Worries That Microsoft Is Growing Too Tricky to Manage

SEATTLE — At a time when many people in business believe the number of products at Microsoft should be getting smaller, it is about to become a lot bigger.

Marc Whitten, a top executive for Xbox, one of Microsoft’s many disparate product lines.

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Microsoft’s $7.2 billion acquisition of Nokia’s handset and services operations, when the deal closes early next year, will increase the company’s head count by 30 percent and add a big, new hardware unit to a dizzying variety of businesses — an unusual situation in an industry where focus is often prized more than breadth.

It’s a concern to everyone from academics to Microsoft alumni. A list of missed opportunities and disappointing investments at the company in the past decade in areas like smartphones, tablets and Internet search have led to the belief that a more focused, nimble collection of mini-Microsofts could respond more effectively to the never-ending flow of disruptive technologies nibbling at its foundations.

“It is very hard to be a broad-based tech conglomerate,” said David Yoffie, a professor at the Harvard Business School.

Thirteen years ago, Microsoft’s competitors and a federal judge demanded that Microsoft be split up because of its market power. But trying to do too much rather than wielding too much power is the issue now.

Microsoft already has a video game console, the No. 2 Internet search engine, a major Web portal, an enormous corporate software business, an operating system for personal computers, cloud computing services and applications software. The company is a mash-up of the businesses in which competitors like Google, Yahoo, Oracle, Apple and Nintendo specialize, putting an enormous burden on the company’s chief executive, Steven A. Ballmer, who has announced plans to retire within the next 12 months.

Microsoft’s complexity will make its search for a replacement for Mr. Ballmer more challenging, since the job will require a person with an uncommon array of skills, including fluency in corporate and consumer markets, hardware, software and Internet services. Mr. Ballmer recently announced a sweeping reorganization of the company intended to improve its agility, though its huge portfolio of products will remain intact.

 “It makes it harder to manage, which is a challenge for Microsoft no matter who the successor is,” said Mr. Yoffie. Long before Mr. Ballmer announced his retirement, he and Bill Gates, the Microsoft chairman and co-founder, had both quietly acknowledged that identifying a new leader for Microsoft would be hard. A person who spoke to Mr. Gates several years ago on the subject of succession recalls the Microsoft chairman saying he would support replacing Mr. Ballmer if he could think of someone who could do a better job.

Similarly, another person said Mr. Ballmer himself said a few years ago he would step aside if a better chief executive could be found. These people spoke on the condition that they not be named because the conversations were private.

Larry Cohen, a spokesman for Mr. Gates, did not respond to a request for comment. Frank Shaw, a spokesman for Microsoft, also declined to comment.

In 2000, when Microsoft’s business was simpler than it is now, Thomas Penfield Jackson, a federal judge, ruled that because of violations of antitrust law, Microsoft should be split into two companies — one focused on Windows and the other on applications. An appeals court later threw out the breakup order after deciding Judge Jackson had tainted the legal proceedings by making comments to the press about the case.

Pundits, business professors and alumni of Microsoft have spent years pondering whether, in hindsight, such a breakup might have given the resulting “Baby Bills” the agility to compete better. Several of Microsoft’s businesses would be substantial stand-alone companies, with Windows accounting for $19.2 billion in revenue for the fiscal year ending in June, and its business division, dominated by its Office applications, at $24.7 billion. A third business, servers and tools, had revenue of $20.3 billion in the period — compared with the $27.5 billion in software revenue at Oracle in its latest financial year ending in May.

Worries Over Defense Dept. Money for ‘Hackerspaces’

But the money has stirred some controversy. The financing for the schools program is one of several recent grants that the Defense Advanced Research Projects Agency, or Darpa, has made to build closer ties to hackers.

Unlike the hackers who cripple Web sites and steal data, the people the government is working with are more often computer professionals who indulge their curiosity at their local hackerspace. But the financing has prompted criticism that the military’s money could co-opt these workshops just as they are starting to spread quickly.

