China's Changing, 'Learning-Minded' Party
Robert Lawrence Kuhn, 01.04.10, 04:36 PM EST
An exclusive interview with a rising star in Chinese politics, Li Yuanchao.
While pundits pondered whether President Barack Obama, on his first trip to China, had been out maneuvered by President Hu Jintao or whether he had achieved his objectives with quiet diplomacy, a bigger, underreported, story was developing. China's leaders have recognized that for the Communist Party to retain its status as China's ruling party it must elevate its commitment to learning and innovation. Although previous generations of China’s senior leaders have emphasized learning, it now has been made prime Party policy--which will likely present a significant challenge to America's economic competitiveness.
Recently I sat down with Politburo Member and rising star in Chinese politics, Li Yuanchao, a champion of the learning-minded policy. A longtime colleague of China’s President Hu Jintao, Li is currently head of the Party's powerful Organization Department, which appoints and trains senior officials in government and executives in state-owned enterprises, a critical function in government and the economy. Li has pioneered new mechanisms for training and oversight of officials and executives, and has enhanced transparency in the process of governance in order to better serve the public interest.
Li said that China's leaders have determined to build a "learning-minded party." In China, relating current polices to past leaders helps legitimatize current policies, and Li stressed the Party's long-held devotion to learning. "When he was still in Yan'an (Shaanxi province) and living in the caves (1937-1948), Mao Zedong called on the Party to transform our study," said Li. "When reform and opening-up began, Deng Xiaoping stressed that we should learn the world's advanced knowledge. Then Jiang Zemin put forward that if China were to achieve modernization we must build a learning-oriented country and society. Recently, the Party's Central Committee, led by General Secretary Hu Jintao, asserted that a learning-minded party must be built, seeking to revitalize our penchant for learning so as to take up the arduous tasks and challenges ahead of us." These challenges include severe economic imbalances between different sectors of society, particularly urban vs. rural, coastal vs. inland; unemployment; corruption; unsustainable development; resource scarcity; pollution; and more. To China's leaders, social stability is a constant concern.
"To construct a learning-oriented Party," Le continued, "we need to learn both theoretical knowledge, such as Marxist classics and the theory of socialism with Chinese characteristics, and all the advanced human scientific knowledge and advanced experience. In addition to learning, we must also apply leading-edge science and technology. The Internet was invented in America," he added, "but has found its largest number of users in China."
"Surfing the Internet every day has become a habit for many leaders and officials, including myself," Li continued, calling it "compulsory homework." He noted how President Hu Jintao answered questions by netizens and interacted with Internet users online. "We often acquire new information and knowledge from the Internet," Li said. "For example, when we want to develop a certain industry, we first search it online to see how people in China or around the world are developing it."
"During my recent visit to the United States," Li recalled, "I visited Google's ( GOOG - news - people ) headquarters. When executives started to instruct me how to use Google's features, I told them it was unnecessary as I used them every day. I often do searches on the Organization Department to find latest news about the ministry and comments about us by Internet users."
"We ask our officials to cultivate a reading habit and encourage them to read more books, and more importantly, good books," Li said. "The Chinese have a habit of reading. Many families regard books as the most valuable family asset. They can do without cars, but there would be cases of books in the house. Recently we recommended a whole set of books in various genres to officials of the Organization Department. This may sound hard to believe, but we also included A Brief History of Time, a classic by Stephen Hawking. Not only do we want our officials to learn latest knowledge of physics and cosmology but also to develop a way of scientific thinking."
"Every year all ministerial-level officials in the Organization Department will take time out for intensive study and discussions together," said Li. "This year's topic was how to expand democracy in our work. We read books by Marxist classic writers, expositions on democracy by Deng Xiaoping, Jiang Zemin and Hu Jintao, even The Theory of Democracy Revisited by Giovanni Sartori. All of us read together. After we finished, we had comparative discussions, taking into account China's special reality."
"We believe that a ruling party only remains viable and vibrant when it masters state-of-the-art knowledge," Li said.
"Of course, in addition to reading books, we also acquire knowledge through evaluating our experiences," Li continued. "Each year the Party holds a plenum, where an important agenda item is to sum up our own recent experiences. For example, last year we summed up experiences of the 2008 [Sichuan] earthquake and relief efforts. By doing this, we improve how we deal with future situations, for example natural disasters."
Li calls talent "the primary resource of scientific development," and has established "democratic, open, competitive, merit-based" principles in selecting and promoting future leaders. In response to the financial crisis, and in order to achieve the "goal of making China an innovation-oriented nation," Li instituted a "Thousand People Plan" to attract high-level personnel to China from overseas, such as scientists, financial experts, entrepreneurs and senior managers. Li's plan promises high salaries and attractive government funding to elite Chinese professionals, especially top science and technology researchers, who are working abroad and willing to return home. (Many whom China hopes to repatriate have been pursuing careers in the U.S.) Recognizing China's new place in the world, Li stresses training leaders with international knowledge and perspective--the "internationalization of the mind," he says, is a needed new way to "emancipate the mind."
