Lots of companies are focused on sustainability, but who will lead them?

By Neil Sims and Adrian Choo, Boyden

Sims and Choo (left) say it takes a special leader to manage cleantech companies. Photos: Boyden.

Going green has gone commercial. Environmental sustainability is no longer the exclusive purview of non-governmental organizations and policy wonks. Today a raft of young ‘cleantech’ companies is emerging to bring a wide range of green concepts to market in fields such as biofuels, solar, wind, biomass, tidal power generation, conservation and many other categories.

These companies have financial backing, innovative engineering and technology, and the widespread support of an increasingly green-conscious public.

What they often lack are leaders.

Where do you find the leadership to build a lean, fast-moving business based upon sophisticated science? There are a limited number of seasoned executives with scientific and environmental expertise and the qualities needed for successful entrepreneurship.

Scientific entrepreneurs, or entrepreneurial scientists?

Scientists can be recruited from the traditional biotech and energy companies, but these individuals may not survive in the world of the start up. The labs of large, multinational companies and academic research efforts at major universities or governments are great at churning out innovations that become the basis for startups. (Technology behind superhot battery maker A123 Systems (AONE), for example, was invented at MIT and incubated at Boston University.)

But often the leaders who emerge from such institutions are ill suited to tackle the obstacles presented in starting a company with limited cash, working the extended hours required to turn an idea into a sustainable company or making the Sophie’s Choice trade-offs normally required to transform compelling science into a viable commercial offering.

Andres Wydler, CEO of Real Green Power, a wastewater treatment and renewable power generation company, offers some interesting insights. “We have no real choice but to take some risks as we build these companies,” he tells Boyden Global Executive Search.

“When it comes to the science, we also must have subject matter expertise,” adds Wydler, who served as a software executive earlier in his career. Many observers believe that droves of qualified people will migrate from legacy industries to build the cleantech executive corps. Yet difficult decisions remain. For example, should the leadership of a biofuels company come from the biotech sector or an oil and gas monolith?

Wydler reveals three strategies he uses for executive recruitment. First, he looks for non-vocational experiences that hint at a candidate’s resourcefulness. A candidate becomes interesting to him, for example, if he or she has been active in leading a non-profit organization or a sports team where finances are limited and the individual can demonstrate an ability to achieve goals by leveraging creative resources and leadership skills.

Second, he looks for a candidate who might have led an innovative or exploratory effort within a larger organization. The imperatives for entrepreneurial success are similar because often these efforts are under-funded until more reliable outcomes can be predicted. The willingness to risk the politics of potential failure within the corporate or academic environment are often a good indicator of the candidate’s ability to be successful entrepreneurially.

Finally, Wydler and the Real Green Power team shifts discussion away from the interviewee’s strengths. For instance, at a meeting with a scientist, Wydler might ask questions related to legal issues or marketing strategies. The goal is to understand how broadly the candidate thinks. The company does not hire individuals who can only comment thoughtfully in their area of expertise.

Actual data support Real Green Power’s executive search strategies. Stanford University’s continuing studies program on cleantech entrepreneurship recently conducted an informal survey. Of the 27 cleantech CEOs surveyed, nearly three quarters of the executives transferred from other industry disciplines to their current positions. The common denominator, according to the data? Entrepreneurial competencies. Some moved from legacy industries that were logical, related to their area of environmental focus.

From infotech to cleantech

Others have come from industries with no direct correlation to cleantech initiatives. Shai Agassi, CEO of Better Place, for example has built an international team of 17 executives without regard for their individual histories in the electrical transportation sector. Agassi, himself, migrated from the world of enterprise software and few  members of his leadership team joined with relevant domain experience.

The dearth of cleantech leadership is a global challenge. In Asia, for example, Boyden clients focus on adaptability, business acumen, and most importantly local business culture. These seasoned executives bring critical value to cleantech startups by “cross-pollinating” proven ideas from “old world” industries with newer, innovative solutions. Though, the pipeline of potential top executives is building. For instance, Lars Buesching, a Managing Director for Norway-based Scatec Solar, previously served as a managing director for chemical company Mankiewicz & Co. in China after beginning his career in management consulting with IBM (IBM) and PricewaterhouseCoopers. Mr. Buesching brings a healthy perspective to Scatec’s operations worldwide with his deep understanding of Asian culture and management,

CEOs who have made a shift to the cleantech sector will need to augment their companies with the essential knowledge of their core technology and distribution models. The right executives will offer CEOs significant leverage by bringing proactive management with targeted skills but must be filtered for entrepreneurial indicators that provide evidence of a candidate’s potential for success in a smaller, heavily leveraged environment.

Sims is Leader of Boyden’s Cleantech Initiative and a Managing Director with Boyden San Francisco.  Choo is a Principal with Boyden Singapore. Boyden is a leading global executive search firm with more than 70 offices in over 40 countries.

With ownership of the SMB market, is Citrix Online a threat to Cisco?

Caine's Citrix owns unified communications - for now. Photo: Citrix.

Hoopla around Google Wave service, launched publicly in September, has brought resurgence to the idea of unified communications — a single platform that integrates voice, email, fax (really!), chat, and web conferencing. Long a dream of the telecommunications industry, unified communications is gaining some buzz among corporate tech teams as a possible tool for enhancing employee productivity.

As tech executives ponder their options, vendors of communications services are racing to grab share in the nascent market. But so far, it's not online voice purveyor Skype or event Google (GOOG) that is making real waves in unified services — so far. Instead, the leader is a relatively unknown company: Citrix.

