Reforming Microsoft

Microsoft_logo_2  Quickly: It's good for Microsoft that it didn't buy Yahoo -- now it has to reform itself.

Steve Ballmer unintentionally dodged a bullet today when the Yahoo/Microsoft deal collapsed. Yahoo + Microsoft would have been a disaster -- the best and the brightest from Yahoo would have gone to Google, the culture clash would have been destructive, it would have put Microsoft back in the sights of the regulators. And Yahoo wouldn't have helped Microsoft with its biggest task at hand -- adapting to the emerging executable Internet software model.

Without a quick fix, Ballmer now has to truly lead the company through a painful and arduous period of reform -- he can't just write a check and get the company back in the game. In its scale I would put the required change right up there with IBM in the early 1980's, moving from mainframes to distributed computing, Intel in the 1970's going from selling memory to selling microprocessors, and IBM in the 1990's moving into the services business.

What must be changed at Microsoft? First and foremost, the financial business model. The company has been running at net profits in the mid-20s for decades -- a product of the company's monopoly position in several important markets. To redeploy assets and strategy, the company will have to re-direct investment, lowering net profit into the teens, at least. But that's just a start. Ballmer will have to reform: the culture, the people, the company's speed, how it sees software (it's not on shiny disks anymore), its design sense, its quality standards, its tired and annoying strategy of migrating its customers through predictable software versions, its old method of developing software (which produced the Vista flop). Ballmer's got a long way to go -- in his email to employees explaining why Yahoo got dropped, (available on Todd Bishop's Microsoft blog), he spoke in the vaguest of generalities about strategy change.

Ballmer has time (I'd give him four years given the company's sustained control over the desktop) but he's going to have leave the Microsoft of Bill Gates behind and create a new company according to his own vision. If he doesn't begin to move, Google is going to use its citadel of advertising to attack Microsoft's heart -- software. Advice to Bill: give Steve the space to change the company.

I'll be writing more about Microsoft's future in some upcoming posts. I'd love to get your thoughts about how, why, if Microsoft should change.

Comments

re: Reforming Microsoft

George, where do you see Ray Ozzie fitting into this? And is it safe to assume you are not amongst those calling for Ballmer's head? "Unintentionally" dodging a bullet -- especially one that you fired in the first place -- doesn't quite sound like a job well done. What in your mind says "give the guy another chance?"Also, at this point all the best Yahoo! talent would likely head to Facebook or some other up and coming web property; Google is bleeding its own talent already.

re: Reforming Microsoft

Oliver: I think that the circumstances (Microsoft is still stunningly profitable) and a legacy board of directors will afford Ballmer four more years.On the talent front, Google's early success may be its biggest enemy. The "I'm retiring now" stock options of Google's early years dwarf anything that new recruits get now. So hot prospects may head for Facebook or some other early stage play to try and score the big hit.Good point.George

re: Reforming Microsoft

Sadly, based on a quote from Steve Ballmer in the Journal article on Monday, "But we like our strategy; we don't like our position. Our question is can we accelerate our strategy..." doesn't sound like he will be instrumental in a rethink of the shiny disk and 'we are engineers' feature-creep and forced upgrades that has so befuddled and continues to torment all of us poor slob users all these years.

re: Reforming Microsoft

thanjks

re: Reforming Microsoft

It is tough for Microsoft to grow organically on so many fronts. Especially against cashed up opponents like Google.With all that cash at the table, why is Microsoft failing at acquisitions? Potential acquisitions (e.g. Xobni, Yahoo etc.) shunned Microsoft's overtures. Could it be that being acquired by Microsoft is not as rosy as it used to be?

re: Reforming Microsoft

Srinagesh:Microsoft's anemic stock price over the last five years could be repelling would-be acquired companies. Remember that when you are selling (your company) you are also buying (the stock of the company that is acquiring you). If you calculate that that stock has limited upside potential, you will seek out a more attractive suitor.George

re: Reforming Microsoft

The SaaS model have main and vital component the DCs operators and carriers. Which SaaS plattform do you would preffer if you was one of them: one that is just SaaS, not a business solution, or one that is, and - better - integrated with your backend management software?MS have Win Server, System Center and SoftGrid to offer to them BESIDES Saas (Live Office, CRM, SQL ForeFront and Exchange Hosted). It is the ONLY one positioned to offer DC operators and hosters the infrastructure to run SaaS, easily integrated with infra sw, and with its giant end-user 'applications' mindshare.It is a small step to get MS Project in Live, and Live Office integrate with CRM / Dynamics online. Competitors would have to run a full dev lifecycle - including sw matureness. And, honestly, spend a lot of money to change mindset to another app line branding.Not to mention the larges DCs MS is already running and building (yes I know Goog is too, but their main revenue still comes from advertising. Their biz sw is really not a integrated one as Office / Dynamics / Project).Anyone may write a Facebook or Linked In site, their 'use' does not impact companies' revenues [may be only their images, potentially]. But to have an entire line of integrated (and mature) line of infra and biz apps (including BI), that is another story.Do you have any doubt MS will keep running our lives?