In our conversation with Bill Gates at Mix n Mash last December, Jonathon Snook opened up a can of worms by asking Gates about Microsoft and innovation:

Jonathan Snook: There’s a myth that Microsoft doesn’t innovate. How do you feel that Microsoft can change that attitude?

BILL GATES: We can’t change it. If you think we just imitate, then that’s — you just can’t change it.

I was surprised at the time by the attitude, that Microsoft can’t change the way it is perceived in the marketplace.  Since then, with the proposed acquisition of Yahoo!, and the announcement last week of a change in policy regarding open source, Microsoft is setting itself up for significant change, with significant risks.

In fact, if the Yahoo! acquisition is to be successful (and many are betting that Microsoft won’t be able to merge two such different “corporate cultures”), Microsoft must make significant changes: it must re-brand itself as more open, more honest corporation, and move the corporate culture from a company that succeeded by back-room bargaining and winning by intimidation, to a company that wins the hearts and minds of a consumer focused audience.

In his letter to employees dated Friday, Feb. 22, Kevin Johnson, Microsoft’s Platform and Services President, talks about the Yahoo! brand:

Q:   How would we address the multiple brands and technologies within Live, MSN, and Yahoo!?  Which brand would we keep? 

A:   Both Microsoft and Yahoo! have great brands and technologies.  Yahoo! has a very strong consumer brand and we are committed to build on the Yahoo! brand as a major part of the combined products and services we deliver to customers.  The Yahoo! brand is one of the reasons the combination of the two companies would create so much value.  (…)

Microsoft won’t win the hearts and minds, however, by sticking to the old-school tactics that got it where it is today: making deals behind closed doors; being less than open about its intentions; and creating a corporate culture that punishes rather than rewards openness.  Microsoft’s sales tactics of old, where making a big sale after some intense wining and dining added thousands of customers, are simply irrelevant in the new world order Microsoft is trying so hard to enter.  By definition, consumers are not locked into contracts, and indeed are constantly looking for what is new, exciting, and cool, and what is personal to them.

Danah Boyd, in her blog Apophenia, writes about technology’s one sizes fits all approach to branding, and how it must change:

I would like to offer two bits of advice to all of the major tech companies out there: 1) Start sub-branding; and 2) Start doing real personalization.

If you’re creating a new product, launch it with a new brand. Put your flagship brand on the bottom of the page, letting people know that this is backed by you – this is not about deception. Advertise it alongside your flagship brand if you think that’ll gain you traction. But let the new product develop a life of its own and not get flattened by a universal brand. Some products should be niche, especially those targeted at youth; while youth are happy to use well-established tools, they also like to distinguish their practices from those of adults and mature into new brands. In other words, they aren’t going to fall to your lock-in for very long. If you’re buying a well-established brand, don’t flatten it, especially if it’s loved by youth. Kudos to Google wrt YouTube; boo to Yahoo! wrt Launch. Even at the coarse demographic level, people are different; don’t treat them as a universal bunch, even if your back-end serves up the same thing to different interfaces.

…

Above all, understand that no brand is universally loved and one size does not fit all. Most of us look like idiots in XXL shirts and we don’t want our technology interfaces to be XXL. People like brands that fit them like a glove. The tech industry serves up ads this way; why doesn’t it get this when it comes to their own brand? Technology is well positioned to create sub-brands and personalize those brands from there. It’s high time for the tech industry to grow up and start doing so.

Clearly, the Yahoo! brand is an important part of the acquisition, and Microsoft will have an opportunity to do something unique in brand marketing: take some pretty successful brand names, and give them new focus and new life. No one will expect the Yahoo! brand to just stand for what it stood for before the acquisition.  Consumers will be expecting new focus, not only a new version of Yahoo!, but a new version of Microsoft.

However, as Microsoft has hopefully learned with the debacle that marred the launching of the Windows Live brand, they need to get this right.  Windows Live was a mess from the beginning – unclear motives, unclear branding strategy, and a less than honest approach with consumers which hurt far more than the new brand helped.  Rather than “Windows Live, the cool new brand from Microsoft”, it was “Microsoft doesn’t know what it is doing, the Windows Live brand is a joke”.

Danah Boyd is right, Microsoft has an opportunity to recreate its consumer face into not one new brand, but a number of smaller, more agile, more focused ones.  We’ve been giving some of the Windows Live official team blogs a bad time this past week, somewhat in fun, but we can’t emphasize enough how important building relationships between the product teams and customers will be in building these new brands.  One commenter on our post on The Space Craft missing the boat on their own product launch said:

most Microsoft team blogs are useless, including all Windows Live ones and others such as Vista Ultimate.

That’s a long ways from the days when Robert Scoble was leading the charge for a more open Microsoft, and we were getting real news, and getting to know the people behind the curtain.  Since those days, that curtain has been closed again.  Translucency (read: “don’t blog”) is the new watchword, and Softies are scared to openly communicate with consumers for fear of losing their jobs.  When the Shipping 7 blog surfaced, the word went out quickly that the person responsible would be fired, from what we heard from sources within Microsoft.  Yet from the outside, Shipping 7 was perceived almost entirely as a good thing, a breath of fresh air.

Bill Gates steps down in July, and hopefully his attitude that “you just can’t change it” steps down with him.  With an acquisition of Yahoo!, Microsoft is buying itself a unique opportunity to rebuild its image, to incorporate some “cool” into the corporation.  Microsoft needs to begin to create some of that cool now.  Aggressive, open, honest blogging, encouraged by a management that gets it (and clearly, some of the current management simply don’t get it), with the realization that connecting with these new customers is far more important than protecting old-school ways, would be a good start.