Microsoft’s best hope after Ballmer? A break up
washingtonpost.com
washingtonpost.com
Here is the essence of a horseshit analogy. Microsoft is compared to an oligarchy - the Politburo [1]. And then by magic transformed into the entire Soviet Union. This allows the advancement of an argument for breakup based on shortcomings in the delivery of consumer goods.
"That’s why Steve Ballmer’s replacement should not be one executive but should be a number of people who have experience in different domains and who can run independent operating companies."
Mr. Wadhwa, how did that work for ATT? The article is utterly bereft of intellectual coherence. Microsoft is far more tightly focused than Samsung or Siemens and more profitable to boot.
[1]and what corporation couldn't be?
Microsoft is clearly a complex place, and huge in ways that are hard to comprehend. But it is also conflicted. The 'essence' of the breakup argument are that the company's business units need to be able to execute on their objectives independently of the other company business units. And that is true for companies of this size. When it doesn't work well, which we saw in AT&T and Sun Micro, it causes internal friction and damage, when it does as IBM and GE have shown it can, it really does allow for getting more stuff done over all.
There are lots of ways that Microsoft could go, personally I think they would do well to create three 'views', Microsoft Consumer which presents the 'Surface' operating system to end users, Microsoft Developer which presents a developer focussed system to end users, and Microsoft Enterprise which presents a managed infrastructure to Enterprise customers. Each view has goals, but they grow from the same roots.
But, for the sake of avoiding speculations over counterfactuals and arguments over what counts as better, let's suppose that the analogy has some merit and that there is a case for breaking up Microsoft. Let me further suppose that that case is not based on traditional antipathies, and is instead founded upon a business case analysis.
Under these suppositions, why is there a case for breaking up a very profitable Microsoft, but not one for breaking up the far less profitable and vastly less focused Siemens? [software, light bulbs, trains, power plants, MRI's, financial solutions]
The other thing that needs to be provided are cases where a large profitable company with minimal physical assets was successfully broken up.
Absent a well reasoned internal business case for breaking Microsoft up, I am of the opinion that the business case is external: the possibility of breakup (or even the mere suggestion thereof) creates uncertainty -> creates volatility in the share price -> creates opportunities for arbitrage. Until there's a business case based on profits put forth, that's the only money trail I can follow.
What a terrible article.
I disagree with this claim, and offer as proof the lack of Office on any of MS's mobile devices. Compare with Apple, who had versions of all of their iWork apps available on the iPad when that device launched. Further, Office has its own UX norms which frequently contradict the Windows norms.
I do not claim the article was high-quality, but I to take issue with the idea that there is intradivision synergy at MS. The opposite seems to be true, at least for now.
WP7 had Office. WP8 has Office. Hell, Office for phones started as Pocket Office in 1996 for Windows CE 1.0, and has been updated all the way until Windows Mobile 6.5.
>who had versions of all of their iWork apps available on the iPad when that device launched
Furthermore, the iPhone existed for 3 years before iWork was released for it. Since we're talking about mobile devices, it's only fair to use the original iDevice for comparison, since Office for Mobile is available for phones. Office for RT was released, and built-in to the OS, for free.
Office Web Apps for SkyDrive was released 3 years ago. iCloud's iWork implementation is still in Beta.
>Office has its own UX norms which frequently contradict the Windows norms.
It's generally followed Windows UI style. Windows 7 brought in Ribbon in some built-in apps, and Windows 8 extended that even further.
You can try as hard as you want to diss Office, but their product offerings have been top notch across devices.
I realize he is proposing an entire break-up, but I would have liked it if he had approached the problem providing the context of the difference between his proposed plan and the business unit separation. Afterall, Microsoft is famous for teams fighting each other for power and resources and meanwhile still requiring cooperation.
oblig wiki page: http://en.wikipedia.org/wiki/Louis_V._Gerstner,_Jr.
Apple's iPhone business alone is larger and more profitable than all of Microsoft combined. Take out the iPhone and Apple is still bigger.
Think of the hapless operating system efforts, or the terrible application ports from DOS to win16, or from win16 to win32. Platforms or products that were just unusable. And the web was awful.
Even the capable unix companies managed to run themselves into the ground - vast resources wasted in fights over nothing. Not one of them made a sustained or convincing appeal to this emerging market of consumers.
The main change is in the competition. Being boring-but-adequate used to be enough to win. But these days Google and Apple create exciting, affordable, responsive things that work.
Now they utterly own a few key markets, but have consistently failed to gain traction in others. Their online division is a disaster. Their console is set up for an apocalyptic flame-out. Their phone and tablet sales are already costing them billions in partnership deals and write-downs with almost nothing to show for it.
At this point Microsoft would be hard pressed to beat out Blackberry in the phone space.