There are about 200 hackerspaces in the United States, a sharp jump from the handful that existed five years ago. The workshops, with names like the Hacktory, Jigsaw Renaissance and Hacker Dojo, have incubated successful businesses like Pinterest, the social networking site, and are seen as hotbeds for recruiting engineers and computer scientists.

“Magic comes from these places,” said Peiter Zatko, a program manager at Darpa, who is reaching out to these workshops, looking for cutting-edge ideas in cybersecurity. His program has entered into 74 contracts, and about 40 projects have been completed, work that he said would have been stymied by traditional government bureaucracy. (Mr. Zatko made a name for himself as a respected hacker before joining the government — he testified before a Senate committee in 1998, using the pseudonym Mudge, and told the panel that he could take down the Internet in 30 minutes.)

When his government colleagues see the results of his program, “their jaws just drop,” Mr. Zatko said.

Many people say that hackerspaces are promising incubators for innovation and should be cultivated. However, not everyone agrees that the Defense Department should be playing a role, especially in high school programs.

“Having these programs in schools is fantastic, but the military calling the shots in American education?” Mitch Altman, a co-founder of Noisebridge, a San Francisco hackerspace, said in an interview. “I don’t see that as a positive move,” added Mr. Altman, who, in an online post, was among the first to take a stand against the program.

The controversy over the government programs led to a tense session in a packed ballroom at the Hackers on Planet Earth conference this summer in New York, where recipients and critics of the Darpa financing gathered to discuss its implications.

“If you grow a piece of celery in red water, it’s going to be red,” said Sean Auriti, who is known as Psytek at the hackerspace Alpha One Labs in Brooklyn, which he runs. “I’m just wondering how this Darpa defense contract money is going to influence these projects.”

And yet Mr. Auriti himself is benefiting from the Darpa money as a member of SpaceGambit, a consortium of hackerspaces that won a $500,000 grant for research in space exploration and colonization technologies. He said he hoped that the grant would help him build a mini-thruster to launch backpack-size satellites into orbit.

But the debate over the financing has prompted him to establish a separate working group for the space research with Darpa. That way, none of his workshop’s members will feel as though they are unwillingly participating in government work, he said.

Some on the conference panel voiced concerns that Darpa financing would steer more hackers toward military projects. Mr. Altman, the Noisebridge co-founder, said he viewed the influence of military money as a threat because it would lead hackers to choose projects that might appeal to grant makers, as opposed to following their passions, however idiosyncratic.

Everyone on the panel agreed that hackerspaces could provide an exciting model for hands-on technical education in schools, and Dale Dougherty, the founder of Maker Media, which caters to the do-it-yourself movement, said he believed that the high school program that his company was managing would do just that.

“I think we’re looking at science and technology as content, not experiences,” Mr. Dougherty said. “We’re asking kids, ‘Do you want to be an engineer?’ and they don’t know what that means. But if you ask them, ‘What do you want to make?’ they start thinking about doing something.”

Darpa’s Web site describes the program’s goal as encouraging students to “jointly design and build systems of moderate complexity, such as mobile robots, go-carts, etc., in response to prize challenges.”

But Mr. Dougherty said that the fears about his program were unfounded, and that he wanted the students to work on projects of their choosing.

“We’re not asking kids to build weapons,” he said.

Darpa has a storied history of making long-shot bets and hoping that a handful of them will pay off. It financed the development of technologies that led to the creation of the Internet, GPS and stealth technology. This cluster of bets on low-cost, innovative manufacturing is part of a strategy by Darpa officials to reduce development times in a range of projects like armored vehicle construction and cybersecurity fixes.

When Lt. Col. Nathan Wiedenman, a Darpa program manager, appeared in Army fatigues this May at a San Francisco-area do-it-yourself festival, Maker Faire, he said the agency’s mission was to ensure that the United States would never again be surprised by the technical superiority of an enemy state, as it was when the Soviet Union launched Sputnik.

