What's the Matter With Microsoft?

Everything Microsoft touches, it eventually does brilliantly. When it comes to products, strategies, and sales growth, Microsoft sets the standard for performance. So why aren't we willing to trust Microsoft with all of our private information?

How would you feel about a business partner that described itself like this: "I'm an enormous company that has established market-leading products in one category after another for the past 25 years. I'm relentless. You can't pin me down. My strategy is always evolving. I've used software and Internet technology to bring incredible efficiencies to the business world, and I'm not done yet. Sure, I've got critics. But none of them -- not even the U.S. government -- has ever really slowed me down."

That's Microsoft's profile, and most of the time, it's what we want. We may grumble about glitches in its software or about its hardball tactics with competitors. But when we want to create a document, do financial modeling, use email, or visit Web sites, we turn to Microsoft Word, Microsoft Excel, Microsoft Outlook, and Microsoft Internet Explorer. Those are the facts.

In truth, we rely on Microsoft products in the same way we rely on the 6 o'clock news or the interstate-highway system. It's a basic part of our life. The more time we spend with these mainstays, the harder it is to imagine putting our lives together any other way.

But Microsoft is having a rocky time getting people to embrace one of its boldest new ideas: that we should entrust our electronic identities to its Passport service. And the company's woes speak to a bigger issue: the very big difference between mass acceptance and public trust. Microsoft has the first. But it's still a long way from figuring out how to win the second.

Trust in any form doesn't come easily, and that's especially true online. Most of us are wary about letting someone create a permanent registry of our passwords, credit-card numbers, and other personal data that can be called up when we shop and browse online. We're doubly suspicious if it involves confiding in a company as powerful, smart, and expansion minded as Microsoft. All of a sudden, the traits that usually work in Microsoft's favor are outright alarming.

A perfect illustration of this schism in people's attitudes occurred earlier this year at the Demo 2002 new-technology conference in Phoenix. During the conference, attendees -- mostly high-powered fans of technology -- were asked whether they used Microsoft products. Just about everyone raised his hand. Then they were asked whether they trusted Microsoft enough to enroll in Passport. Almost no one raised her hand.

"People are only signing up for Passport because they have to," says Avivah Litan, an analyst at Gartner Inc. In a recent marketplace survey, she found that 84% of Passport users say that they participate primarily because enrollment is necessary in order to use other Microsoft services. And even among people who use Microsoft's MSN Internet service -- presumably an especially loyal group of customers -- a full 23% say that they do not trust Microsoft with their personal or financial information.

It wasn't supposed to be like this. Several years ago, Microsoft executives figured that they could do consumers a favor by coming up with an all-purpose way to register people for Web sites. Type in your mailing address just once, and it could be shared automatically with your online bookstore, your online travel agent, and your college alumni association's Web site. Credit-card information, email preferences, and passwords could be shared the same way, among participating Passport Web sites.

The Passport service would be all about convenience, and convenience, it was believed, would carry the day. "We thought that we had a great value proposition for consumers and for business partners," recalls Josh Herst, an early project manager for Passport. (He is now a strategic adviser to Madrona Venture Group, a Seattle-area venture-capital firm.) "We were expecting a warm reaction."

Guess again. As Microsoft began to push out Passport in 1999, the public proved balky. Enrollees treated the service like just another unavoidable nuisance rather than like something that could help them. They provided the bare minimum of data necessary to satisfy Microsoft, and they didn't fill out optional fields. And the big viral-marketing lift that Microsoft might have hoped for never happened. People might tell their friends to get a Hotmail account, but they didn't evangelize on behalf of Passport.

Officially, Microsoft says that Passport is a brisk success. Brian Arbogast, Microsoft vice president in charge of Passport, says that the service has 200 million accounts worldwide that generate 3.5 billion transactions a month.

But both of those numbers have a cotton-candy quality to them. The majority of those Passport accounts were created by Hotmail and MSN Messenger users, who needed to enroll in Passport in order to keep using the Microsoft services that they wanted. Their Passport accounts might consist of nothing more than an email address -- providing nothing of value to the consumer or to Microsoft. As for the transactions total, that number includes almost any visit to a Web site that seeks free user registrations. Arbogast won't say what percentage of his "transactions" really involve money changing hands, but he doesn't dispute the notion that it's small.

A more conservative gauge of Passport's acceptance comes from Gartner's Litan. She counts 14 million active Passport accounts these days, up from 7 million last fall. By "brute force," she says, Microsoft has been able to double its Passport user base in less than a year. Yet it hasn't been able to convince consumers that they really are better off for it.

In her latest survey, Litan found that just 8% of Passport users said that they signed up for the service primarily because it let them avoid reentering credit-card data. All of 2% said that they signed up for Passport primarily because it eliminates the need to have multiple IDs and passwords. "Is this really the killer app?" she asks wryly.

If Microsoft hasn't yet won our loyalty, do people want someone else to manage their online identities? When Litan asks consumers that question, she finds that banks get the highest endorsement, with support from 47% of the public. In contrast, Microsoft gets a mere 12% of the vote. Yet that's still ahead of the ratings for AOL, Yahoo, and telephone-service providers, all of which are at 6% or less.

The implication: If big institutions are going to know about us online, we would prefer to deal with outfits that have handled that trust relationship competently in the physical world for a long time. That's more palatable than putting our faith in technology companies that are diversifying into this new area.

What's behind that aversion to the newcomers? We know how banks behave, and their stodginess over the years is an outright virtue. Once we place our trust in them, they aren't as likely to surprise us. We don't know nearly as well how Microsoft or other technology companies will behave in the future. As a result, it's easier to get worried about ways that our data might be misused -- and harder to believe that any assurances today from Microsoft or other such companies really will hold true for decades to come.

"Lots of people want to pick a bone with Microsoft," says Craig Mundie, Microsoft's chief technical officer. "They'll attack us on the basis of what they think we might do -- completely independent from what we've said we will do." A big part of Mundie's job, in fact, involves appearing at conferences in an effort to try to convince attendees that Microsoft isn't as menacing as they might think.

In a recent white paper on trustworthy computing, Mundie drew parallels to the ways that Americans in the early 20th century slowly came to trust electrical appliances, after worrying that this new source of power in the house might be lethal. And in philosophical moments, senior Microsoft executives acknowledge that trust can only be won gradually, over a decade or longer. It's foolish to think of storming the "marketplace in trust" in the same way that Microsoft might roar into so many other markets. Trust is won (or lost) through small gestures over an extended period of time -- small gestures that consumers subject to microscopic scrutiny. It remains to be seen whether microscopic scrutiny and Microsoft go together.

George Anders (ganders@fastcompany.com) runs Fast Company's West Coast bureau from San Francisco. Find a catalog of his columns here.

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