A lot of people commented on David Stutz's letter to Microsoft this last week. I gave the whole matter a few days to settle in before deciding to comment. He's got a lot of good points to make:
During this period, most core Microsoft products missed the Internet wave, even while claiming to be leading the parade. Office has yet to move past the document abstraction, despite the world's widespread understanding that websites (HTML, HTTP, various embedded content types, and Apache mods) are very useful things. Windows has yet to move past its PC-centric roots to capture a significant part of the larger network space, although it makes a hell of a good client. Microsoft developer tools have yet to embrace the loosely coupled mindset that today's leading edge developers apply to work and play
This is dead on - and some of the DRM rumblings could make it worse. If that stuff comes in, mobile use of Office tools is going to be hard - and that's not in tune with where things are headed at all. Then there's the crap that is Word HTML format - bleah!
There's more good stuff:
As networked computing infrastructure matures, the PC client business will remain important in the same way that automotive manufacturers, rail carriers, and phone companies remained important while their own networks matured. The PC form factor will push forward; the Pocket PC, the Tablet PC, and other forms will emerge. But automakers, railroads, and phone companies actually manufacture their products, rather than selling intangible bits on a CD to hardware partners. Will Microsoft continue to convince its partners that software is distinctly valuable by itself? Or will the commodity nature of software turn the industry on its head? The hardware companies, who actually manufacture the machines, smell blood in the water, and the open source software movement is the result.
This is, I think the crux of the matter. Everything is network connected, and it's only going to go more that way. Software spaces are being relentlessly commoditized - it started with tools, and is rapidly moving through other aspects of the business. Microsoft is not unique in this - most software vendors (including the one I work for!) are still not clued in on this, and will be in for a series of nasty shocks as it rolls through the industry. It's more than offshore outsourcing; it's an entire market changing shape.
If Microsoft is unable to innovate quickly enough, or to adapt to embrace network-based integration, the threat that it faces is the erosion of the economic value of software being caused by the open source software movement. This is not just Linux. Linux is certainly a threat to Microsoft's less-than-perfect server software right now (and to its desktop in the not-too-distant future), but open source software in general, running especially on the Windows operating system, is a much bigger threat. As the quality of this software improves, there will be less and less reason to pay for core software-only assets that have become stylized categories over the years: Microsoft sells OFFICE (the suite) while people may only need a small part of Word or a bit of Access. Microsoft sells WINDOWS (the platform) but a small org might just need a website, or a fileserver. It no longer fits Microsoft's business model to have many individual offerings and to innovate with new application software. Unfortunately, this is exactly where free software excels and is making inroads. One-size-fits-all, one-app-is-all-you-need, one-api-and-damn-the-torpedoes has turned out to be an imperfect strategy for the long haul.
Digging in against open source commoditization won't work - it would be like digging in against the Internet, which Microsoft tried for a while before getting wise. Any move towards cutting off alternatives by limiting interoperability or integration options would be fraught with danger, since it would enrage customers, accelerate the divergence of the open source platform, and have other undesirable results. Despite this, Microsoft is at risk of following this path, due to the corporate delusion that goes by many names: "better together," "unified platform," and "integrated software." There is false hope in Redmond that these outmoded approaches to software integration will attract and keep international markets, governments, academics, and most importantly, innovators, safely within the Microsoft sphere of influence. But they won't .
There's a lot of wisdom in that for us Smalltalkers as well - this is a bad time to live on an island. We are addressing that in VW - Web Services, truly headless servers, the separation of the tools from development.... but the train is on the tracks, and hurtling towards us.
Go read the whole article - it's well worth your time.