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Microsoft's Xerox Problem of Undervaluing Innovation

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Microsoft is at risk of developing a world-changing device or product, only to have another company run away with it because of Microsoft's own culture.

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This past quarter there was a lot of fuss made over Apple's (AAPL) earnings. All sorts of proclamations were made based on how the earnings exceeded expectations. As I think Peter Atwater would say, mood about Apple is "upper right" -- positive, and over long time frames.

I haven't heard anyone say they think Apple's current performance will extend for quarters and years to come, but I get the sense nobody thinks Apple can fail. We have seen Jesus, and he walks on water carrying an iPad, Instagramming his surroundings on an iPhone.

A company many folks are not feeling upper right about is Microsoft (MSFT). The company beat earnings estimates, but not by much. It laid off 200 or so marketing staff. Its new Windows Phone operating system is out, but it's woefully behind iOS and Android for smartphone market share, and Microsoft doesn't have an app store (much less a robust, easy-to-use app store like iTunes) for it. If the Windows Phone tree fell in the smartphone forest, nobody would see it or hear it because the user base is so small.

And that's actually a shame. Because as FastCo. Design points out, it's a beautiful operating system. No ifs, ands or buts about it. The article goes on to talk about the lack of a unified product design culture within Microsoft, preferring to let each product line and business unit have its own product/design ethos. Letting ideas compete isn't a bad thing in and of itself, but you also have a business to run. And a business needs an identity, something that folks can point to and say "I know who they are."

That seems to be getting lost here. All of which results in, to me anyway, a schizophrenic company. I mean, if it could take some elements from its Windows Phone interface and incorporate them into some of its other products, like a new Windows operating system, an XBox interface, or even its desktop and enterprise software, you might see something that nobody would've ever dreamed of: people excited about using a Microsoft product because it actually looks good and works well versus being told they had to use it.

But what kind of company is Windows, anyway? With the XBox and the Zune that came before it, you could argue it was in both the hardware and software business, but we all know the company's cash cow has been personal computing software like operating systems and Office productivity applications. These products may not all have the same look and feel and therefore not deliver the same user experience, but the fact is, you know they're all Microsoft products. The box tells you so.

And while I'm on the subject of the XBox, this video where someone developed a very clever hack that integrates XBox Kinect and Google's (GOOG) Android technologies together presents an even more earth-shattering idea. Two open source projects -- Android and Kinect -- working together to make something completely new: a smarthome interface.

Google developing an open source product is one thing; it's a Web generation company where they know interoperability is important. But Microsoft? The longtime ruler of the proprietary, closed-off jungle? Letting people develop and design extensions to its products to make them new and interesting things? Somebody may want to check the temperature in Hell and raise the thermostat. I suspect it's getting a bit drafty down there.

I wrote about Microsoft last year (See A Cynical, Contrarian View on Microsoft). I thought its Skype acquisition wasn't the best idea for the company and I felt its products just aren't aligned with the Web. I may have to partially rethink that. Microsoft has made a pretty good product in its new smartphone operating system, and its design concepts can clearly be extended to other products.

On the flip side, I don't know if Microsoft knows what it wants to be now that it has grown up. The company has to think about extending into new product areas that go beyond desktop computing, but that may mean giving up a little bit of its focus on desktop operating systems and software to focus on new opportunities. I don't see Microsoft doing that yet. I see it trying to have its cake and eat it, too.

Meanwhile, as the company's rigidity sets in even more and as the company seemingly tries even harder to insulate itself from the change it needs to thrive, its "Xerox risk" increases.

A long time ago in a galaxy called the Palo Alto Research Center (or PARC), Xerox (XRX) developed the modern graphical user interface (or GUI). You know, that thing that sits on top of a computer's operating system software to make the computer usable. Apple's products have one, Microsoft's products have one, Google's Android has one, too. Well, Xerox developed it initially, only to brush it aside as being a nonessential product because managers there thought a GUI wasn't important to selling copiers.

With all of the things being done by Microsoft -- and by fans of Microsoft products in the case of OpenKinect -- the company could develop something truly extraordinary, perhaps even revolutionary. But only if Microsoft's management doesn't relegate these products to the corporate waste bin and let someone else develop it into something profound.

Twitter: @japhychron

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