Citrix Online is the dark horse — some would say underdog — of the web conferencing space. (Citrix Systems was founded in 1989, acquired Expertcity in ’03 and renamed it Citrix Online, which oversees the company’s remote collaboration tools.) As Cisco (CSCO), Microsoft (MSFT), and IBM (IBM) fought for big Fortune 500 enterprise clients during the 2000s, Citrix focused on small to medium-sized businesses. From 2006 to 2007, Citrix’s revenue increased 50% and jumped more than 100% the following year to 101.4 million, according to Gartner data. And analysts expect the same growth this year.

The company delivered a product that had the right amount of features at the right price, says Roopam Jain, Frost and Sullivan’s principal analyst for collaboration.

“Citrix has been very aggressive around the SMB market,” Jain says. “Citrix has seen the fastest growth in this space; it’s brought meaningful market prices and hit what everyone wants — the sweet spot.”

Serving the small business sweet spot

Citrix is now hot on the heels of IBM and Microsoft — and if it continues to grow at the same rapid speed, it would be a surprise to no one if Citrix surpassed both these tech giants in market share. But compare Citrix's 2008 101.4 million revenue to Cisco’s $551 million revenue figure, and Citrix still has a long way to go.

Timing is everything. For years, small-to-medium businesses were notorious for their reluctance to invest in new technology. But as the recession kicked in, so did Citrix’s business. As enterprise clients decided to wait on investing in more technology, small-to-medium businesses were pressured to cut back, says David Smith, Gartner’s collaboration analyst.

And so small-to-medium businesses looked toward the best technology solution to replace travel expenses and unnecessary overhead — at an affordable price.

“The SMB market was very much underserved in 2004 and 2005,” says Brett Caine, president of Citrix Online. “At the time, the existing options required a lot of training and the prices were unpredictable. That’s when we stepped in and saw our opportunity.”

Citrix’s lucrative success in the SMB market has garnered the attention of many of its competitors, which has also expanded its reach and focused on this segment. Specifically, IBM and Microsoft have made big pushes for SMB in the past few years, Gartner analyst Smith says.

For Cisco, more competition has driven the company to work harder than ever to maintain its market share dominance, says June Bower, vice president of Cisco Collaboration Software Group. After acquiring WebEx in 2007 for $3.2 billion, Cisco recognized the need to expand its client base in the market and is now fully armed to not only serve its existing enterprise clients but all the small-to-medium business clients as well.

As the tech giants look to expand their reach and try to appeal to both enterprise and SMB clients, Citrix will continue to focus on small-to-medium businesses, with the hopes of gaining more and more customers (this year the focus is abroad), and effectively, more and more market share. Ironically, despite not targeting enterprise clients, those companies are actually approaching Citrix, Caine says.

But will Citrix be a lasting success? Caine says that Citrix Online has no intent on moving toward a unified communications platform, unlike the rest of the industry. His argument is that his clients don’t want that.

Web conferencing is the leading web collaboration tool that both enterprise and SMB clients want after email, but actual implementation is slow, according to Forrester research. But right after web collaboration, companies also want video conferencing. So would it not make more sense to invest in a service that could provide a unified communications solution?

We’ll see. The market is still too young to tell. But Caine says Citrix is ready to adapt to whatever changes or demands his clients want. And if the company adapts its tools as quickly as it has grown, well, then this dark horse could win the race.

Vineet Nayar, CEO of information technology company HCL talks about managing growth and taking on the big boys of tech.

Cisco CEO John Chambers and strategy chief Ned Hooper address analysts. Photo: Jon Fortt.

Cisco has its swagger back.

When the networking provider hosted Wall Street analysts at its San Jose headquarters Tuesday for its annual update on the state of the business, the most striking thing was the full-scale return of confidence. After a year in which most of tech has struggled to regain its footing in a global financial crisis, CEO John Chambers and his lieutenants told the financial community that they’re poised to grow sales faster than big companies typically can.

To be specific, Chambers says that in normal economic times Cisco (CSCO) can deliver annual sales growth of 12-17%. Off of his current revenue base of $36 billion, that translates into a promise to find more than $4.3 billion in new revenue this year alone.

Chambers believes he can do it because a fresh set of Internet technologies is changing the way we communicate – and giving Cisco a chance to grab a greater share of the spoils. Chambers has outlined three opportunities he believes will reap big rewards: video, collaboration and virtualization.

In the simplest terms, Cisco is betting that video will continue to grow its share of overall Internet traffic as carriers use the Internet video to deliver movies and TV, businesses use it to help employees share ideas and close sales more quickly, and consumers use it to express themselves on the go.

All of that new video traffic should create demand for Cisco’s highly profitable networking gear. It should also create new openings for someone to sell communication systems, back-end servers and management software to run it – and Chambers is positioning Cisco to make that sale.

Skeptics point out that Cisco has stronger competition than ever. Hewlett-Packard (HPQ) and IBM (IBM) sell their own packages of virtualization technology. Microsoft (MSFT) and IBM have their own collaboration suites. Each has resources to rival Cisco’s – and it would be foolish to count any of them out.

So can Chambers deliver? More than a few analysts think he can. They point to Cisco’s cash hoard that’s approaching $40 billion, its track record for successful acquisitions, and its knack for spotting trends early enough to get a jump on rivals. He’ll probably need to use all those tools – and some new ones – to meet his own lofty growth targets.