“To push the bounds of new technology, we have to physically make things,” he said.

Colonel Wiedenman is managing both the grant for the high school program and a $3.5 million grant to the retail start-up TechShop (it is a bit like a Kinko’s, but instead of copiers, members pay to user laser cutters). As part of that contract, Darpa employees will have access to TechShop’s tools after midnight, when the doors are closed to the public, since Darpa has no lab space of its own.

Matt Joyce, an early hackerspace member who has worked with NASA and has publicly voiced support for Darpa financing, said he believed that the agency’s interest in hackerspaces was a sign of their growing importance. But he acknowledged that the government financing would continue to provoke debate, because questions about ethics often loom large for engineers, even in cases in which the government allows them to retain commercial rights to their inventions.

“You never know when you build something where it might end up,” he said. “I think there’s a lot of folks getting the Darpa funding, and a lot of people watching on the sidelines to see what happens.”

Silicon Valley Worries About Addiction to Devices

In a place where technology is seen as an all-powerful answer, it is increasingly being seen as too powerful, even addictive.

The concern, voiced in conferences and in recent interviews with many top executives of technology companies, is that the lure of constant stimulation — the pervasive demand of pings, rings and updates — is creating a profound physical craving that can hurt productivity and personal interactions.

“If you put a frog in cold water and slowly turn up the heat, it’ll boil to death — it’s a nice analogy,” said Mr. Crabb, who oversees learning and development at Facebook. People “need to notice the effect that time online has on your performance and relationships.”

The insight may not sound revelatory to anyone who has joked about the “crackberry” lifestyle or followed the work of researchers who are exploring whether interactive technology has addictive properties.

But hearing it from leaders at many of Silicon Valley’s most influential companies, who profit from people spending more time online, can sound like auto executives selling muscle cars while warning about the dangers of fast acceleration.

“We’re done with this honeymoon phase and now we’re in this phase that says, ‘Wow, what have we done?’ ” said Soren Gordhamer, who organizes Wisdom 2.0, an annual conference he started in 2010 about the pursuit of balance in the digital age. “It doesn’t mean what we’ve done is bad. There’s no blame. But there is a turning of the page.”

At the Wisdom 2.0 conference in February, founders from Facebook, Twitter, eBay, Zynga and PayPal, and executives and managers from companies like Google, Microsoft, Cisco and others listened to or participated in conversations with experts in yoga and mindfulness. In at least one session, they debated whether technology firms had a responsibility to consider their collective power to lure consumers to games or activities that waste time or distract them.

The actual science of whether such games and apps are addictive is embryonic. But the Diagnostic and Statistical Manual of Mental Disorders, widely viewed as the authority on mental illnesses, plans next year to include “Internet use disorder” in its appendix, an indication researchers believe something is going on but that requires further study to be deemed an official condition.

Some people disagree there is a problem, even if they agree that the online activities tap into deep neurological mechanisms. Eric Schiermeyer, a co-founder of Zynga, an online game company and maker of huge hits like FarmVille, has said he has helped addict millions of people to dopamine, a neurochemical that has been shown to be released by pleasurable activities, including video game playing, but also is understood to play a major role in the cycle of addiction.

But what he said he believed was that people already craved dopamine and that Silicon Valley was no more responsible for creating irresistible technologies than, say, fast-food restaurants were responsible for making food with such wide appeal.

“They’d say: ‘Do we have any responsibility for the fact people are getting fat?’ Most people would say ‘no,’ ” said Mr. Schiermeyer. He added: “Given that we’re human, we already want dopamine.”

Along those lines, Scott Kriens, chairman of Juniper Networks, one of the biggest Internet infrastructure companies, said the powerful lure of devices mostly reflected primitive human longings to connect and interact, but that those desires needed to be managed so they did not overwhelm people’s lives.