In 1978, Deng Xiaoping initiated China's reform by calling for the Chinese people to "Emancipate the Mind," which meant casting aside Mao's leftist ideological dogmatism. In recent years President Hu Jintao has called for further reform, empowered by a new kind of mental emancipation. Circumstances have changed; the world is more complicated, variegated. This is why Hu stresses creativity and innovation in all areas: science and technology, industry and commerce, global partnerships, political participation, and cultural and spiritual life in all their diverse expressions. Without a further emancipation of the mind, Hu says, China's development will face obstacles and difficulties.
"The change China is undergoing is the greatest China and the Chinese people have experienced in thousands of years," Li said. "It may also be the greatest sustained change in human history."
In a 2009 international computer competition--sponsored by the super-secret U.S. National Security Agency (for obvious reasons)--China fielded the most finalists (20), well ahead of second-place Russia (10) and far ahead of America (2). The worldwide winner of the algorithm-coding contest was an 18-year-old Chinese student.
I need not have to spell out the challenge ahead.
Robert Lawrence Kuhn, an international investment banker and corporate strategist, is a longtime adviser to the Chinese government. He is the author of How China's Leaders Think: The Inside Story of China's Reform and What This Means for the Future (John Wiley).
Tuesday, January 5, 2010
Monday, January 4, 2010
(1) 10 Things Microsoft Did Right over the Past Decade, (2) Microsoft's 2010 Will Rely on Windows 7 Sales, Yahoo Deal, Cloud
(1)10 Things Microsoft Did Right over the Past Decade
News Analysis: Microsoft had an interesting decade. The company made some mistakes, but it also did some things right that helped it maintain its position as one of the world's largest software companies and a top influencer in the global IT industry. We take a look at those 10 things Microsoft did right over the past 10 years.
Although Microsoft made some mistakes over the past 10 years that adversely affected the company's position in the industry, the software giant has also done a lot of things right. Over the past 10 years, Microsoft has been able to maintain its position as the dominant software developer in the world. It has also stayed relevant both in the consumer space and the enterprise. That's a feat that few companies have been able to achieve.
Perhaps that's why discussions surrounding Microsoft and Windows are so heated today. Although many like to rail against Redmond, it keeps coming back stronger. With each bit of adversity, it seems that somehow, in some way, Microsoft is able to overcome the problem and offer something to customers that appeals to their desire. Of course, it hasn't succeeded every time. And the past decade has shown that Microsoft needs to be more diligent in its decision making. But the company has also done a number of things right that it can use as a foundation for all the future decisions it will make. Let's take a look.
indows Vista was a nightmare for Microsoft. Consumers hated it. The enterprise wouldn't even adopt it. And vendors, once the partners that did Microsoft's bidding, were forced to offer downgrade rights to customers that wanted to run Windows XP. Microsoft knew it had to do something to repair the damage that Vista caused, so it quickly released Windows 7. Microsoft's latest operating system is everything Windows Vista should have been. It's innovative. It's far more secure than previous versions of the operating system. And it appeals to customers. It's a great comeback product.
2. The move to Bing
Microsoft was in deep trouble toward the latter part of the decade. Although it commanded the software market, Google was cornering the search space without any worry of competition. Microsoft's Live Search was largely inconsequential. But rather than wave the white flag, Microsoft released Bing. Microsoft's latest search tool is outstanding. Its results match Google's search results. And thanks to some extras, like a visual search feature, it's a fine alternative to anything Google is offering up.
3. Get in on the gaming
When Microsoft first announced that it would break into the gaming space, some wondered if it could make it. As 2009 gives way to 2010, that question has been answered with a resounding affirmation that yes, indeed, Microsoft can take the gaming industry by storm. Over the past decade, Microsoft has turned its Xbox platform from the "other" console on the market into a gaming leader. The Xbox 360 is now even more popular than Sony's PlayStation 3. That's no small feat. And it should be commended.
4. The enterprise focus
As Apple and Google turned to the consumer over the past decade, Microsoft stayed true to its base—the enterprise. Windows is still the dominant force in the business world. Microsoft has so firmly cemented its position there that most companies wouldn't even consider deploying any other software. Going forward, Microsoft has almost ensured that the enterprise will be its playground.
5. Marginalizing Mac OS X
Apple's Mac OS X made significant strides over the past 10 years, but it's important to note that its rise in the market was largely inconsequential to Microsoft's bottom line. Through smart strategies and partnering with third parties, as well as vendors, Microsoft did a fine job of limiting the impact Mac OS X's rise really had on Windows. Did Apple's operating system steal market share away from Windows? Sure. But did it really change the OS market? No way. Microsoft is still on top by a wide margin.
6. Keeping Linux away
Some would argue that Linux is the operating system that more people should use. After all, most distributions are safe, they are generally lightweight and many are free. But the past 10 years haven't helped Linux gain a substantial footing in the OS market. I would argue that Linux is more well known than it was in 2000, but to say it is any more appealing to the mainstream is a bit of a stretch, even though more distributions have become user-friendly. That can be mainly attributed to Microsoft's ability to keep the OS at arm's length. Simply put, Redmond didn't allow the Linux craze to get out of hand. It was a smart move.