In the new business world, smart data analysis can be the smart executive’s crystal ball.

By Rob Ashe, general manager, business analytics and performance management, IBM

Ashe advocates for analytics. Photo: IBM

What if the financial industry could capture enough foresight on the right trends and indicators to pinpoint the next potential Ponzi scheme before it unravels? What if scientists could better predict infectious disease outbreaks such as H1N1? What if a brand manager could easily determine his most profitable customers or better detect fraud to help his business save operational costs?

It might seem like guesswork best left to the realm of industry pundits and scientists in lab coats. But gaining real foresight about trends, sentiment and customer churn — the kind of insight that can help modern businesses cope with tough economic times and simultaneously deal with the deluge of data they face — is achievable today.

The problem is most companies are drowning in data and information: Each day more than 8 times the information in all U.S. libraries is being generated. By next year, the amount of digital information will be equivalent to a stack of books from the sun to Pluto and back.

Each week businesses waste 5.3 hours per employee due to inefficient processes. An average company with 1,000 employees spends $5.3 million a year simply to find information stored on its servers. The consumer products and retail industries lose about $40 billion annually, or 3.5 percent of their sales, due to supply chain inefficiencies. Similarly, the world's ports are cluttered by empty containers. In North America alone, it is estimated that between 20 and 22 percent of the total port volume is containers with nothing in them. 59% of businesses do not have access to information across the value chain that would be most useful to them for decision-making.

Business as usual isn’t working.

But some leading organizations are already exploiting new predictive analytics technology that instantly parses diverse, unstructured and disconnected pieces of data – whether the data comes from blogs, email, podcasts, customer comments or videos – for very fast, accurate and insightful decisions based on relevant and timely information.

Real-time business smarts

They are gaining new intelligence into how best to manage spending that is for the benefit of periods beyond short-term horizons, how to improve profits by understanding which customers are most profitable and retaining them and how to reduce risk by limiting exposure to chronically late suppliers or the impact of fluctuating market prices for supplies. They are quickly able to capture insights from time-sensitive information such as the health of business supply chains, marine ecosystems, business operations, customer sentiment or financial trades.

For example, DHL Worldwide, a global air and ground express industry leader, is now able to analyze more than 30 million customer records in just seconds vs. hours while reducing system maintenance costs and improving operations and customer profitability.

The Marine Institute of Ireland is now able to better understand fragile marine ecosystems. Developing large volumes of acoustic signal data from hydrophones mounted on buoys in the ocean, the platform is analyzing echolocation sounds of sea life, which can be used for location, range and object identification. This data is then correlated into useful information such as species identification, population count and location.

Using streaming analytics and the latest supercomputer, scientists at IBM (IBM) Research collaborated on a project with TD Securities to achieve a 21 times performance improvement on the volume of data consumed by financial trading systems.

With modern technology these organizations are using information in entirely new ways to improve performance and gain new insight about their business and the world around them.

By turning ‘what-if’s’ into “what we know,” and “what will be” smart companies are gaining the insight required to improve productivity and properly fuel innovative 21^st century growth.

Ashe, former CEO of Cognos, is currently the general manager of business analytics and performance management for IBM’s Information Management group, which develops software that enables organizations understand their performance and make informed decisions.

Tech's top vendors see small companies as a big opportunity.

Software giant Microsoft (MSFT) tops a new ranking of technology companies effectively serving small businesses online by providing a rich, educational web experience for small companies.

Compass Intelligence, a Scottsdale, Ariz.-based consulting firm, analyzes the websites of dozens of tech companies – and interviews small business owners and executives – to come up with its rankings, which it publishes twice each year.

Microsoft leaped to the No. 1 ranking from No. 6 in the first quarter of 2009, essentially switching places with computer maker Dell (DELL) which slipped to No. 6 from the top spot in the first quarter. (Remember, the Compass rankings look at just one part of the tech company's small-business strategy: online reach. All these companies also work through resellers, local affiliates and even have direct sales folks marketing to and servicing small entities.)

That said, the top ten, in order, are:

1. Microsoft
2. AT&T
3. Cisco
4. HP
5. IBM
6. Dell
7. Verizon
8. Sprint Nextel
9. Nortel
10. Symantec

"All these companies are commited and focused on the [small-to-medium sized business market](in different ways)," Kneko Burney, chief strategist for Compass, writes in an e-mail. " They all 'get' small business."

And that may prove to be smart business. Compass estimates that U.S. small businesses – companies with 20 to 100 employees – will spend more than $230 billion on technology in 2009. And a separate new report suggests smaller companies are loosening their purse strings on tech spending even as large enterprises remain cautious.

The Global Technology Distribution Council, a consortium of technology distributors such as Arrow Electronics (ARW) and Avnet (AVT), last week said its members' U.S. sales in the third quarter rose 10.7% over the second quarter.

Large companies "have cut back tech spending, and they're still hunkered down," observes consortium CEO Tim Curran. "SMB (small to medium business) in this instance seems to be a leading indicator of companies starting to invest."

Curran said his members, which serve value-added resellers and other "channels" that, in turn, directly sell to smaller firms, have been seeing particular interest in investing in security solutions and cloud computing services that deliver business software and other applications over the Internet.

Even tech executives who deal primarily with the very largest global companies are talking about their companies' ability to serve small-business clients.

"We have a porfolio that fully meets what small businesses need," says Ann Livermore, executive vice president of HP (HP) Enterprise, a $54 billion-a-year unit that includes consulting, hardware and software sales to businewsses of all sizes. Adds Livermore: "You'll see us being very focused" on the segment.

