Microsoft’s Next Era

Editor’s note: Aaron Levie is CEO and co-founder of Box. Follow him on Twitter @levie.

Moments like this happen only once a generation in the technology industry.

The announcement of Steve Ballmer’s retirement from his post as CEO of Microsoft puts an end to one of the most powerful and interesting “regimes” in technology history. Symbolically, this is likely the closing chapter of an era that was led by Bill Gates, then collectively by Gates and Ballmer, and then more recently just Ballmer. We think of these as distinct periods, but while Ballmer may not have had the technology visionary chops that famously defined Bill, much of what we saw from Microsoft in the 2000’s was a continuation of the strategy that defined the company in the 90’s.

The story of Microsoft under Steve Ballmer can be told in two very different ways. The one that took center stage in the public eye narrated Microsoft’s slow response to emerging, low-end software disruptors like Google Apps and Amazon Web Services; a missed mobile-device wave led by Apple and Google, which dramatically weakened the Microsoft monopoly; and a series of failed service launches like the Zune, Windows Vista, and more.

The other version of the story is the lesser told of the two. Microsoft more than tripled its annual revenue under Ballmer, from $22 billion annually when he took over to $78 billion when he announced his departure. It was with Ballmer at the helm that Microsoft also began to embrace the cloud, launching successful online services and platforms like Office 365 and Azure, and purchasing compelling technologies and companies like Skype and Yammer. Microsoft’s negligible market share in search grew to 30 percent through clever maneuvers like securing all of Yahoo and Facebook’s search traffic. Microsoft also secured the only corporate investment ever made in Facebook. Under Ballmer, Microsoft even began to embrace open source and other competing platforms.

However, in this binary world where you’re either up or you’re down, we must have losers to bolster our winners. Even during the peak of its recent successes, the stock market voted that Microsoft was not the victor.

Microsoft needs to recognize that the world has become far more heterogeneous and choice-driven than ever.

What explains this? The answer lies in a stale strategy that often refused to acknowledge the new realities of a changed marketplace. Today, the Department of Justice is about as worried about a Redmond monopoly as the State Department is about Canada. Microsoft doesn’t wield the same kind of control it once did over the developer ecosystem, and overall that’s a good thing, both for the marketplace and ultimately for the company’s own posterity. Choice drives competition, and competition drives innovation. Apple producing better devices gets Google producing better operating systems, and so on. Microsoft needs to recognize that the world has become far more heterogeneous and choice-driven than ever.

And Microsoft needs to adapt its strategy accordingly. While the latest re-org was ostensibly about realigning the company to be better integrated within the organization -– an important move for better execution and less friction – it’s equally critical to get alignment with what’s happening outside the company.

The world of software and technology is no longer a zero-sum game. Ballmer’s successor will need to recognize this new reality, and embrace it. Here are just a few areas where he or she should start:

Unbundle Apps. Microsoft grew up in a world where its operating-system dominance drove unparalleled success in a number of key application categories. It’s almost as if its OS efforts were only there to serve its application efforts, and not the other way around. Competitors were stamped out one by one (see Lotus, Word Perfect, Netscape, Real Networks) along Microsoft’s journey to capture eyeballs and entire software budgets. Today things are different, and the tail is now wagging the dog, with applications being used to prop up Microsoft’s operating-system efforts.

But in today’s changing world, where the vast majority of Internet-connected devices are not based on Windows, these services need to be unbundled from the Windows mothership. Services like Microsoft Office remain either unavailable or limited on Apple and Android devices. With tablet sales set to surpass new PC sales in the next couple of years, it’s more important than ever that Microsoft realize that its apps need to compete on their own.

Openness. One of the biggest advantages of the cloud is that disparate applications can finally work seamlessly with one another. Customers no longer need to buy all of their services from the same two or three vendors to get this level of integration. APIs and integrations between apps allow for mixing and matching best-of-breed tools: your ERP from Netsuite or Workday can talk to your customer support app from Zendesk, which in turn talks to your social stream on Jive. This new “Cloud Stack” is driving much more openness between applications, and ultimately much more value for customers. But today, Microsoft is nowhere to be seen in this colorful array of new applications.

For instance, if you wanted to integrate the latest web versions of Office into a third-party application (say Box), this would take an act of Congress, not a simple API call. The closed nature of their applications was suitable for an era when it needed to control the operating system, but not for a period of IT abundance. The new leadership in Redmond will need to make sure that products are far more open and extensible with other software from companies that they once considered enemies.

Products, Products, Products (and Developers). Much of the Microsoft product lineup is still coasting on past glories. Unlike other technology giants who are known for their innovations in the past decade — Android, Chrome, and the iPad, or more fanciful and futuristic innovations like self-driving cars and Google Glass — the vast majority of Microsoft’s successful products over the past decade are iterations of products that were initiated in the thick of the PC era, and very little that would be described as “Post-PC.”

Microsoft needs to figure out how to become the place where the next great apps are built – by companies other than Microsoft.

Ultimately, Microsoft needs to become a platform company (again). Google has taken the role of benevolent monopolist by providing traffic via Search, standards via Chrome, and distribution via Android. Apple, similarly, has ignited billion-dollar startups without encroaching on their territories (Uber, Instagram, Angry Birds, Super Cell, Spotify, and more). Microsoft needs to figure out how to become the place where the next great apps are built – by companies other than Microsoft. And this time around, it needs to avoid obliterating every successful startup that emerges from its ecosystem.

Vision. The latest strategy that has been publicly communicated amounts to “Microsoft is a devices and services company.” That’s tantamount to Disney saying it’s a “theme park and film company.” The vision of Microsoft putting a PC on every desk and in every home got them to where they are, and a put-a-man-on-the-moon-scale mission is required at this stage, as well. It’s not sufficient to have a strategy that shareholders and analysts understand; it’s essential to have one that consumers care about.

Microsoft needs to stand for something unique. The world was once defined by Microsoft products and now Microsoft is letting itself be defined by everyone else.

Of course it’s easy to offer feedback from the outside. Microsoft is one of the 50 largest companies in the world, and pointing to their competitors’ successes and saying “they should have done that” certainly over-simplifies how hard it is to make the right calls in a rapidly changing landscape.

And you can already see early signs of momentum in the right direction: With leaders like Satya Nadella, Qi Lu, and Tony Bates, Microsoft is becoming a markedly different, and more open, company. Case in point: at this year’s developer conference, Build, they demoed new products using a Mac. A decade ago this would have been sacrilege; today, it’s Microsoft publicly acknowledging a new reality. Microsoft is also accelerating its pace of innovation with its web and platform products seeing updates many times a quarter, a huge departure from their traditional three-year product cycles.

The technology ecosystem is best served by companies pushing the bar higher and higher, raising it for one another and customers alike. Hopefully whoever is chosen to steer the Redmond oil tanker can usher in this all-new era of Microsoft.