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Not in our investment portfolio

Not in our investment portfolio

It's a good thing Ray Ozzie had Steve Ballmer backing him up, because Ray Ozzie wears glasses and Microsoft's investors sound like they're ready to hit a guy with glasses right about now.

A report from a meeting between Ballmer and financial analysts included the Microsoft president's admission that he had been "hammered" by investors who were unhappy with the company's recent move into software-as-a-service and online applications. He was forced to perform the same song and dance every IT manager does when he or she has to win over a sceptical senior management team about an unproven product or service: "Great things don't happen overnight," he said. "Most successes require long-term investment and innovation ... and that's our perspective."

It seems almost laughable that anyone would try and deter a company like Microsoft from moving into what is obviously a growth area for the company, but it's not like this kind of investor attitude is without precedent. Think of HP investors, who wanted former chief executive, Carly Fiorina, to neglect the company's PC products in favour of its more lucrative printing operation. Investors prefer the devil they know, and in Microsoft's case that means desktop and server software. This would be almost reasonable if Microsoft showed any signs of ignoring these segments, but with so-called "leaks" about Windows 7 and clearly defined roadmaps for Windows Server 2008, that's simply not the case.

The irony, of course, is that everybody outside of the investment community (myself included), tends to chastise Microsoft for failing to enter new markets quickly enough, allowing competitors to gain traction and occasionally forcing customers to accept half-backed solutions that only partially meet their computing needs. I'm not sure if investors are entirely to blame for Microsoft's slow recognition of the Internet's potential, but you could begin to see why they might have thought it best not to put too many resources towards the Web in its infancy, either.

Smart companies tend to zig when everyone else zags, and it's interesting that Microsoft is making more headlines for its foray into online products than Google is for its stealthy approach to the enterprise. Maybe that's because offering more search appliances or acquiring a firm like Postini isn't as interesting as, say, an extension to Google maps, but the search engine knows that the consumer and Web 2.0 space will eventually reach a saturation point. Like Microsoft, it is diversifying in order to keep its options open.

This is something a lot of startups fail to do. The Web 2.0 market has spawned a lot of niches, and the reason many of them will fail (and they will, believe me) is because they don't reach the critical mass necessary to expand beyond their initial market. Either that, or they don't bother. In the race to appeal to Internet-savvy consumers, so many online vendors are leaving the enterprise behind. It's possible even those that reach the IPO point might end up hearing the same kind of cautionary voices from investors. That would be a shame, because there's no reason that the desktop and server software markets should remain so moribund. Investors are wise to make sure their bread continues to get buttered, but that doesn't mean the industry should back away from spreading new things on the bread.


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