Entrepreneurs also rely heavily on mobile technology to run their companies. Today there are hundreds of mobile applications that enabling small biz executives to operate while on the go (everything from an application for sending and tracking FedEx (FDX) packages to an app that turns an Apple (AAPL)  iPhone into a voice recorder).

No wonder a Yankee Group study released in September found 28% of small businesses said "smartphone implementation" — the deployment and upgrade of Internet-enabled mobile devices – was their top tech priority in the next 12 months.

Small businesses reliance on mobile means wireless operators have an opportunity to expand their relationship with small businesses, perhaps acting as a distributor for other tech companies' hardware and software or even offering integration and other services in competition with companies such as HP and Dell.

In many ways, the telcos are already seizing the small-business opportunity. AT&T (T) is the No. 2 company on the Compass Intelligence report. "What I love about AT&T is that they are very aggressive in rolling out new "cloud" services tailored just for this market," Burney writes.  "They are focused on providing a suite of services to enable these customers using the power of the network. That's definitely the future."

Undoing the dupe: A way out of your Big Software contracts

By Roger Burkhardt, CEO, Ingres

(Last month Burkhardt wrote about how Big Software companies lock customers into restrictive software licensing agreements and continue to raise prices, even during tough economic times. Here Burkhardt offers some tips for effectively renegotiating contracts with your current Big Software suppliers.)

Burkhardt tells how to untangle your company from Big Software. Photo: Ingres

For decades now many of us in corporations have been paying loads of money to work with Big Software companies like Oracle (ORCL), Microsoft (MSFT), IBM (IBM) and SAP (SAP). Our information technology employees are familiar with these software vendors and their technologies (and their proprietary licensing models) and may even identify their careers with them. So, while we may suspect we are being overcharged, and could spend millions less running our IT departments, we have remained comfortably, and expensively, locked-in.

But we want to be back in charge. And we deserve to be; we’re the customers that line the pockets of all Big Software companies. Without us, who would buy all that software?

But we question whether it is even possible to break away from this perverse reality where software leviathans dictate both economic terms and the technology road maps that are critical to our business.

Is there a way to move towards an alternative model, where IT costs are variable and aligned with actual business needs? Yes, but we just don't like change. And perhaps we lack 100 percent confidence in the ability of new, alternatives to perform the mission-critical processes that must run our companies 24×7, reliably and securely.

I understand these requirements well. In my former role, I was responsible for the New York Stock Exchange’s technology, and the continuous availability of our trading systems was paramount. My team showed me a better way to deliver that reliability by using innovative Open Source software and open standards. This gave me the tools to combat the hardball negotiating tactics of Big Software and to substantially drive down costs.

Over the last decade, alternative IT models have matured across a broad range of software technologies and a growing number of customer success stories demonstrate that it is eminently feasible for well-lead IT organizations to move to this better model. And in doing so, gain substantial cost savings and rapid innovation benefits of a New Economics of IT.

You don't need to continue signing over your business' bottom line to Big Software companies that keep you locked-in to contracts with no end to escalating costs.

A way out

If you’re ready to embrace change and begin looking at more cost efficient and innovative ways to run your IT infrastructure, here are five tips to help you extract yourself from expensive Big Software contracts that are holding your company hostage:

1. Introduce real competition to the software license cartel. We know that introducing real competition for any product or service is the key to avoiding expensive and inflexible contracts.  The key in software is to introduce competition from companies with a disruptive and competitive business model. Consolidation in the proprietary software industry has created an oligopoly of proprietary players which demonstrate their power by raising prices in the middle of a recession. In fact, the software leviathans such as IBM, Microsoft and Oracle compete with each other about as vigorously as OPEC members and we need new business models to provide real competition.

The proven alternatives are Open Source software from companies such as Ingres and Red Hat (RHT) and Software-as-a-Service (SaaS) offerings from players like Salesforce.com (CRM). Both models provide low and variable costs and create real competition to the proprietary software model. By adopting these models for at least 10-15% of your software you can negotiate better prices on the other 85%.

2. Understand and adopt the new software business models.. Open Source software has no license fee and support is provided under an annual software subscription that is substantially less than the annual maintenance fee charged in the proprietary model. The subscription includes product usage rights, support services, access to new features and goes up or down year to year depending on your actual business usage. This subscription model is used by both Open Source and SaaS providers and aligns costs directly with the value the software provides in actual use. Another benefit: the end of Big Software shelfware. Consider donating your remaining unused software to not-for-profit organizations that could surely use it.

3. Strategically avoid technology lock-in. For competition to work, you need to be able to switch vendors over time and this requires an IT strategy that mandates open standards and so won’t lock your company into a particular vendor. This is true of proprietary software and Open Source and SaaS alike. Remember, having a low cost and variable cost model isn’t sufficient in itself; over time you may still want to switch technologies to support new business strategies. The good news is that mature open standards are available for the full range of software technologies and they bridge both proprietary and Open Source worlds. For example, half of all programmers use the open Java language and Ingres customers are running critical financial systems written in Java that process billions of dollars a day on a completely open source infrastructure.

4. Demonstrate an open competitive environment. In order to drive down your software costs, you need to adopt mature alternatives for a significant portion of your software and use this leverage to negotiate better terms overall. Proven alternatives to Big Software are available at virtually all levels of IT – from the operating system up to the application layers. You won’t eliminate proprietary software overnight – you are often dealing with multi-year contracts after all – but by eliminating 10% to 15 %, you will save up to 95 % in those areas and will be empowered to negotiate substantial cost reductions for the remaining 85% of your environment.

