Microsoft Is Losing Some Of Its Elbow Room

Whereas once Microsoft had its pick of the best and brightest engineers, Google is now the hot company. Competition for talent has been so fierce that the two companies recently battled in court over whether Google could hire a Microsoft senior scientist in China. (It could.)

In a deposition, a Microsoft engineer said that when he told Microsoft chief executive Steven A. Ballmer that the scientist -- Kai-Fu Lee -- was defecting, Ballmer went into a chair-throwing, expletive-laced tirade about Google. Ballmer denies the account.

Other analysts say that Microsoft's size has become a disadvantage and that its ongoing strategy of linking everything to Windows and its siblings adds complexity, delays new products and frustrates its engineers.

Vista, the next version of Windows, is scheduled for the second half of 2006, pushed back from a hoped-for release this year and without some originally planned features.

Peter S. Cohan, president of his own management consulting and venture capital firm, measures a company's ability to move quickly against competitors by examining its "OODA loop," or its ability to observe, orient, decide and act.

"Microsoft has a very, very ponderous OODA loop," Cohan said. "It's become a big, bureaucratic organization" that is constantly trying to balance the interests of various divisions.

In his memo, Ozzie ticked off several areas in which the company failed to grab leadership, even though in some cases its engineers were first to develop the underlying technology.

"While we've led with great capabilities in Messenger & Communicator [voice-over Internet software built into its instant messaging software], it was Skype [Technologies SA], not us, who made VoIP broadly popular and created a new category," he wrote as one example.

And he warned that "complexity kills. It sucks the life out of developers . . . it introduces security challenges, and it causes end-user and administrator frustration."

Ironically, given how hard Microsoft fought the idea, Cohan and a handful of other analysts think the company would be better off broken up. The Windows company could be the slower-growth, dividend-paying firm, while gaming and other Internet-based initiatives could be its version of a start-up.

Matthew Rosoff, an analyst with Directions on Microsoft, which publishes a newsletter that tracks the company, disagrees.

"For a company their size, they are actually quite agile," he said.

But perhaps its greatest strength, he said, is its discipline and perseverance even when its early efforts are not successful.

"They've been putting money into interactive TV" without financial return, he said as an example. "But they keep hammering away at it, because they say, 'If this takes off, we have to be there. It's a software business.' "

He particularly credits Gates and Ballmer with taking the long view in an industry often blinded by short-term fads.

"They want to make sure there is a Microsoft in 30 years, and that it is still a dominant company," Rosoff said.