Henry Blodget , mostly is known mostly for being spectacularly wrong during the dot com bubble of the early 2000s, and Silicon Alley Insider have decided this week to put pen to tablet (so to speak) and wax on about how Microsoft is poised to take advantage of the current weakness in the stock market. This is probably due to the observation that Yahoo can now be had at a much cheaper price that the $30 odd per share they they were floating this past summer. That may indeed be true, but Microsoft has a history of completely screwing up any online initiative that they attempt. It has so far been a complete money pit for them with no end in sight.

In order to understand Microsoft and online, you need to understand that they got into online business because of AOL. MSN was originally designed to protect it’s Windows business from the threat of dial up services and a potential (which didn’t materialize) Netscape/AOL combination. MSN created online properties completely in the AOL walled garden model. They were maniac in making sure that Internet Explorer (nee Spryglass browser) was preloaded on all PCs. Anyone who disagreed was threatened to have their Windows license revoked (read Compaq).

AOL had a one time a vision to render the Windows Desktop a OS layer from which you run the AOL Client you got from those ubiquitous CDROMs at the supermarket.  However, perhaps thankfully, those ideas did not come to fruition as people began to choose naked Internet connectivity and the Google search page as the defacto standard for the Internet entre.

Fast forward to 2008, AOL is no longer relevant, relegated now to Seniors and the very rural. MSN is still fully embedded in past battles, unable to make itself relevant to todays facebook swinging youths. MSN is like a Soviet era airport terminal, still trying to sell 3 day old muffins and warmed over Fogers coffee. In between faux Dick Clarke hamburger joints are kiosks trying to sell you Burberry knock offs, Viagra and offers to transfer Nigerian oil millions (AOL at least has had a coat of paint). MSN is not so much a destination, as a necessary stop off for some on their travels to Google goodness.

Along comes Google Apps and Microsoft suddenly has the threat that they thought would materialize in 2000. Their response is Windows Live. Along comes Amazon Clouds and their response is Azure. Microsoft fundamental response to any online initiatives is to copy. In other words, Microsoft’s total online strategy is to respond to perceived and actual threats, not to build real innovative products and services that people want, but to build on top of this rickety MSN and catch people from the default IE home page, who are too inexperienced to find the exit.

And here in lies the problem that Microsoft has. As long as their complete motive is to protect the Windows/Office franchise, they will never succeed in building true innovation into their products and their competitions are free to out execute them.

Their true dilemma is that they view their customers as Windows/Office users that need extra stuff that they cannot get from Microsoft, rather than people that need a problem solved.

If they need some guidance, they need only look at Xerox, Digital Equipment, Shugart, Hayes Modems, 3Com, Palm……

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