7. Addressing the Web
For too long during the past 10 years, Microsoft allowed Google and others to innovate on the Web. It might also be argued that the company has yet to do enough to stop Google's rise in that space. But over the past year or two, Microsoft has done a better job of realizing that the Internet is the future and it had better be in a position to capitalize on it. That's most evident in its acquisition of several online sites, as well as the launch of Bing and Bing Maps. Microsoft is getting ready to focus on the Web in the new decade.
8. The smooth transition
When Bill Gates announced that he would be stepping down from day-to-day activities at Microsoft, it sent shock waves through the industry. Bill Gates was the face of Microsoft. Investors placed millions of dollars in Microsoft stock because of their faith in its co-founder. It was a dicey situation. But Microsoft handled the transition of day-to-day activities from Gates to Steve Ballmer, the company's CEO, with aplomb. It made Ballmer a more vocal evangelist of the brand, while limiting Gates' influence. It reassured investors. It also proved that Ballmer was up for the job. Kudos, Microsoft. It could have been much worse.
9. Maintaining profitability
Being an extremely profitable company over a period of 10 years isn't always easy. In the tech industry, things change so rapidly that companies can be dominating a market one year and wondering why all the cash dried up the next—just ask Sony. But Microsoft maintained strong profitability numbers throughout the past 10 years. Today, Microsoft still earns billions of dollars of profit each year. And all that cash is being socked away for big acquisitions or investments the company might need to make in the new decade.
10. Cornering the netbook market
Although it failed to see the writing on the wall in so many markets over the past 10 years, Microsoft made one big move that will substantially improve its chances of maintaining profitability into the next decade: It cornered the netbook market. At first, netbooks ran Linux. But in a very short time, Microsoft was able to steal netbook-OS market share away from Linux to such a degree that today, it's in a dominant position in that space. That's no small feat. Netbook popularity has grown rapidly over the past year. Most analysts believe that that growth will continue. By solidifying its position with netbooks, Microsoft is positioned to profit heavily off those lightweight PCs.
(2)Microsoft's 2010 Will Rely on Windows 7 Sales, Yahoo Deal, Cloud
News Analysis: Microsoft underwent substantial challenges in 2009, few of which it will alleviate in 2010. However, a stronger economy could translate into increased sales, reversing its revenue decline, and some products launched in 2009 will likely continue their strong adoption trend. Areas such as cloud computing pose the chance for Microsoft to bolster its market share in the enterprise, but the company will likely find itself in critical shape in other areas, notably the smartphone space.
With declining revenues and robust competition in many of its product areas, 2009 was not exactly a banner year in Microsoft’s history. Will 2010 be any better? Redmond can certainly look toward a few bright spots: Both Windows 7 and Bing, its search engine, experienced disaster-free launches followed by solid early adoption rates, which could translate into greater success in the coming year.
However, Microsoft also faces substantial challenges. Despite a search-and-advertising partnership deal with Yahoo that could see Bing’s market share nearly triple, Google remains the dominant force in online search. Microsoft’s mobile division remains weak and is faced with substantial competition from the likes of Apple and RIM. And if the economy doesn’t pick up, then there’ll be no rising PC sales to buoy sales of Microsoft software.
So how will 2010 fare? The following traces out Microsoft’s prospects in certain key areas.
Microsoft-Yahoo Deal Goes into Effect, Presenting Bigger Google Challenge
Microsoft poured millions of marketing and development dollars into Bing, its search engine that launched in June 2009, but the biggest increase to its market share in 2010 will likely come courtesy of the search-and-advertising agreement struck between Microsoft CEO Steve Ballmer and Yahoo CEO Carol Bartz.
On July 29, Microsoft and Yahoo jointly announced a 10-year partnership that would see Bing powering search on Yahoo’s sites, while Yahoo assumed exclusive worldwide sales duties for both companies’ search advertisers. The deal is expected by both parties to be cleared by antitrust regulators and should go into effect in 2010.
When that happens, assuming that Yahoo’s market share ports over to Bing’s with a minimum of attrition, Microsoft’s share of the U.S. search-engine market could rise to close to 30 percent. Google continues to occupy roughly 70 percent of that market, so even a more robust Bing won’t present a survival threat. Nonetheless, 2010 will likely be the year where the world of online search narrows down to two engines whaling at each other for market share. Yahoo, meanwhile, seems intent on giving up the search game entirely for becoming a Web applications provider.
Bing and Google will also likely continue their grudge match over features. In November and December, Microsoft rolled out several new Bing features, including a beta version of Bing Maps that made it a more robust competitor to Google’s Street View. Additionally, Bing now features a more robust video-search page and results from Wolfram Alpha. In 2010, expect both companies to go through several new rounds of competing feature tweaks and add-ons.
Microsoft will also spend 2010 trying to push Bing into foreign markets, notably China; but with Google’s robust presence overseas, and the Yahoo deal restricted to the United States, Bing could have some trouble increasing its market share in those areas.
A Possible Revenue Rebound, Powered by Windows 7
The economic recession battered Microsoft. For the fourth quarter of fiscal 2009, the company reported a 17 percent decline in year-over-year revenue, with earnings arriving at $1 billion below Wall Street estimates. Results for the next quarter offered a somewhat shallower decline of 14 percent year-over-year, with operating income, net income and diluted earnings all continuing to fall by double-digit numbers.
