COLUMN-The 20-year-old Microsoft memo that came true
By Jack Shafer
Feb 7 (Reuters) - About 20 years ago, Nathan Myhrvold, then Microsoft's chief technology officer, composed a 20,000-word piece of prophesy titled "Road Kill on the Information Highway" that reads as fresh today as it did then.
One of many memos the polymath was churning out for Microsoft bossman Bill Gates at the time, "Road Kill" deserves our renewed attention for at least three reasons: 1) many of the market, media and tech dislocations Myhrvold predicted have come true, so he's owed credit for his sharpness; 2) the tech forces Myhrvold identified have continued their romp, making some of his come-true predictions even truer as time has passed; and 3) though Microsoft embraced much of his futurology at the time, it still missed the market in many places where companies like Google, Apple and Amazon hit.
Rereading the memo, you feel a pang of sympathy for outgoing Microsoft chief executive officer Steve Ballmer, who has been criticized for not overtaking Google, for not inventing the iPhone, not creating Facebook, and other transgressions. You also feel 10 tons of trepidation for incoming CEO Satya Nadella, who faces the same tech market realities that blunted Ballmer. Myhrvold's memo, dated Sept. 8, 1993, repeatedly warns that computer speed and computer storage were to grow exponentially for decades, making the computers of the near future a million times fast and then a trillion times faster.
Every tech know-it-all was harping on the mayhem Moore's law would unleash, but Myhrvold's essay made the coming revolution palpable. He wrote:
It is extraordinarily difficult for people to really grasp the power of exponential growth. No experience in our everyday life prepares us for it. The numbers become so astronomically large so quickly...that it is easy to either dismiss them outright, or mentally glaze over and become numb to their meaning. It is incredibly easy to fool oneself into thinking that you do understand it, but usually this just means that you've mentally done a linear extrapolation from the recent past. This works for a little while, but then rapidly becomes out of date.
Exponential growth had allowed minicomputers to edge by makers of mainframes who didn't make the "exponential extrapolation" and act on it fast enough. Exponential growth similarly allowed microcomputers - personal computers - to blow by minis, enriching Microsoft, which soon become the dominant maker of PC software. "The growth curve of Microsoft is unprecidented in the annals of business, and seems quite miraculous until you realize that what we have done is ride the exponential growth curve of computer price/performance," Myhrvold wrote.
The Myhrvold memo recites a Microsoft catechism that the hardware business must be avoided because its profit margins were too thin and the speed at which technology moved put hardware makers at perpetual risk of becoming obsolete. Better to concentrate on software and its higher margins, which Microsoft largely did until 18 months ago when the company produced its Surface computers, and then last fall when it purchased the Nokia handset business.
But in his own way, Myhrvold, who left the company in 1999 for other business and personal enthusiasms, anticipated the day that Microsoft might have to become Microhard, too. "The only hardware companies that have ever made significant money are those that managed to create an asset - the hardware architecture - which was above the fray of individual implementations and thus could enjoy a longer life span," he wrote, presaging the success of Apple's iPod, iPhone, and iPad businesses.
"The bulk of the worlds' computing cycles come near the low end, high volume part of the market," he continued, paving with words the road Apple would later take with its handheld computers. "Any software company that wants to maintain its relative share of total CPU cycles must have products that are relevant to the high volume segment of the market. If you don't, then you are vulnerable to a software company that does establishes a position there and then rides the technology curve up to the mainstream. This is what the PC industry did to mainframes and minicomputers, and if we in the PC industry are not careful this fate will befall us as well."
If Myhrvold were writing this memo today, he'd acknowledge that smartphones are close to seizing the bulk of the world's computing cycles, and the smartphone is doing to the PC what it did to the mini and what the mini did to the mainframe. He'd add that Apple (and Google, with its Android operating system) and not Microsoft were riding the technology curve in the smartphone mainstream.
It's not that Microsoft never competed in the itsy-bitsy computer space. It obeyed Myhrvold's dictim that "Anything which isn't exponential in growth, or which is exponential but with a slower growth rate, will quickly and inexorably be overwhelmed." It built operating systems for PDAs and cell phones, produced software for the SPOT smartwatch, manufactured Zune music players, and went large to produce the Xbox for gamers. (Anticipating the PDA, the smartphone, and an "always connected" device, Myhrvold pitched his company a tiny "digital wallet" in 1991.) But Microsoft mostly missed the waves or fell off them, and those failures help explain why Apple and Google have higher market caps than Microsoft. Today, we're probably just a couple of product cycles away from your smartphone (connected to a full-sized keyboard and monitor) being a solid substitute for your laptop and desktop computers. Unless Microsoft or its hardware allies produce a comparable product, the company could lose its already slipping primacy.
Although Myhrvold never mentions the Internet by name, he correctly predicted that an "information highway" selling goods and services would wreck the Blockbuster video chain business as movie rentals go online, with similar transitions in banking, newspaper classifieds ("Newspapers are in probably the worst situation of any form of print media"), retail shopping, Siri-like speech recognition software, crime-fighting (he makes an early call for ubiquitous video surveillance), media time-shifting, outsourcing, the retail stock market, and the rise of realistic video games - "you won't be able to tell the difference between the game and a movie." Granted, he didn't predict cloud computing in his memo (although you could say that he implies it), sense the eventual rise of social media, or anticipate the "piracy" of music and movies. He also missed the mass migration of advertising to Google, which ordinarily collects about 90 percent of its revenues from ads.
You could also knock Myhrvold for wrongly predicting the collapse of conventional broadcast and cable TV, although charitable readers will say his burial of the industry was just a tad premature. In one laugh-out-loud passage, he states with supreme confidence that the Microsoft At Work campaign would "unify PCs with the telephone, FAX and copier." Yeah, right. My phone, fax and copier still don't get along. Maybe the new Microsoft CEO will pay for group counseling?
Still, Myhrvold's hits dwarf his misses. Other Myhrvold memos, analyzed by Ken Auletta in a May 12, 1997, New Yorker profile, reiterated the death-of-the-middleman themes etched in "Road Kill." He correctly predicted the demise of Egghead Software and Tower Records in the face of online competition, but in an uncharacteristic miscue, he pooh-poohed the Internet "hype."
Myhrvold cheerfully conceded his fallibility to Auletta: "When you predict the technological future, as I do, you basically are like an insurance salesman, futures trader or gambler."
As a historic document, "Road Kill on the Information Highway" deserves your attention. But its underlying message about exponential effects of modern technology remains so timeless that new CEO Nadella should keep a copy on his smartphone for inspiration, highlighting this memento mori codicil: "Our own industry is also doomed, and will be one of the more significant carcasses by the side of the information highway."