When Ray Ozzie, the creator of Lotus Notes, was hired by Bill Gates to be Microsoft Corp.'s chief technical officer five years ago, he warned his new colleagues that the software giant needed to adapt to the Internet — or else.
But the company that brought personal computing to the masses in the 1980s and '90s has gone hitless in recent years, and last week it was surpassed by longtime rival Apple Inc. as the world's biggest technology company in stock market value.
With no competitive smart phone or tablet computer — and with its Bing search engine slow to gain traction — Microsoft has struggled to keep pace with surging rivals Apple and Google Inc. The company last week also announced the departure of two veteran executives who led efforts to develop its forthcoming smart phones.
During an interview in Rancho Palos Verdes last month, Ozzie, who inherited the title of chief software architect from Gates four years ago, talked about the progress of his early challenge to his colleagues, whether the PC is dead, and Microsoft's rivalry with Google.
With smart phones, tablets and now televisions, the desktop PC seems as if it's going to be a small part of the way people use computers. Is the era of the PC over?
I agreed until you said a "small part" — the PC is a part, but it's a growing part. PCs are becoming less expensive and easier to use. Whereas once people might have bought a PC for one room in the household, we have families buying a four-pack of netbooks to share with their kids.
Yes there's a pad form factor, and a phone form factor, and yes, the TV will become more intelligent. But really it's not a shift from the PC to these other things — rather, there's an increase in the number of screens we connect with.
We believe the PC is still strong, but we think the opportunity is even greater because now we can deliver services across these various devices.
When you started at Microsoft, you wrote a famous memo warning Microsoft that it had better get hip to the Internet. Has Microsoft been able to transition to an online company?
We have come a long way in the last five years. The most concrete example that I'm excited about is Office 2010. Hundreds of people have been working on it for the last few years in order to transform Office into a form that is much more appropriate for the connected world that we all live and work in today.
The vast majority of what people do with Microsoft Office is to create documents, spreadsheets and presentations. In the past, sharing them was more or less an exercise left to the reader. But now because the Internet brings us all together, Office much more naturally connects with that environment.
For example, with a single key press, you can project your presentation not just into the room but out onto the Internet so that other participants in the meeting can see it from afar.
You've said that Microsoft has had to refocus its business about every five years. In the early days, it was evolving from text-based operating system to Windows, and lately it's been moving Office and other products online. What will Microsoft have to adapt to next?
The big question now is: How is business and life going to change when everything is connected? And what are the services that will be able to take advantage of that?
Take the example of the car: What does driving look like when you can connect your car to the Internet? These services will understand where you are, where you're going, where everyone else is going, even what games you're playing with people in other cars [laughs].
And that'll extend to every part of our lives. Entire business processes are being transformed because we have so many sensors out there now picking up so much data. Because of that, there can be a direct connection between the people who run businesses and the actual customers and consumers.
In the Microsoft versus Google rivalry, the conventional wisdom is that Google is more agile and adaptable, where Microsoft is slow to react. How do you feel Microsoft is doing against Google in the battle of perceptions?
The reputations of companies obviously change over time. Microsoft was the scrappy upstart disruptor in its early days, and IBM was the incumbent to be disrupted.
Being a larger and more successful company now, we tend to pursue very broad-based opportunities that take the customers we have and give them more value. We tend not to be the one who will be the little start-up who will pioneer new things.
Google started out as a scrappy upstart, and now it's getting large too as a function of its success, and it'll go through its own phases.
More online businesses are harvesting information about consumers and using it to turn around and sell products to them. Do people have reason to be concerned about that?
We're in the very early days of Internet services and connected devices. I and many in the industry don't have any clue as to what things will look like from a privacy perspective 10 years from now — what regulations will be in place or should be in place.
I don't want to cause people to be paranoid, but there are no boundaries right now that can help to inform companies about where they should stop. And there's nothing to help consumers understand where the boundary is either.
We want to be very genuine that when we take Windows and Office and make them live, we want to maintain the privacy proposition we've built over the years with users of our software.