5. Re-read your software contracts and plan your escape from Big Software. Check the fine-print of your Big Software contracts to make sure there is a cap on the maintenance costs after the license deal ends. If not, ask for one well in advance of the renewal date and if you don’t get it (surprise!), re-double your efforts to build your negotiating leverage by bringing in open subscription-based software technologies for 10-15% of your portfolio.

Software subscription models make it easy to prove the value of software before you make significant investments. They reduce the total cost of ownership by eliminating expensive license fees and a whole range of subsequent “gotchas”. It’s simply a better, smarter way to buy, one that finally puts the customer back in charge.

No duping involved.

Burkhardt is president and CEO of Ingres. He previously spent six years as CTO and executive vice president of the New York Stock Exchange, where he and his team transformed  the NYSE to a fully electronic model.

Is it time to dust off the party hats?

From the cheery headlines accompanying the latest round of tech earnings, you’d think so. Google (GOOG) CEO Eric Schmidt declared last week that, “the worst of the recession is behind us.” IBM (IBM) actually boosted earnings targets for the year. Taken along with the stimulus potential of Windows 7, Microsoft’s (MSFT) critically acclaimed PC operating system that launches this week, some say happy times are here again.

Not so fast. As we head into week two of this round of tech earnings, it’s important to keep in mind what these numbers show, and what they don’t.

What they show is this: we seem to have dodged the worst-case scenario. In those dark post-Lehman days at the beginning of the year it seemed the global economy was headed off a cliff, and nary a big tech CEO dared predict a recovery in 2009; as stock prices plunged and customers bolted, the sunniest forecast most would offer was carnage this year, followed perhaps by less carnage in 2010.

Now it’s a different story. Since the March market rebound and some calming statements from Fed Chairman Ben Bernanke, the suits have changed their tune. Intel not only reported a blowout quarter, but also pointed to a healthy holiday season; even embattled Advanced Micro Devices (AMD) said it expects a modest rise in sales. No one knows exactly what Apple (AAPL) will say when it reports earnings this week, but it probably involves an obscene volume of iPhones. In a turnabout from a year ago, all across Silicon Valley executives are whispering about an upbeat Q4.

So what’s not to like? Well, what these numbers don’t show is sustained revenue growth – the stuff that healthy earnings, stock prices, and economies are built on. IBM’s quarterly sales were down from a year ago, as were Intel’s. Other companies saw modest increases, but it’s too soon to tell whether the credit belongs more to a mounting recovery or to easier comparisons with last year – remember, things got bad right at the end of the third quarter, making these reports look impressive by comparison. Even the holiday season numbers won’t shed much light on whether this is a strong tech recovery or a weak one; last year’s Q4 numbers were so horrible that it won’t take much to blow them away.

No, to get a true read on the strength of this recovery, we’ll have to wait until April, when the big techs start reporting Q1 numbers. By then the euphoria of averted disaster will have worn off, and we’ll see if consumers and businesses have anything left to spend after the holiday season.

If sales slow down dramatically, we could be in for something like the uninspiring “L-shaped recovery” that Oracle (ORCL) CEO Larry Ellison predicted last month. If they continue chugging along despite high unemployment and foreclosures, then those party hats might be in order.

After the Vista debacle, Microsoft changed the way it makes software. The result – Windows 7 – is winning raves. Can a new operating system (and a new attitude) help the company take on Google?

With Microsoft's founder and chairman, Bill Gates, trotting the globe in a quest to abolish diseases, his handpicked successor, CEO Steve Ballmer, has had most of a decade to move the company beyond its two biggest cash cows, the Windows operating system and the Office productivity suite. So far, not so good.

The company's web forays, such as MSN, have only highlighted the dominance of Google and Yahoo. In software for smartphones, there is Apple, RIM (RIMM), and everybody else. MP3 players? Microsoft's Zune hardly merits a mention. And even the core franchise has suffered. In the face of slowing PC sales and the economic pall, Microsoft's fiscal 2009 revenue actually contracted, to $58.4 billion from more than $60 billion in fiscal 2008 — and the company missed its earnings estimate by more than $1 billion.

Fresh Coat of Paint: Artist Ricardo Richey, commissioned by Fortune, spray-paints a street-smartversion of Microsoft'sname and Window's logo on a San Francisco wall.

But the biggest failure under Ballmer's tenure was self-inflicted. Vista was meant to be a wholesale reimagining of Windows, the brand name for Microsoft's operating systems dating back to the early 1980s. Every so often the company unveils a new OS, blandly named for the year of the release (Windows 95, Windows 98) or a geeky abbreviation (Windows XP is short for Windows Experience). Vista had a marketing-friendly moniker, a fancy user interface, new security architecture, a better file-storage system, and much more.

After a protracted six-year development process, much internal squabbling, false starts, blown deadlines, and broken promises to partners, the engineering team mopped up 50 million lines of code, wrung it all out into a shrink-wrapped box, and heaved it onto the world in early 2007.

