they shared the chief software architect title. The number of incubation projects (run by guerrilla groups acting more like internal startups) soared since early 2006.

But after summer 2008, when Microsoft's cofounder shifted primary focus to philanthropy, incubation projects started a priority decline. Since the September 2008 US financial meltdown, Microsoft has had two rounds of layoffs, pulled popular consumer software titles or services and curbed or closed most incubation projects.

In June, TechFlash's Todd Bishop chronicled the demise of many consumer products, including the Encarta encyclopedia and Microsoft Money. But the incubation groups, like Live Labs, or services, like Popfly, are more indicative of a directional shift. It's a direction I don't like seeing Microsoft go.

Microsoft's Short, Golden Age of Incubation
What a difference two years makes. In October 2007, over at Microsoft Watch, I blogged about Microsoft's state of reinvention. The company had numerous guerilla groups working on many cool and exciting incubation projects. Some of the most notable -- for example, Photosynth and Worldwide Telescope -- have brought accolades and new partnerships, with NASA being among them.

Microsoft is a middle-aging company, in an industry dominated by young upstarts. Many younger managers -- that's in Microsoft years, not necessarily physical age -- brought new ideas with these incubation projects. Younger managers and outsiders had been turning some Microsoft product groups into networks of loose startups.

I first perceived that Microsoft had entered incubation pullback mode, after the near closure of Live Labs in April 2009. Gary Flake, who founded Live Labs, describes its incubation approach in the Live Labs Manifesto: "We will deliberately not do many things that are already well-established within Microsoft. Instead we will seek to connect complementary efforts or to fill existing voids, so as to maximize impact for effort."

It's this kind of approach that could shake Microsoft's dependence on Office and Windows and open up new revenue streams along the emerging mobile device and Web applications stack.

But Bill Gates is no longer there to protect incubation project managers. Steve Ballmer has different priorities, as evidenced by recent Microsoft cutbacks and closures. Microsoft is now in state of retreat, as it grapples with the econolypse. Recent cutbacks and internal refocusing point to Microsoft making its core business market the top investment priority -- at the expense of anything else.

Retreat Before the Econolypse
On Thursday, the company will announce fiscal 2009 fourth quarter and yearly results. Wall Street consensus is for earnings per share to fall 21.7 percent year over year for the quarter and 9.1 percent for fiscal 2009. Microsoft's shortlist of problems:

• PC sales are down (although not as bad as analysts' forecasts three months ago).
• Most IT organizations have cut back technology spending.
• Most enterprises already have Microsoft software (e.g., reselling to them rather than generating new sales).

Microsoft's consumer product and incubation project cutbacks are Action A. Increased integration along the existing applications stack and refocused sales on enterprises is Action B. My contention: Microsoft is too focused on seeking to preserve existing revenue streams when creating newer ones should be a greater priority. Microsoft's self-preservation approach will compel its developers to bind new technologies to Office or Windows.

IBM followed a similar path in the 1980s, seeking to preserve its applications stack around the mainframe. While Big Blue released a PC, the company made protecting its legacy business priority. IBM and its mainframe business didn't go away, but its relevance diminished before a new applications stack. Microsoft faces similar challenge before the mobile-to-cloud applications stack.

Popfly is just the latest casualty of a status quo-preserving strategy that primes Microsoft to become the IBM of the 2010s -- unless there is a dramatic course correction.