Both Microsoft and its OEMs hope that companies with Windows-based IT infrastructure will use Windows 7 as an excuse to upgrade their systems, and buy the next generation of Microsoft products, in 2010. In both interviews with eWEEK and larger conference calls with investors and media, company executives have suggested that any uptick in sales of Windows 7 and associated products will be roughly in line with any rise in PC purchases through 2010 and beyond, irrevocably linking Microsoft’s fortunes to those of the wider tech industry.
A number of analysts seem to think a tech-refresh scenario is possible.
“It looks like the Win7 inspired upgrade cycle can start in late 2010 and run through early 2013,” Katherine Egbert, an analyst with Jefferies & Co., wrote in an Oct. 12 report. “We expect new hardware purchases to precede the software upgrades by about 6 months.”
But the economy could certainly hit the skids again, in which case a tech refresh would be necessarily blunted as companies battened down their budgetary hatches. In any case, Microsoft executives seem intent on curbing expectations: in an Oct. 23 earnings call, Microsoft Chief Financial Office Chris Liddell suggested that the company would remain “reasonably cautious” about the prospect of a tech refresh, echoing comments earlier in the year from Steve Ballmer.
Microsoft Throws Its Hail Mary Pass for Mobile
By the second quarter of 2009, Microsoft’s share of the mobile operating system market had declined to around 9 percent. October saw the release of Windows Mobile 6.5, but even the company’s executives admitted that the update to Microsoft’s Mobile OS was just a placeholder until 2010, when the company is expected to roll out Mobile 7.
Mobile 7 is supposedly a major upgrade to Microsoft’s operating system franchise, and the company has thus far kept details under wraps. However, continued pressure from a variety of competitors in the space, including Google, Apple and Research In Motion, makes Mobile 7’s quest for market share a decidedly difficult one.
Some have declared that quest an impossible one. “It’s time to declare Microsoft a loser in phones. Just get out of dodge,” Mark Anderson of the Strategic News Service told The New York Times on Dec. 10, in comments widely circulated. “Phones are consumer items, and Microsoft doesn’t have consumer DNA.”
But 2010 will ultimately determine whether Anderson’s comments prove accurate, and Windows Mobile becomes an also-ran, or if Mobile 7 allows Microsoft to retain or gain incremental share in the market space.
Microsoft Plunges into the Cloud, Again Facing Google
Microsoft built its business primarily on the desktop. However, it has taken steps to embrace the paradigm shift inherent in the rise of cloud computing, some of which will bloom to fuller life in 2010.
Jan. 1, 2010 marks the full “switch on” of Microsoft’s Azure cloud platform, composed of three parts that work in symphony to create Web applications and services: Windows Azure, an operating system as a service; SQL Azure, a cloud-based relational database; and .Net services, which provide both secure connectivity and federated access control for applications.
Customers will have three payment options for the service: a pay-as-you-go model, subscription format or volume licensing. Microsoft’s competitors in the space include Amazon and Google.
Given that cloud services represent a potential $150 billion market opportunity, according to research firm Gartner, it’s unsurprising that these companies are all fighting for market-share. For its part, Microsoft could help increase the acceptance of cloud computing within the enterprise.
“There are many enterprises that consider themselves Microsoft shops that have people that only know Microsoft tools and APIs,” Gartner analyst Ray Valdes told eWEEK in 2008, when the Azure platform was first announced. “Amazon and Google have been chipping away at these, but Microsoft is firmly entrenched.”
Microsoft may be positioned well for the enterprise cloud market in 2010, but its other cloud-based endeavors may prove a riskier bet. In a bid to compete with Google Apps, Microsoft will introduce browser-accessible versions of OneNote, Excel, Word and PowerPoint for Windows Live subscribers. Although these Web-based applications will lack the full functionality of the upcoming Office 2010, Microsoft is evidently hoping that enough users will gravitate toward their own cloud productivity suite in place of Google’s offering.
Given that Google Apps have attracted attention among consumers, municipal governments and businesses, however, Microsoft could find itself in a bit of fight when it comes to spreading its own brand of Web-based productivity. But Redmond also doesn’t have much of a choice; in 2010, Google will attempt to spread Google Apps even further among the enterprise and consumers via the propagation of Google Chrome, its upcoming browser-based OS for netbooks and—potentially—more robust PCs. Browser-accessible versions of Office may blunt some of Google’s impact.
News Analysis: Microsoft had an interesting decade. The company made some mistakes, but it also did some things right that helped it maintain its position as one of the world's largest software companies and a top influencer in the global IT industry. We take a look at those 10 things Microsoft did right over the past 10 years.
Although Microsoft made some mistakes over the past 10 years that adversely affected the company's position in the industry, the software giant has also done a lot of things right. Over the past 10 years, Microsoft has been able to maintain its position as the dominant software developer in the world. It has also stayed relevant both in the consumer space and the enterprise. That's a feat that few companies have been able to achieve.
