Microsoft’s best hope after Ballmer? A break up

http://www.washingtonpost.com/blogs/innovations/wp/2013/08/26/microsofts-best-hope-after-ballmer-a-break-up/

by newsign • 13 years ago

48 68 13 years ago

This actually makes a lot of sense. A lot of articles have been talking about how there's no obvious candidate for new CEO, and that it's basically too much for any single person to take on.

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".

sidww2• 13 years ago

Xbox/Bing/Hotmail might have a hard time staying afloat w/o the profits from Windows/Enterprise/Office.

wicknicks• 13 years ago

Maybe have a common pool of resources from which they draw from. That would force the "weaker" companies to compete more or pivot to create better products.

astrodust9• 13 years ago

Remember that every division with the exception of Windows + Office has a hard time turning a consistent profit.

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.

Osiris• 13 years ago

While a break-up into separate companies may not make sense, giving each product group more independence to act like a separate group may allow products to be more flexible and reactive to user demands.

gutsy5• 13 years ago

The average non-power user isn't going to want to learn how to use Linux, they're comfortable with Windows so they'll stick with Windows. I predict that they'll make two very distinct version of Windows next time, one for tablets like Windows 8 and one a lot more like Windows 7 for the desktops.

Locke1689• 13 years ago

Actually, this is mostly wrong.

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.

WayneDB• 13 years ago

There's plenty of reason to use Windows apart from Office. You just can't see it because you live in a bubble.

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.

johnchristopher• 13 years ago

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.

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.

devx2• 13 years ago

Maybe, but here's the thing. Splitting them like that might help the already rich ones (Windows and Office), while it would hurt the struggling ones (Xbox, Bing, Surface).

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.

freehunter5• 13 years ago

It seems to me like high end gaming consoles are unsustainable anyway. Sony could barely keep Playstation alive if it wasn't sinking money into the product that it had gained from other sales. Microsoft is in the same boat.

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.

ant512• 13 years ago

"As for Bing - it's still losing billions of dollars a year last I checked."

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?

dermotbrennan• 13 years ago

I think there's some value in the goal of having a common interface and set of features across desktop, mobile, xbox, server. People would like that. Microsoft haven't achieved that there yet but it's still a worthy goal. I think slimming down and refocusing might be more effective than a massive break-up.

auctiontheory2• 13 years ago

I'm truly hard-pressed to think of any value Microsoft as a conglomerate of these divisions, actually provides

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?

mbreese3• 13 years ago

Isn't that how they got in trouble last time? That's hardly a value for the consumer.

(I know that's not what happened before, but it's still anti-competitive)

mbreese3• 13 years ago

At the time, I thought that not breaking up Microsoft during the monopoly trial (a very remote possibility) was the worst thing that could have happened to Microsoft. As a large company, they lost a lot of the tech edge that they had in the 90's. Had they split into three groups something like: OS/ servers/dev tools, Office applications, and Internet services/Xbox(?), they would be a much more formidable competitor in the future.

Imagine how much would be different now, had there been baby-microsofts competing during the last ten years.

leokun2• 13 years ago

I know it is silly, but its weird to see this post in the light of Bezos as owner of this publication. He is not exactly neutral on this topic. AWS competes with Azure.

astrodust9• 13 years ago

I think you mean Azure competes with AWS.

leokun2• 13 years ago

And it's not just that. The Kindle competes with the Nook and Surface RT.

untog• 13 years ago

There is a lot to learn about editorial independence in newspapers. While they aren't obliged to announce that kind of influence, I would imagine that a lot of Washington Post writers/editors would speak out if Bezos dictated the content of this post.

The Washington Post is not PandoDaily.

devx2• 13 years ago

Perhaps Microsoft should break up - but there's a lot of wishful thinking in there. Windows RT would beat Android in tablets if it were its own company? How? It couldn't do that with billions of dollars behind it.

canistr2• 13 years ago

Wadhwa mostly fails to address that Microsoft (prior to a couple of weeks ago) was already "broken" up and organized by business groups (or customer segments) in much the same way he is proposing (Xbox = IEB, Online Services = Bing, Windows = Windows, Office = Office, etc).

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.

radley• 13 years ago

HA ha ha ha. No way. Don't discount M$. They have a very solid track record of coming late to the game, failing, flailing over and over... and once a market matures they move in hard and take it over.

mrdodge2• 13 years ago

They haven't been able to do that for a while, and their competition is now a lot smarter and much richer than even Microsoft.

Apple's iPhone business alone is larger and more profitable than all of Microsoft combined. Take out the iPhone and Apple is still bigger.

madoublet2• 13 years ago

I guess if you consider 2010 "a while". That is when Microsoft released the Kinect.

moocowduckquack• 13 years ago

MS got its initial strength primarily from IBM signing something extremely stupid. I don't see anyone signing anything like that with MS today and there isn't the same monolithic business entrenchment that there was with IBM back then, so I don't see how they are going to get back their leverage.

cturner• 13 years ago

It wasn't just IBM. Everyone except Microsoft made a mess of the 80s and 90s. On the whole, computers sucked. A few didn't and those companies made a terrible mess of the business side.