The idea of giving away RT in order to compete with Android is only viable financially with the multiple network effects between the products of different divisions. If he proposes breaking up Microsoft, he should, at least, propose a business model that would work with the broken up company.
Imagine how much would be different now, had there been baby-microsofts competing during the last ten years.
The phone and Surface might end up failing (which is a shame, both of those products are WORLDS better than they ever should have been), but the classic Windows PC will stick around for quite awhile, and Xbox isn't going anywhere either.
What I'm saying by all this is you only have a competitor when they're a threat. Azure and Surface RT are not threats, they're merely nuisances.
The Washington Post is not PandoDaily.
But if Microsoft were split into divisions (Windows/Mobile/Tablets, Enterprise/Office, Xbox/entertainment, Bing/Hotmail somewhere?) that could freely compete, it's actually pretty easy to imagine suitable CEO's for each one.
I'm truly hard-pressed to think of any value Microsoft as a conglomerate of these divisions, actually provides, strategy- or synergy-wise -- at least that's visible to those of us outside the company.
But is there any kind of precedent for this? It's common for companies to spin off a division, but I can't think of any company voluntarily truly breaking itself up like this. It's hard to imagine a board saying, "we admit we're not providing strategic value here, let's break ourselves up".
XBox (independent) vs. Sony, Android and Apple is a losing proposition, they may as well sell the division. In a high-stakes game like that, you need a parent company with deep, deep pockets.
Windows independent of Office is worthless. There's virtually no reason to use Windows apart from the Office infrastructure built around it, or the entrenched base Visual Studio developers. It's somewhat popular as a gaming platform, but as Linux starts to be reshaped into a first-class gaming operating system, that will quickly become a non-factor.
The online division is the most troubled, basically a black-hole for money. Surely it could be made profitable, or simply sold for a massive chunk of cash to someone like Yahoo! who could afford to pick it up.
It's not that the divisions would do better independently, but they're part of a highly dysfunctional family that cannot survive independently.
I know Linux is just as functional as Windows is. Most people on this site know that, but we aren't the ones buying most PCs. Imagine your mom, dad, brother or sister who don't use computers like crazy trying to learn how to use Linux. If it's too different, "it doesn't work at all." Too many people are afraid to learn new things, which is sad.
It's not that people are not afraid to learn new things, they just have priorities, and often "learn a new OS" is not on their list.
Remember, Linux has succeeded on Android, so don't think it's impossible for people to use it.
While Windows and Office are still major components, what was formerly called Server Tools & Business (STB) makes a large amount of money (sometimes more than Windows) and has exhibited the most growth of any division over the past couple years.
In addition, what you refer to as Office is really the Business division, which includes Dynamics (a billion dollar business) so Office really doesn't hold all of the sway you lend it.
http://www.microsoft.com/about/companyinformation/ourbusines...
And an incredibly brief and vague description of the new Engineering Groups:
http://www.microsoft.com/en-us/news/press/2013/jul13/07-11on...
Businesses aren't going to switch to Linux on the desktop anytime this decade or the next because there is very little expertise to be hired and they're not going to buy into Apple's hardware lock-in either for obvious reasons. Consumers aren't going to buy Linux unless it comes pre-installed from a major manufacturer. Even then (we've tried that experiment before) - they still don't buy. Some of them might buy Macs, but the majority certainly won't because they're more expensive and completely unnecessary since Windows already does everything they need.
Windows is still wanted and needed by a lot. We have been hearing windows is dead and linux is that for 15 years now and that ship is still on the drawing table.
It's somewhat popular as a gaming platform, but as Linux starts to be reshaped into a first-class gaming operating system, that will quickly become a non-factor.
It is the only PC gaming platform.
I don't know that Windows is wanted so much as it's needed by many, but only because the applications they use are tied to it. This group includes those in industries where they use specialized software that's not ported, or where it has been ported but other tools in their workflow haven't.
It's interesting to note that Pixar uses Maya on Linux even though that's a company created by Steve Jobs. Google uses Linux internally for workstations. It's not that Linux isn't ready, but that it's nearly impossible to buy a Linux laptop or desktop from a major vendor. Dell has maybe one consumer model in their entire lineup.
For the "Facebook and YouTube" crowd, which is arguably over 50% of the users out there, Linux is probably fine. Android shows how it can be cleaned up and made far friendlier than Windows ever was.
I actually don't know how Xbox is doing financially on its own these days, but I doubt it's extremely profitable and has a lot of cash on its own. The consoles usually make the money back over certain period of time from games. Could Xbox survive on its own in that scenario?
As for Bing - it's still losing billions of dollars a year last I checked. So are the Surface tablets, and Skype - well Microsoft paid over $8 billion for Skype, and they're not going to get that money back anytime soon. Hotmail, despite many registered accounts, was pretty dead, and I think only some transitioned to Outlook.com.