The timing couldn't have been worse. Vista required top-end hardware to operate even while users were downgrading from desktops to notebooks. The bloated OS was incompatible with printers, web cams, and device drivers of all sorts. Early adopters scurried back to Windows XP; many corporations skipped the upgrade altogether. Worst of all, Vista energized the cloud computing chorus, led by Google (GOOG), whose vision of the future involves ubiquitous broadband, a good web browser, and everything else hosted on the Internet. No sophisticated operating system necessary. "Vista was the biggest debacle in the history of the company," says one former senior executive. "People were ashamed to say they worked on it."

But here's some good news: On Oct. 22 Vista will be safely behind Microsoft (MSFT). On that day, the company will introduce a successor, Windows 7, and guess what? It doesn't suck. In fact, it's really pretty good. For all the pomp around each new version of the iPhone, the latest Kindle, or Google's next beta, Wave, Windows 7 is sure to go down as the technology launch of the year. Critics love it, and IT managers are ready to buy. A recent Credit Suisse survey says that a quarter of corporate customers plan to upgrade within two years. Analysts estimate that the new OS could boost Microsoft's revenue by more than $3 billion over that time and ignite the entire ecosystem built on Windows — from computer makers like Dell and Hewlett-Packard (HPQ) to third-party software vendors, resellers, and system supporters. It could be the shot in the arm the entire tech sector has been looking for.

On a warm September day in Redmond, Wash., sitting in a conference room in Building 34, the economic epicenter of the Northwest, Ballmer is not ready to declare the doldrums over. A stock market turnaround means little in the face of staggering unemployment. But he remains hopeful because he thinks this version of Windows is a winner. "It's a great product. We did our best. Is that going to cause huge increases in spending by the world's businesses? I can't make that promise," he says, "although I think things are becoming slightly less cautious. There's some hope that says, ‘Hey, look, maybe this is part of the turnaround.'"

Back from the abyss

It's just a hint of optimism from an executive who has been bearish on the economy of late, an indication that the mood is shifting at one of the most self-loathing, hypercritical corporate cultures you're ever likely to encounter. As bad as the Vista years have been, Microsoft seems to be getting its act together. The Wall Street collapse stunned the company, and management reacted with uncharacteristic alacrity. "There was a week or two where everything seemed to come to a stop," says CFO Chris Liddell, "and we said, 'We're going to have to operate in a different way.' "The company laid off 5,000 employees and instituted a "10-point plan" to cut wasteful spending, from vendor allotments to travel and entertainment.

Meanwhile, executives ramped up development cycles. This past summer the company kicked off, in its words, "a year of product launches unlike any other in Microsoft history." Since then, Ballmer et al. have revamped Windows Server and unveiled the Zune HD line of MP3 players. On the way: overhauls of Windows Mobile, Office, Internet Explorer, Xbox Live, Bing (its new search engine), and the introduction of Azure, a plunge into the enemy territory of cloud computing. Microsoft is also about to venture into retailing, an area conquered by longtime nemesis Apple (AAPL).

All this, says Bob Muglia, president of the server and tools division, is part of what he calls Microsoft v.3 — a play on the old saw that it takes the company three releases to get a product right. "In the Vista era, we lost track of a bunch of things," he says. "Now Windows 7 has shipped, and it's the official start of [a time of] mature leadership, competitive focus, aggressive competition — and I think you see the results. You could say it's us getting our mojo back."

If Steve Ballmer has one attribute of a great leader, it's an ability to inspire the troops — which is what he's about to do standing onstage in July at a convention center in downtown New Orleans. The Big Easy is broiling in a midsummer haze. The locals have cleared out, making way for the 5,000 Microsoft partners — resellers, builders, software developers — who have gathered at a conference organized in their honor. Ballmer is, naturally, the headline act. He's peeled off some pretty outlandish keynotes over the years, including "Steve Ballmer Going Crazy" (2 million views on You- Tube) — in which he huffs, "Come on, give it up for me!" — and the much-remixed "Developers" (1 million-plus views), where a heavier Ballmer performs a sweaty, arrhythmic stomp dance.

Today job one is to inject some optimism into the crowd. Ballmer had a tough year. He took a modest (for a man worth $11 billion) pay cut. But his small-business partners are reeling from the downturn. "This is the most phenomenal year we've ever had for technology releases," he rumbles, ticking off reasons to be hopeful about 2010. Microsoft vows to keep investing $9 billion-plus in R&D, it'll increase spending on partner support, and most of all it will keep fighting competitors — because, well, that's what the company does best. "We don't go home," he says. "We just keep coming and coming and coming. We're tenacious, tenacious, tenacious. Boom!"

That's not entirely true. Over the years the company has cowered at least a few times. It bailed on Microsoft Money (a personal finance product designed to oust Quicken), would-be YouTube killer Soapbox, the long-forgotten BOB operating system for kids, tablet PCs, web-enabled TVs, etc. But the company has surely disrupted many markets — from web browsers to console games — by offering a fresh perspective. "Novell said, ‘The world is about single purpose operating systems,' " explains Ballmer, back at Building 34."We had to say, ‘No, the world is really about multiple-purpose operating systems.' Lotus and WordPerfect said, ‘The world is character-based,' and we said, ‘No, let's try some graphics.' Apple said, ‘The world is a proprietary software-hardware combination,' and we said, ‘No, the world needs to be open to choice.'"

The enemy within

Such conquests, while dated, have earned the company a reputation for being obsessed with competitors — a characterization Ballmer does little to diminish. Unlike most executives of his ilk, he says what's on his mind, which can include calling Google a "house of cards" or referring to Linux as a "cancer that … attaches itself to everything it touches." He once laughed derisively on camera at the prospect of the iPhone ever succeeding. But in Microsoft's core business, there is no real competition. Various versions of Windows run more than 95% of all PCs. So when it came to preventing another Vista, Ballmer had to find the enemy within.