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.

astrodust9• 13 years ago

They had a solid track record of crushing their opposition, by starving them of money (vs. Netscape), depriving them of critical applications (Apple with Office), or by throwing mountains of money at the problem (vs. Sony PS3).

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.

cygwin98• 13 years ago

Don't be silly. We're having a world war in the IT scene at this moment among a number of monstrous companies: Microsoft, Google, Apple, Amazon and their allies. This proposal is like suggesting of partitioning the Soviet Union in 1942.

acomjean2• 13 years ago

This is like Deja Vu. They said the same thing about IBM last century (I was an employee at IBM yorktown for a couple years). IBM was dying, the PC (clones mostly) won the day and was in offices everywhere. The plan was to split IBM up into lots of little companies.. They brought in a CEO (Gerstner) who basically said, don't split it up, being big is a benefit and lets leverage that. It worked, and the company started doing better.

oblig wiki page: http://en.wikipedia.org/wiki/Louis_V._Gerstner,_Jr.

sgift• 13 years ago

Your link doesn't work - HN doesn't make the last . part of it: http://en.wikipedia.org/wiki/Louis_Gerstner

acomjean2• 13 years ago

Thanks!

gutsy5• 13 years ago

Not going to happen. Microsoft will continue to make gobs of money no matter what, just because so many users are afraid of change and learning new ways to do things (i.e. not using Office). Until Apple products drop dramatically in price, the average user will continue to buy PCs with Windows and other MS products.

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.

gutsy5• 13 years ago

It would definitely make sense, but I don't see it happening.

kyllo• 13 years ago

Well, this is wishful thinking. With their recent major re-org, Microsoft went the complete opposite direction, and they are going to have tightly coupled, horizontal/functionally-aligned departments rather than loosely coupled, vertical/product-aligned divisions. Will be interesting to see how that works out.

brudgers2• 13 years ago

"To me, Microsoft seems like the former Soviet Union—Politburo, five-year plans, and all."

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?

freehunter5• 13 years ago

And what corporation doesn't have a five year plan?

ChuckMcM• 13 years ago

I agree with your essential claim that it is poor reasoning to support a pre-disposed view, but sometimes folks reason backwards to see if they can justify their opinion.

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.

brudgers2• 13 years ago

I agree that we often reason backward from our conclusions - I'll even admit that sometimes an analogy is a useful way of explaining our reasoning. However, even were the analogy to the Soviet Union presented coherently, the interpretation of the benefits of its breakup require glossing over two decades of economic turmoil, repressive governments, loose nukes, the collusion of government officials in the pillaging of national assets and ghastly breakdowns in the rule of law in both Russia and the other former republics [and satellite states]. Lots of really bad shit happened after the wall came down [yes, and before it came down].

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.

macspoofing• 13 years ago

It makes no fuckin sense to break Microsoft apart. Microsoft is actually highly focused. There's synergy between every division, whether on the product side (e.g. hotmail/outlook accounts used in Windows, Office, Xbox, Internet services) or the backend/platform side (e.g Windows kernel powering PCs, Xbox, Tablets, Phones. Or the Azure cloud powering Office 365, XboxOne Cloud, and miscellaneous Windows SAAS, in addition to providing web-services AND also pushing and marketing the Windows and Xbox development platforms).

What a terrible article.

revscat• 13 years ago

There's synergy between every division

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.

freehunter5• 13 years ago

Um? Office is on all of Microsoft's mobile devices. My Lumia 920 sure has Office. My Samsung Focus before that had Office. My Nexus 4 has Office OneNote. Surface RT has Microsoft Office 2013 RT

madoublet2• 13 years ago

Windows Phone ships with Office. So does RT.

mynameisvlad3• 13 years ago

lack of Office on any of MS's mobile devices

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.

canistr2• 13 years ago

I disagree with the comparison with Apple and iWorks because with Microsoft's Office products, the level of support they would have to include for Excel, PowerPoint, and Word docs is significantly greater than Apple. They aren't working from the ground up the way Apple does because their user base is far more complex and large. For Microsoft, support goes deep into supporting their business clients, tech support, and general consumers since Office is a core business for them.

MichaelMoser1232• 13 years ago

Not smart; Outlook is driving Exchange (or the other way round), so are lots of other products; a breakup would not help the bottom line.

MichaelMoser1232• 13 years ago

On the other hand: if it were to split up then the parts would have to be more open; more open protocols and less lock-in games; less fire and motion. Maybe that would have had benefited the Windows ecosystem in the long term. Who knows, it is hard to tell.

tracker1• 13 years ago

Outlook wasn't originally part of the Office team's domain.. it was originally part of the Exchange team. Though I do think that Exchange's integration is second to none for teams, and that Outlook as an email client is actually pretty good these days, and integration with Exchange, and bundling with Office keeps it all afloat.

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.

graycat• 13 years ago

No, not a breakup. Silly. Throwing out the baby with the bathwater. Passing up a great opportunity.

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.

rbanffy2• 13 years ago

I too have written less than inspired articles in the past, so, I'll assume the author was under some kind of editorial pressure and couldn't think through the core idea.

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.

Microsoft’s best hope after Ballmer? A break up

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