Perhaps that's why discussions surrounding Microsoft and Windows are so heated today. Although many like to rail against Redmond, it keeps coming back stronger. With each bit of adversity, it seems that somehow, in some way, Microsoft is able to overcome the problem and offer something to customers that appeals to their desire. Of course, it hasn't succeeded every time. And the past decade has shown that Microsoft needs to be more diligent in its decision making. But the company has also done a number of things right that it can use as a foundation for all the future decisions it will make. Let's take a look.
indows Vista was a nightmare for Microsoft. Consumers hated it. The enterprise wouldn't even adopt it. And vendors, once the partners that did Microsoft's bidding, were forced to offer downgrade rights to customers that wanted to run Windows XP. Microsoft knew it had to do something to repair the damage that Vista caused, so it quickly released Windows 7. Microsoft's latest operating system is everything Windows Vista should have been. It's innovative. It's far more secure than previous versions of the operating system. And it appeals to customers. It's a great comeback product.
2. The move to Bing
Microsoft was in deep trouble toward the latter part of the decade. Although it commanded the software market, Google was cornering the search space without any worry of competition. Microsoft's Live Search was largely inconsequential. But rather than wave the white flag, Microsoft released Bing. Microsoft's latest search tool is outstanding. Its results match Google's search results. And thanks to some extras, like a visual search feature, it's a fine alternative to anything Google is offering up.
3. Get in on the gaming
When Microsoft first announced that it would break into the gaming space, some wondered if it could make it. As 2009 gives way to 2010, that question has been answered with a resounding affirmation that yes, indeed, Microsoft can take the gaming industry by storm. Over the past decade, Microsoft has turned its Xbox platform from the "other" console on the market into a gaming leader. The Xbox 360 is now even more popular than Sony's PlayStation 3. That's no small feat. And it should be commended.
4. The enterprise focus
As Apple and Google turned to the consumer over the past decade, Microsoft stayed true to its base—the enterprise. Windows is still the dominant force in the business world. Microsoft has so firmly cemented its position there that most companies wouldn't even consider deploying any other software. Going forward, Microsoft has almost ensured that the enterprise will be its playground.
5. Marginalizing Mac OS X
Apple's Mac OS X made significant strides over the past 10 years, but it's important to note that its rise in the market was largely inconsequential to Microsoft's bottom line. Through smart strategies and partnering with third parties, as well as vendors, Microsoft did a fine job of limiting the impact Mac OS X's rise really had on Windows. Did Apple's operating system steal market share away from Windows? Sure. But did it really change the OS market? No way. Microsoft is still on top by a wide margin.
6. Keeping Linux away
Some would argue that Linux is the operating system that more people should use. After all, most distributions are safe, they are generally lightweight and many are free. But the past 10 years haven't helped Linux gain a substantial footing in the OS market. I would argue that Linux is more well known than it was in 2000, but to say it is any more appealing to the mainstream is a bit of a stretch, even though more distributions have become user-friendly. That can be mainly attributed to Microsoft's ability to keep the OS at arm's length. Simply put, Redmond didn't allow the Linux craze to get out of hand. It was a smart move.
7. Addressing the Web
For too long during the past 10 years, Microsoft allowed Google and others to innovate on the Web. It might also be argued that the company has yet to do enough to stop Google's rise in that space. But over the past year or two, Microsoft has done a better job of realizing that the Internet is the future and it had better be in a position to capitalize on it. That's most evident in its acquisition of several online sites, as well as the launch of Bing and Bing Maps. Microsoft is getting ready to focus on the Web in the new decade.
8. The smooth transition
When Bill Gates announced that he would be stepping down from day-to-day activities at Microsoft, it sent shock waves through the industry. Bill Gates was the face of Microsoft. Investors placed millions of dollars in Microsoft stock because of their faith in its co-founder. It was a dicey situation. But Microsoft handled the transition of day-to-day activities from Gates to Steve Ballmer, the company's CEO, with aplomb. It made Ballmer a more vocal evangelist of the brand, while limiting Gates' influence. It reassured investors. It also proved that Ballmer was up for the job. Kudos, Microsoft. It could have been much worse.
9. Maintaining profitability
Being an extremely profitable company over a period of 10 years isn't always easy. In the tech industry, things change so rapidly that companies can be dominating a market one year and wondering why all the cash dried up the next—just ask Sony. But Microsoft maintained strong profitability numbers throughout the past 10 years. Today, Microsoft still earns billions of dollars of profit each year. And all that cash is being socked away for big acquisitions or investments the company might need to make in the new decade.
10. Cornering the netbook market
Although it failed to see the writing on the wall in so many markets over the past 10 years, Microsoft made one big move that will substantially improve its chances of maintaining profitability into the next decade: It cornered the netbook market. At first, netbooks ran Linux. But in a very short time, Microsoft was able to steal netbook-OS market share away from Linux to such a degree that today, it's in a dominant position in that space. That's no small feat. Netbook popularity has grown rapidly over the past year. Most analysts believe that that growth will continue. By solidifying its position with netbooks, Microsoft is positioned to profit heavily off those lightweight PCs.
(2)Microsoft's 2010 Will Rely on Windows 7 Sales, Yahoo Deal, Cloud
News Analysis: Microsoft underwent substantial challenges in 2009, few of which it will alleviate in 2010. However, a stronger economy could translate into increased sales, reversing its revenue decline, and some products launched in 2009 will likely continue their strong adoption trend. Areas such as cloud computing pose the chance for Microsoft to bolster its market share in the enterprise, but the company will likely find itself in critical shape in other areas, notably the smartphone space.