Windows 7 is a departure from Vista in many ways. It will be unveiled on time after a three-year development cycle. It's compatible with previous versions and has excised all the security-permissions protocols that were lampooned in Apple's "I'm a Mac" ad campaign. It's sharp-looking, almost as sleek as the Mac OS, and has a few cool new features, like support for multitouch monitors and Aero Shake, which allows users to clear the desktop with a jiggle of the mouse. Perhaps most impressively, it requires less computing horsepower than Vista. That just never happens with a new OS. But the biggest departure comes in scope and ambition. Ballmer claims to have learned something from Vista: It's no longer advisable to try a "big bang" rollout — i.e., completely reimagine a product as sophisticated and interconnected as Windows.

So he hit control-alt-delete. He brought in a new taskmaster, Steven Sinofsky, to oversee the engineering. Sinofsky became known for hitting deadlines while overseeing the Office group from 2000–07. An executive close to the Windows team characterizes his changes as such: "Reset — or reboot — is something that we hear a lot about the transition," he says. "What we did was [give] the development team a clarity that was probably missing." With Vista, teams worked on features simultaneously without an awareness of other schedules. When separate features came together, they were often incompatible. "The goal was to produce a plan for features, but not just a plan — also the motivation, the business rationale," the executive says.

Sinofsky oversaw the largest beta test in history — more than 8 million users — blogged tirelessly about every little tweak, and kept lines open with partners. The team scrubbed inefficiencies and ushered out a fully functional, backward-compatible OS on time, earning Sinofsky a promotion to president of the Windows division. The new openness has resonated in the marketplace. According to Credit Suisse, 58% of corporate customers were either dissatisfied or extremely dissatisfied with Vista. With Windows 7, it's 21% dissatisfied and none extremely dissatisfied. The PC makers seem happy too. "With Vista, the expectations were very high, and the customer reaction was not so positive," says Satjiv Chahil, senior VP of global marketing for HP's Personal Systems Group. "This time the response has been very positive. It's what the market has been waiting for." In the end Windows 7 is what Vista should have been the first time.

Software fades

With its house in order, Microsoft can safely get back to its imperialistic ways. And there's no bigger land grab than web search. Ballmer has pledged to fund his new search engine, Bing, with as much as 10% of operating income over the next five years (potentially $11 billion). Why do something so risky when he's lost so much online already? Because the opportunity is simply too big to ignore. Microsoft considers the global search market to be worth as much as $80 billion. And Ballmer recognizes that there's even more power than money in being the leader. Google.com is what Windows used to be: leverage. Controlling the on-ramp to the web allows a company to distribute a broad array of products, which is what Google does so effectively. "They promote YouTube, they promote Chrome," he says, referring to Google's web browser. "If it was us, people would call it an unfair advantage."

As the importance of client software diminishes, so too does Microsoft as we know it. Bing represents the company's best hope yet of maintaining its own unfair advantage. And Ballmer thinks that Google, despite its enormous market share, is vulnerable. "There are a lot of negative views right now of what's going on — Google Books, monopolization, blah, blah, blah," he says, simultaneously highlighting and waving away a growing anti- Google sentiment. "Put all that aside and you have to ask, ‘Has the experience really changed much? Is it easier to find what you're looking for? Is there a chance to do a better job?' I think there's a real opportunity to do that, and somebody had better seize it. Who's got the best shot?"

Microsoft launched Bing in May, and it confirms Muglia's assertion that the company has become more focused on customers. Rather than Google's minimalist homepage, Bing rotates stunning photos embedded with interesting snippets about various parts of the globe. Like Google, the site acts as a jumping-off point, but has just enough flair to make you want to linger. Visitors see more information than they do in Google results and can even play videos without clicking away. Bing is organized more intuitively, and it outperforms in real-time search — a big plus for the Twitter set.

Early returns have been promising. Before Bing, Microsoft's search engine, Live Search, had 8% of the market, according to ComScore. After three months Bing stands at 9.3%; meanwhile, Google's share has dropped 0.4%. Over the summer Microsoft struck a deal for Bing to power the search function across many Yahoo (YHOO) properties. Once the arrangement kicks in, Bing's share could jump to around 30%. "It's a pretty good start," says Yusuf Mehdi, SVP of Microsoft's online audience group. "Best of all, it's really hot with certain demographics, like elementary school children and women, because of the aesthetic design and feel."

Of course the hope is that greater traffic will lure advertisers. Craig Macdonald is the chief marketing officer at media-buying firm Covario. He spends $250 million a year on search ads for clients like McAfee, Intel (INTC), and Procter & Gamble. Impressed with Bing's aesthetic and buzz, he initially increased spending, but has been disappointed. "We saw a 15% to 20% increase in impressions but a 39% spike in the cost of acquisition," he says. Compared with Live Search traffic, driven primarily from the MSN homepage, Bing users are younger, more web-savvy, and frugal. "They did a nice job creating buzz, but we said, ‘We're pulling back.' "

Microsoft may yet benefit from the anti-Google sentiment that Ballmer calls out. No one likes a monopoly, and everyone's favorite web brand has become a freeloader in the eyes of the telecom, book, and media industries. Some of Google's partners have grown disenchanted as well. "With Google, everything's a black box, completely opaque. You have no idea why things go up or down. They're impossible to deal with," says the president of a website that each year generates more than $10 million hosting Google AdSense ads. "Everyone who's not Google is rooting for someone to be a counterweight."

