"You never get a second chance to make a first impression."  I'm not sure who said that first, but it's appropriate for the speech given by Steve Ballmer, Microsoft's head, at the current Consumer Electronics Show. 

Almost 2 years ago, after almost 2 years of delay, Windows launched its new operating system named Vista.  In the past, such announcements caused great excitement as customers looked forward to upgraded capability.  But when Vista came out, it was like the old joke "he threw a party, and nobody came."  Customers ignored the release, preferring to keep keep using Microsoft XP.  New PC buyers even requested that vendors supply their computers with XP instead of Vista.  And competitor Apple had an advertising field day making fun of the complaints PC customers had about Vista as Apple promoted its Macintosh.  Microsoft simply didn't offer customers the necessary innovation to make Vista interesting.

Now Microsoft (chart here) has announced it intends to launch Windows 7 (read article here).  What struck me most about the announcement was its lack of interest.  On Marketwatch.com, the article wasn't even on the first page – you have to scroll down to find it.  The equivalent of "not making it above the fold" in old newspaper lingo.  Worse, Microsoft's announcement didn't even get top billing regarding the CES show – as its announcement took second fiddle to the article lead about Palm's announcement of a new device and operating system. 

Clearly, reporters are savvy to what's important in information techology these days.  And efforts to Defend & Extend the PC platform is not where the excitement is.  Customers are quickly moving from the PC to handheld devices and remote applications.  Interest about what you can do on your handheld is now eclipsing what you can do on a bigger, heavier PC.  It's clear to most people, even if not to Microsoft leadership, that Defending & Extending the PC platform is suffering diminishing returns.  

Simultaneously, folks woke up today and realized that "not failing" is not the same as succeeding. 

As retailers went through the worst holiday season in possibly forever, some folks kept talking about how good Wal-Mart (chart here) was doing.  In reality, at best Wal-Mart was possibly holding even or slightly growing.  Wal-mart wasn't failing, like Circuit City, Bed Bath & Beyond, Linens & Things and Sharper Image – but it wasn't doing well.  Sales at Wal-Mart have been stagnant for years.  Now, even Wal-Mart has admitted its sales for December and the fourth quarter were below forecast (read article here).  So the stock dropped 7.5%

Really.  What did folks expect?  Wal-Mart hasn't done anything new to attract customers in well over a decade.  The ASSUMPTION analysts kept making was that because Wal-Mart was synonymous with cheap, in a bad recession Wal-mart would do well.  But consumers showed that there's more to being a good retailer than being cheap.  And gift giving is about more than giving any gift.  People still want a good shopping experience, even when unemployed, and the concrete floors and cheap merchandise at Wal-Mart doesn't make them feel any better.  Many decided it was better to go on-line looking for values, where overhead is even lower than at Wal-Mart, and where merchandise quality was top rate and wide brand selection was available.

Both Microsoft and Wal-Mart were great companies.  They made huge differences as leaders in their industries.  But both are now trying to Defend & Extend out of date Success Formulas.  And even in a recession – maybe especially in a  recession – that does not excite people.  Customers want innovation, not just more of the same, but finally working right or at a cheaper price.  And when dimes get tight, innovation speaks even louder.  Customers want to know how innovation can create greater satisfaction – not just how the same old thing can be — cheap.  Until Microsoft and Wal-Mart disrupt their Lock-ins and open White Space there is no reason to be optimistic about their futures.