With declining revenues and robust competition in many of its product areas, 2009 was not exactly a banner year in Microsoft’s history. Will 2010 be any better? Redmond can certainly look toward a few bright spots: Both Windows 7 and Bing, its search engine, experienced disaster-free launches followed by solid early adoption rates, which could translate into greater success in the coming year.
However, Microsoft also faces substantial challenges. Despite a search-and-advertising partnership deal with Yahoo that could see Bing’s market share nearly triple, Google remains the dominant force in online search. Microsoft’s mobile division remains weak and is faced with substantial competition from the likes of Apple and RIM. And if the economy doesn’t pick up, then there’ll be no rising PC sales to buoy sales of Microsoft software.
So how will 2010 fare? The following traces out Microsoft’s prospects in certain key areas.
Microsoft-Yahoo Deal Goes into Effect, Presenting Bigger Google Challenge
Microsoft poured millions of marketing and development dollars into Bing, its search engine that launched in June 2009, but the biggest increase to its market share in 2010 will likely come courtesy of the search-and-advertising agreement struck between Microsoft CEO Steve Ballmer and Yahoo CEO Carol Bartz.
On July 29, Microsoft and Yahoo jointly announced a 10-year partnership that would see Bing powering search on Yahoo’s sites, while Yahoo assumed exclusive worldwide sales duties for both companies’ search advertisers. The deal is expected by both parties to be cleared by antitrust regulators and should go into effect in 2010.
When that happens, assuming that Yahoo’s market share ports over to Bing’s with a minimum of attrition, Microsoft’s share of the U.S. search-engine market could rise to close to 30 percent. Google continues to occupy roughly 70 percent of that market, so even a more robust Bing won’t present a survival threat. Nonetheless, 2010 will likely be the year where the world of online search narrows down to two engines whaling at each other for market share. Yahoo, meanwhile, seems intent on giving up the search game entirely for becoming a Web applications provider.
Bing and Google will also likely continue their grudge match over features. In November and December, Microsoft rolled out several new Bing features, including a beta version of Bing Maps that made it a more robust competitor to Google’s Street View. Additionally, Bing now features a more robust video-search page and results from Wolfram Alpha. In 2010, expect both companies to go through several new rounds of competing feature tweaks and add-ons.
Microsoft will also spend 2010 trying to push Bing into foreign markets, notably China; but with Google’s robust presence overseas, and the Yahoo deal restricted to the United States, Bing could have some trouble increasing its market share in those areas.
A Possible Revenue Rebound, Powered by Windows 7
The economic recession battered Microsoft. For the fourth quarter of fiscal 2009, the company reported a 17 percent decline in year-over-year revenue, with earnings arriving at $1 billion below Wall Street estimates. Results for the next quarter offered a somewhat shallower decline of 14 percent year-over-year, with operating income, net income and diluted earnings all continuing to fall by double-digit numbers.
Both Microsoft and its OEMs hope that companies with Windows-based IT infrastructure will use Windows 7 as an excuse to upgrade their systems, and buy the next generation of Microsoft products, in 2010. In both interviews with eWEEK and larger conference calls with investors and media, company executives have suggested that any uptick in sales of Windows 7 and associated products will be roughly in line with any rise in PC purchases through 2010 and beyond, irrevocably linking Microsoft’s fortunes to those of the wider tech industry.
A number of analysts seem to think a tech-refresh scenario is possible.
“It looks like the Win7 inspired upgrade cycle can start in late 2010 and run through early 2013,” Katherine Egbert, an analyst with Jefferies & Co., wrote in an Oct. 12 report. “We expect new hardware purchases to precede the software upgrades by about 6 months.”
But the economy could certainly hit the skids again, in which case a tech refresh would be necessarily blunted as companies battened down their budgetary hatches. In any case, Microsoft executives seem intent on curbing expectations: in an Oct. 23 earnings call, Microsoft Chief Financial Office Chris Liddell suggested that the company would remain “reasonably cautious” about the prospect of a tech refresh, echoing comments earlier in the year from Steve Ballmer.
Microsoft Throws Its Hail Mary Pass for Mobile
By the second quarter of 2009, Microsoft’s share of the mobile operating system market had declined to around 9 percent. October saw the release of Windows Mobile 6.5, but even the company’s executives admitted that the update to Microsoft’s Mobile OS was just a placeholder until 2010, when the company is expected to roll out Mobile 7.
Mobile 7 is supposedly a major upgrade to Microsoft’s operating system franchise, and the company has thus far kept details under wraps. However, continued pressure from a variety of competitors in the space, including Google, Apple and Research In Motion, makes Mobile 7’s quest for market share a decidedly difficult one.
Some have declared that quest an impossible one. “It’s time to declare Microsoft a loser in phones. Just get out of dodge,” Mark Anderson of the Strategic News Service told The New York Times on Dec. 10, in comments widely circulated. “Phones are consumer items, and Microsoft doesn’t have consumer DNA.”
But 2010 will ultimately determine whether Anderson’s comments prove accurate, and Windows Mobile becomes an also-ran, or if Mobile 7 allows Microsoft to retain or gain incremental share in the market space.
