The $7 Billion Question

Update: Microsoft Bloggers respond:

Kevin Schofield: the improvements in technology are everywhere. A lot of it, if done right, is invisible and “just works”. And a lot of it is visible but incremental improvements. Sometimes customers want big new things; sometime they just want what they have now to work better. We try to listen to our customers and give them what they want.

Robert Scoble: I don’t remember seeing anything that compares to Visual Studio, either. I’ve just looked at the most recent Eclipse (that IBM funded). Not even close. Or, tell me again about who is doing Automotive PCs like these? I could keep going on, but that’s enough for now. (Details in the comments section of this post)
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A friend of mine, a very smart man and veteran of Silicon Valley often asks this question: what does Microsoft do with its $7 Billion research & development budget? (By the way, this is not a post to bash Microsoft, just me wondering out loud about something which had been on my mind.) Good question? What does the company really do with all that money?

“Our businesses have really been limited only by our creativity in terms of new ideas, and our ability to put together world-class teams to execute on those ideas. And the fact that new ideas keep going is very, very important,” Bill Gates recently told a bunch of financial analysts. “We have the dedicated Microsoft Research Group that we call MSR. MSR is where we have the things that are the most advanced. We don’t have a schedule, we don’t even know exactly what they’ll come up with, but we have experts in all the different areas you’d expect: graphics, linguistics, security, databases…. now the Microsoft Research Group, we try to make sure that it’s not separated from the product groups.”

But where are those brilliant ideas? Those brilliant products? Despite spending billions of dollars, I often find the company always reacting to market trends. Take digital media for example. Despite buying WebTV, it is only recently one sees a handful of offerings from the company, like Media Center PC. Which is a pale imitation of TiVo. Now news that Microsoft’s new music store is no different than ITunes music store. Imitation. After Palm proved the market for handhelds, and Symbian for smart phones, the Barons of Redmond introduced modest products, though I think Pocket PC is now a million times better than Palm.

Listen, I have no beef with imitation and other such “money making tricks.” Imitation of hot-selling products is not such a bad idea, after all the only real scarce commodity on our planet is originality. The question is if you as a company are spending $7 billion on R&D, you must come-up with some original genre defining product. [Microsoft windows and Office don’t count, because that’s the bread and butter, which pays for everything else.]

I understand that Microsoft has to spend billions on patching its operating system against all sorts of Internet attacks, including viruses and worms. I also discount that every year the company has to come up with neat tricks to enhance its core office and Windows products. But the question is – where is the knock your socks off originality, the innovation that says, “god darn it …that is brilliant.” Steve Ballmer famously said, that only the drug company Pfizer Inc. spends more on R&D. Well Pfizer produced the miracle drug, the magical blue pill, and not a day goes by when a 50-something doesn’t say hallelujah to the mighty pill.

I urge you to read the recent speech by Bill Gates. It is quite clear what he wants. Here is an old article from San Francisco Chronicle on Microsoft’s R&D spending. (Psssh! If Microsoft promotes windows media format, it is okay, Apple’s proprietary standard is bad…Huh?) Also a special Video of Steve Ballmer pitching windows via Photo Matt. People, if you are going to comment, keep the comments limited to smart ones. No Mac versus Microsoft arguments etc, please!

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