It's not obvious from walking around the company's sprawling campus that Microsoft is locked in combat with some of the business world's most ferocious competitors. There's little resemblance here to the 24/7 sleep-under-the-desk startup culture that permeates Silicon Valley. Many executives are tanned and fit from weekend sails on Puget Sound, hiking up Mount Rainier, golfing, or exploring Machu Picchu. People arrive promptly to meetings, smile broadly, and are exceedingly polite. If quality of life were the most important metric for a recent grad deciding between Redmond and Redwood City, there really would be no choice.

The Valley set sees this as a sign of age and weakness. "They're the IBM of this generation," says Tod Nielsen, chief operating officer of virtualization software company VMware, who worked at Microsoft for 12 years and now competes with his former employer. "They're profitable and successful, but there's not a lot of excitement. It used to be the velvet sweatshop. Now it's all about 9 to 5, 10 to 5 if you're good, and 10 to 4 if you're really good."

Some ex-employees and analysts, none of whom spoke for attribution, agree that the company remains hugely inefficient and lacks vision. They also question whether Ballmer is up to the task of taking on Google, Apple, VMware, and so many other laser-focused competitors. "If shareholders could vote, I don't think they'd pick Steve," says a former vice president who claims to have left Microsoft on good terms. "It's the whole 'dances with elephants' thing, and I don't think Steve can be Gerstner," he adds, referring to Lou Gerstner's book "Who Says Elephants Can't Dance?", in which he details how he rescued IBM (IBM).

It's an easy analogy — the old IBM and the current Microsoft both bulked up in a bygone era. But pre-Gerstner, IBM was on the brink. Its finance team held weekly meetings to see whether the company could cover payroll. With $15 billion in annual net income, Microsoft, on the other hand, is a cash machine. Even the great Vista failure must be viewed with perspective: It runs 350 million PCs. Analysts expect the Windows division to turn an $11 billion profit in fiscal 2010. And really, that's Ballmer's unfair advantage. The profits rolling off Windows and Office subsidize any lack of vision and allow the company to go the safer, more expensive route of chasing down Goliaths after new markets have solidified.

In search, Microsoft is confronting a Goliath with arguably as much market power. (Google has a $158 billion market cap, vs. Microsoft's $230 billion.) Google's new Chrome browser could prove a significant threat to Internet Explorer, which has already been encroached upon by Mozilla's Firefox. Gmail is making headway with businesses in the battle against Exchange, not to mention consumers. Google Docs has spurred Microsoft to make parts of Office available online free in coming months. And then there's Google's Android OS for mobile phones. Launched in 2007, Android will operate more than two dozen heavily hyped phones by 2010, including T-Mobile's MyTouch.

The battle between these two titans isn't just about bragging rights or short-term profit. As our computing activity moves increasingly off our PCs into our phones, onto the web, and all around us, the most platform-agnostic company will rule. That presents Microsoft with a classic innovator's dilemma: It must diminish, or at least ignore, its prior success to secure a place in the future.

Which is why Google executives like their position in this fight. "They are a very large incumbent in an area that's shifting toward a new technology — cloud computing," says Dave Girouard, president of enterprise for Google. "We are a company that was born of the cloud, and we don't have to deal with the legacy issues they have to deal with."

A year ago it would have been easy to agree with Girouard and skeptics who dismiss Microsoft as a sluggish incumbent. But the Windows 7 reboot has reinvigorated the company. In November it will launch Azure, a platform for building applications that are delivered via the Internet; as with Windows 7, potential users seem optimistic. For a change, Microsoft is even getting under Google's skin: Google's Chrome OS basically looks like a PR ploy designed to drive Ballmer nuts.

Whether the company circa 2009 truly represents Microsoft v.3, as Muglia suggests — the version in which Redmond gets things right — Vista is a turning point. It will be remembered either as a harbinger of a bloated company in decline, or it will be the wake-up call that prompted Ballmer and his team to set down a new path. Of course it will be years before we know how the Microsoft story, post-Vista, will play out. As Ballmer himself will tell you, "Plenty of people say everything in tech takes off or fails quickly. There's nothing more laughable than that."

–Reporter Associate, Kim Thai

IBM (IBM) is pushing more of its technology into trains.

The company has announced today that transit agencies in New York, San Francisco and Washington, D.C. will use its Maximo software to monitor the health of rail cars, bridges, tunnels, tracks and other assets, and flag them for maintenance before they break down.

Ken Donnelly, worldwide Maximo industry lead, at IBM, says the $100 million transit maintenance market turns out to be a relatively healthy area in a troubled global economy. Even though budgets are tight, governments are eager to find more efficient ways to keep transit equipment in working order without overpaying for inspections or for emergency work when systems fail. And the market seems likely to stay healthy, since many countries have targeted their economic stimulus dollars toward public transit.

Asset management software like Maximo can track how equipment is being serviced, and compare that against a recommended maintenance schedule. As newer trains come equipped with sensors that monitor specific functions – say, doors that open and close – the software can learn that a train’s doors typically malfunction after opening, say, 10,000 times, and schedule them for maintenance after they reach the 9,500 mark.

The transit agencies using the software are the Long Island Rail Road in New York, Bay Area Rapid Transit in the San Francisco Bay Area, and Washington Metropolitan Area Transit Authority in D.C.