Microsoft Plunges into the Cloud, Again Facing Google
Microsoft built its business primarily on the desktop. However, it has taken steps to embrace the paradigm shift inherent in the rise of cloud computing, some of which will bloom to fuller life in 2010.
Jan. 1, 2010 marks the full “switch on” of Microsoft’s Azure cloud platform, composed of three parts that work in symphony to create Web applications and services: Windows Azure, an operating system as a service; SQL Azure, a cloud-based relational database; and .Net services, which provide both secure connectivity and federated access control for applications.
Customers will have three payment options for the service: a pay-as-you-go model, subscription format or volume licensing. Microsoft’s competitors in the space include Amazon and Google.
Given that cloud services represent a potential $150 billion market opportunity, according to research firm Gartner, it’s unsurprising that these companies are all fighting for market-share. For its part, Microsoft could help increase the acceptance of cloud computing within the enterprise.
“There are many enterprises that consider themselves Microsoft shops that have people that only know Microsoft tools and APIs,” Gartner analyst Ray Valdes told eWEEK in 2008, when the Azure platform was first announced. “Amazon and Google have been chipping away at these, but Microsoft is firmly entrenched.”
Microsoft may be positioned well for the enterprise cloud market in 2010, but its other cloud-based endeavors may prove a riskier bet. In a bid to compete with Google Apps, Microsoft will introduce browser-accessible versions of OneNote, Excel, Word and PowerPoint for Windows Live subscribers. Although these Web-based applications will lack the full functionality of the upcoming Office 2010, Microsoft is evidently hoping that enough users will gravitate toward their own cloud productivity suite in place of Google’s offering.
Given that Google Apps have attracted attention among consumers, municipal governments and businesses, however, Microsoft could find itself in a bit of fight when it comes to spreading its own brand of Web-based productivity. But Redmond also doesn’t have much of a choice; in 2010, Google will attempt to spread Google Apps even further among the enterprise and consumers via the propagation of Google Chrome, its upcoming browser-based OS for netbooks and—potentially—more robust PCs. Browser-accessible versions of Office may blunt some of Google’s impact.
China should win 2009 'Crisis Policy of the Year' Commentary: But 2010 will pose tough challenges
China should win 2009 'Crisis Policy of the Year'
Commentary: But 2010 will pose tough challenges
By Craig Stephen
HONG KONG (MarketWatch) -- As we start a new decade there appears to be increasingly polarized forecasts for China's economy, ranging from it leading the world out of recession to teetering on the precipice of collapse.
Reviewing the past 12 months, the lesson was surely not to underestimate the impact of Beijing's resolute policy response. Rewind and China was facing an export collapse, a moribund housing market that threatened to bankrupt its developers and an economy hemorrhaging jobs.
A massive lending program and infrastructure stimulus quickly got the economy back on track. Equity, property and commodity markets rebounded, and gross domestic product growth is expected to back near 9%, while Chinese initial public offerings led the world with a record-busting year.
For this crisis management, you might think that China's leaders should get a little more recognition. But somehow, the Time Magazine "Person of the Year" award for an economic crisis response went to Fed Chairman Ben Bernanke. Last time I looked, U.S. unemployment was at 10% and the greenback appeared in a terminal tailspin.
But despite the recovery, China's growth story still has a sense of unease. Where does China's economy go next? The bears warn China is poised to follow the U.S. and Japan with its own housing bubble bursting.
They are dismissive of indicators showing strength in China's economy (the purchasing managers index hit a 20-month high in December), saying that deep-rooted structural imbalances are growing. These include economy-wide overinvestment and capital misallocation, growing excess property supply and sky-high housing prices. Added to that are still-anemic domestic consumption and a serious over-dependence on exports.
What this will add up to is a bubble mixed in with large pockets of excess capacity -- not an economic miracle.
We have heard many times this was to be China's century, but it could be foolhardy to overlook this list of economic ills. Even if this somewhat exaggerates the situation, it will take some skilled policy making to finesse a broadening economic recovery.
Still, others are decidedly more upbeat on China's outlook. The economists at UBS in a new report offer reassurance that the "sky is not falling." They do not see evidence of structural problems in China's economy, although they concede there are cyclical risks after last year's lending spree. One figure that jumped from the page was that, last year, bank lending accounted for over 50% of GDP, they estimated.
UBS also reeled out a number of arguments that property-bubble fears are overblown. For affordability, it's the not the average urban resident that matters but the rising middle class. And to date, mortgage lending as a proportion of GDP has not increased, which is common when a bubble is reached.
China also has a manageable loan-to-deposit ratio of 70%, which makes it one of the most stable emerging-market financial systems, says UBS.
Still, it appears mainland Chinese leaders appear less sanguine about the property outlook. Last week, Premier Wei Jiabao warned that property prices have risen too fast and hinted taxes and loan interest rates may used to stabilize the market. See full story on Chinese premier's remarks.
Once again, much will depend on the policy response. A new memo to banks released over the holiday period gives a few clues of what to expect.
The expectation is for no change to interest rates for the first half of the year, but rather new administrative controls on lending. Consumer prices on the mainland climbed 0.6% last month from a year earlier, ending a nine-month run of deflation, so policy makers may have to move on interest rates sooner than they think.