Apple and Google's "gaming" division is just co-opted from their existing hardware and don't take significant resources to run. Nintendo is the only company able to keep itself afloat just from console hardware and software, and we see the market it competes in. It seems no one is willing to go toe-to-toe with Nintendo on their home turf.
Allowing the successful divisions to survive and the leeches to die seems like a win for MS. Why is throwing away billions on products that produce no return a good thing?
Microsoft has repeatedly shown us that they're playing the long game. If they're predicted to make money even a decade from now, they'll keep posting losses until that point comes (Xbox). If they're predicting a failure, they'll very unceremoniously pull the product (Kin/Zune). To steal a line from Breaking Bad, they're not in the software business. They're in the empire business.
You must not be an enterprise IT buyer. Here's how it works:
All large corporations use some Microsoft product, be it Windows, Exchange, Office, or something else. And they get volume discounts and significant other discounts off the list price.
"Oh, you want to replace Office with OpenOffice? Hmmm, seems we made a mistake calculating your Exchange licenses - the price just went up 300%."
Is it becoming more clear?
(I know that's not what happened before, but it's still anti-competitive)
It's a value provided to the bottom line of each of the MSFT divisions from/by the existence of the unified Microsoft corporate entity.
That said, there's no reason Office+Exchange couldn't be split off as a separate sub-organization together, separated from the larger windows org... possibly combined with webmail services (hotmail/outlook.com/office365), simply using an azure org for their deployment/infrastructure.
Hardware could be spun off as well, with "special" deals with a core windows team to be able to build on "top" of windows core.
The Windows org could be responsible for windows core, windows desktop os, and developer tools.
There, you could then have three independant organizations within microsoft that could utilize the core resources, while still having autonomy.
The office org could then concentrate on bringing their services to a broader audience... not worrying if their Office for Android would cut into windows slate sales... and the slate/devices team could expand upon their UIs instead of having to bind into windows core.. and the core team wouldn't need to build clumbsy desktop UIs that don't fit the patterns people have been using for two generations.
Review: Windows 7 desktops remain important for people running high end applications from AutoCad, Adobe, Mathematica, Office, etc. Also developers for code to run on Windows Server or in house Windows 7 desktop applications.
There are many client devices with many more to come.
The client devices need the Internet and servers, and as concerns about security increase clients should just cache data, easy to erase quickly in case the device falls into other hands, and not store the data; servers need to be very secure; and many organizations and individuals will want their data on their servers in their physical space protected by the Fourth Amendment.
Shrink wrapped software? Okay, have a nice application and want to write it for sales, installation, support, and usage on all the different client devices, Windows XP, Vista, 7, 8, smart phones, tablets? Heck no. And, for Windows 7, etc. a user is very reluctant just to install a shrink wrapped application due to issues of system security and stability. So, the shrink wrapped business is in deep trouble except for the big applications from AutoCad, Adobe, Mathematica, etc.
So, what to do about the work of shrink wrapped applications? Sure: Make them Web apps; that is, use a Web browser for the user interface; let the browser run on whatever client; and put the rest of the code on a server. If the client can't run a good Web browser, then do the same thing by writing a client app that uses a Web server for the data, algorithms, and computation.
So, we've got it: For Microsoft, push Windows Server for the servers. Push client devices. Have really good Web browsers. And in cases where own both ends of the wire, take advantage of that for more in functionality.
Fundamental point: People using devices, including mobile, want some utility, functionality, etc. Since a single mobile device is quite limited in what it can do, the device is mostly for user interface (UI) for services, applications, algorithms, data, etc. on servers. So, the servers remain just crucial.
Microsoft has shown that it knows how to run huge server farms, well managed, with minimal staff. That's a huge business advantage. Computing is charging on; e.g., there is a new solid state mass memory that can put a terabyte on the area of a postage stamp. It's been a while since Intel knew how to put 1000 cores on a single processor. New operating system concepts will be coming forward. All this progress will need lots of software development, e.g., for servers. Microsoft's got the people, funds, market, etc. to do that work and lead in it.
Mistake: Dunkin Donuts sells more donuts than Windows sells copies of Windows 8. Similarly for hamburgers at McDonald's. Similarly for smart phones from Apple. And, for all three cases, so what for Microsoft? There may be a lot of new client devices, but that does not mean that Microsoft has to dominate in all of them.
All the smart phones in the world won't mean that a high end, 64 bit Windows 7 desktop system will be of no interest; a smartphone and a high end Windows 7 desktop just are not the same thing and are not really in direct competition; even more the case for Windows Server.
Breakup? Windows Server can't exist alone and, instead, must serve the many client devices. So, Microsoft should stay in the business of soft/hardware for some client devices. So, don't breakup.