Place your bets on research

No reason to sugarcoat the Microsoft quarterly financial report issued this afternoon: it reflected the bad news in the overall economy.  Revenue down, earnings down, profits down. 

What I did find most interesting was the silver lining as Business Week points out in its coverage. Like most of Wall Street apparently (MSFT stock rose in after-hours trading), Business Week was impressed with some of the positive steps taken by the company:

Maybe the most striking news is Microsoft’s crisp cost-cutting. Who knew this Midas of the computer industry knew how to scale back so well? In the quarter, administrative costs fell by more than $1 billion, from $2.3 billion to $913 million. And the company completed its first ever general layoff, of 5,000 people. The company did not cut into its R&D budget, however. Spending there rose from $2 billion to $2.2 billion.”

It’s that last point that I’m focusing on, as it demonstrates that the company is living up to CEO Ballmer’s pledge to increase our annual R&D spending – amid this deep recession – from $8 billion a year to over $9 billion.

At a time when most budgets are hurting, that’s quite an investment.  If you’d like to know what we’re getting for that, check out http://research.microsoft.com, or for the most up-to-date reports, use Twitter to follow @MSFTResearch – this week, the Twitter feed has focused on papers and demonstrations we’re presenting at the 18th International World Wide Web Conference (WWW2009).

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A Semantic-Touch-Flexible-Cloud Future Prototype

One of the more popular posts I wrote in 2008 about Microsoft Research prototypes featured the “Research Desktop” project, bringing together semantic analysis with Web 2.0-style user interfaces. MSR is now supplementing those concepts with more natural interfaces and new display and touch technologies.

Tonight at the Las Vegas 2009 Consumer Electronics Show, Janet Galore of Microsoft’s Strategic Prototyping unit was onstage with Steve Ballmer, showing a conceptual demo of several technologies of the future which could significantly change the way people find, share and use information. Take a look at the video, which shows among other things new touch capabilities, semantic analysis, “Software + Services” integration of device computation with cloud computing, and flexible active displays.

By the way, that last one – flexible displays – was just highlighted by Bob Gourley in his New Year’s “Look Ahead: Some Technology Developments to Expect in 2009.”  I think this video’s example, about six and a half minutes ino the scene, really makes clear the startling promise of new displays.

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Crisis? Pshaw. Be Bold with Research Investments

Bottom line: The smart companies will weather this fiscal crisis by “steering into the skid,” and actually increasing their investment in the future.

One of my last pieces of advice to DIA’s director before leaving last year was to increase the amount of money annually invested in IT research and innovation. DIA’s technology budget was typically too bloated on the side of operations and maintenance for current systems, and not investing enough in the future, though during my time there we had made significant progress in redressing that, increasing the resources (people and money) put against “what comes next.”

In government-agencies particularly (and many torpid commercial enterprises also), budgeteers make the mistake of throwing money at legacy systems instead of being bold and prioritizing research for the next generation of systems. (Last year I wrote about these issues in “Moving Money to the Left.”)

Now, no one has asked me about my views on the fiscal “bailout package,” which makes sense, particularly when there are people who make far more sense than me expressing their well-founded opinions in ways I thoroughly agree with – such as, say, Harvard economist Jeffrey Miron in his excellent op-ed piece for CNN last night (“Bankruptcy not Bailout is the Answer“).

But a number of people have asked me what the impact on Microsoft might be from the current “crisis” and market volatility.  I have to say that I’m pretty optimistic, precisely because Microsoft is investing in the future, in ways that are designed to carry us through short-term downtimes and on to exciting new platforms.  The company’s cash-rich, which helps. 

 Most importantly, our CEO Steve Ballmer firmly pointed to our increasing bet on our new approaches to the future.  Speaking in Silicon Valley, he said proudly that not only will Microsoft continue to buy about 20 innovative companies a year, but we will also keep spending $9 billion a year, or 14 percent of revenues, on internal research and development. (See the Venture Beat story here.) 

 

Microsoft “will use the slump as a chance to invest more in our future than the other guys we’re competing with” – Steve Ballmer, quoted in Bloomberg.com  

 

There are going to be winners and losers coming out of this slump, as there have been in each of the tech slumps I’ve seen in my short (!) life over the past three decades I’ve been involved.  The winners are inevitably those with a vision for the long term and the determination to plan beyond the horizon. 

Microsoft won’t be the only winner (see “Microsoft, Xerox Invest in Innovation” for a description of the Xerox CTO’s similar thoughts), but I’m convinced we will be in the front rank.

 

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Opening Doors to Interoperability

I had to write a freshman term paper on Immanuel Kant, and chose as a topic his role in sparking the German Enlightenment, from which I at least learned the word Aufklarung … which surprisingly doesn’t come up much in normal conversation, even when I’m in Germany. But I’ve been thinking about that movement and its ramifications quite a bit, because of the ongoing technology enlightenment driven by “open-source” approaches.

When I announced I was joining Microsoft, several of my friends in the open-source-software “movement” raised their eyebrows and ribbed me for joining the dark side… although the brighter ones also pointed out several important trends and markers through 2006 and 2007, changes in Microsoft behavior and approach which appeared to signal that the company was tacking in a much more open direction. Ray Ozzie’s joining of the company, and his announced projects, were taken as significant, along with several software launches (both in the Live world and elsewhere) with fundamentally open foundations.

Today the company is making public what Steve Ballmer and Ray Ozzie are calling “important changes to our technology and business practices that will enhance the interoperability of our products and expand the technical information we share with developers, partners, customers, and competitors.” All to the good, including more comprehensive information about the new “Interoperability by Design” approach.