What's certain is lending will be cut back from the 9.5 trillion yuan ($1.39 trillion) in 2009 to 7.5 trillion yuan this year, Merrill Lynch reports.
The memo refers to "smooth" lending, so the massive front-loaded lending of last year is likely to be avoided. It also encourages banks to make loans available for mergers and acquisitions. This should be good news for those able to consolidate markets and is a good theme to support equity-market valuations.
Much of course still depends on the external environment. China will be hoping there is more of a recovery in the major economies to give some momentum to its exports. Last year, China and its exporters benefited from being pegged to the weakening dollar, and if that trend is reversing, it will be another factor to consider.
China, like many emerging markets, also benefited from carry-trade investment, as investors borrowed Ben Bernanke's depreciating greenbacks at basement rates. Hot-money flows accelerated into China. If the assumption of a weak dollar has to be rethought (in December, the dollar had its first monthly gain in a year), so too will the risk of investing in China and other emerging markets.
This all means investors, as well as China's leaders, will have to keep a close eye on what the Man of the Year is doing in 2010.
Commentary: But 2010 will pose tough challenges
By Craig Stephen
HONG KONG (MarketWatch) -- As we start a new decade there appears to be increasingly polarized forecasts for China's economy, ranging from it leading the world out of recession to teetering on the precipice of collapse.
Reviewing the past 12 months, the lesson was surely not to underestimate the impact of Beijing's resolute policy response. Rewind and China was facing an export collapse, a moribund housing market that threatened to bankrupt its developers and an economy hemorrhaging jobs.
A massive lending program and infrastructure stimulus quickly got the economy back on track. Equity, property and commodity markets rebounded, and gross domestic product growth is expected to back near 9%, while Chinese initial public offerings led the world with a record-busting year.
For this crisis management, you might think that China's leaders should get a little more recognition. But somehow, the Time Magazine "Person of the Year" award for an economic crisis response went to Fed Chairman Ben Bernanke. Last time I looked, U.S. unemployment was at 10% and the greenback appeared in a terminal tailspin.
But despite the recovery, China's growth story still has a sense of unease. Where does China's economy go next? The bears warn China is poised to follow the U.S. and Japan with its own housing bubble bursting.
They are dismissive of indicators showing strength in China's economy (the purchasing managers index hit a 20-month high in December), saying that deep-rooted structural imbalances are growing. These include economy-wide overinvestment and capital misallocation, growing excess property supply and sky-high housing prices. Added to that are still-anemic domestic consumption and a serious over-dependence on exports.
What this will add up to is a bubble mixed in with large pockets of excess capacity -- not an economic miracle.
We have heard many times this was to be China's century, but it could be foolhardy to overlook this list of economic ills. Even if this somewhat exaggerates the situation, it will take some skilled policy making to finesse a broadening economic recovery.
Still, others are decidedly more upbeat on China's outlook. The economists at UBS in a new report offer reassurance that the "sky is not falling." They do not see evidence of structural problems in China's economy, although they concede there are cyclical risks after last year's lending spree. One figure that jumped from the page was that, last year, bank lending accounted for over 50% of GDP, they estimated.
UBS also reeled out a number of arguments that property-bubble fears are overblown. For affordability, it's the not the average urban resident that matters but the rising middle class. And to date, mortgage lending as a proportion of GDP has not increased, which is common when a bubble is reached.
China also has a manageable loan-to-deposit ratio of 70%, which makes it one of the most stable emerging-market financial systems, says UBS.
Still, it appears mainland Chinese leaders appear less sanguine about the property outlook. Last week, Premier Wei Jiabao warned that property prices have risen too fast and hinted taxes and loan interest rates may used to stabilize the market. See full story on Chinese premier's remarks.
Once again, much will depend on the policy response. A new memo to banks released over the holiday period gives a few clues of what to expect.
The expectation is for no change to interest rates for the first half of the year, but rather new administrative controls on lending. Consumer prices on the mainland climbed 0.6% last month from a year earlier, ending a nine-month run of deflation, so policy makers may have to move on interest rates sooner than they think.
What's certain is lending will be cut back from the 9.5 trillion yuan ($1.39 trillion) in 2009 to 7.5 trillion yuan this year, Merrill Lynch reports.
The memo refers to "smooth" lending, so the massive front-loaded lending of last year is likely to be avoided. It also encourages banks to make loans available for mergers and acquisitions. This should be good news for those able to consolidate markets and is a good theme to support equity-market valuations.
Much of course still depends on the external environment. China will be hoping there is more of a recovery in the major economies to give some momentum to its exports. Last year, China and its exporters benefited from being pegged to the weakening dollar, and if that trend is reversing, it will be another factor to consider.
China, like many emerging markets, also benefited from carry-trade investment, as investors borrowed Ben Bernanke's depreciating greenbacks at basement rates. Hot-money flows accelerated into China. If the assumption of a weak dollar has to be rethought (in December, the dollar had its first monthly gain in a year), so too will the risk of investing in China and other emerging markets.
This all means investors, as well as China's leaders, will have to keep a close eye on what the Man of the Year is doing in 2010.
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