Search This Blog

Worries That Microsoft Is Growing Too Tricky to Manage


By 

Enlarge This Image
Vince Bucci/AP Images For Microsoft Xbox
Marc Whitten, a top executive for Xbox, one of Microsoft’s many disparate product lines.

Related

Bits

More Tech Coverage

News from the technology industry, including start-ups, the Internet, enterprise and gadgets.
On Twitter: @nytimesbits.

Microsoft’s $7.2 billion acquisition of Nokia’s handset and services operations, when the deal closes early next year, will increase the company’s head count by 30 percent and add a big, new hardware unit to a dizzying variety of businesses — an unusual situation in an industry where focus is often prized more than breadth.
It’s a concern to everyone from academics to Microsoft alumni. A list of missed opportunities and disappointing investments at the company in the past decade in areas like smartphones, tablets and Internet search have led to the belief that a more focused, nimble collection of mini-Microsofts could respond more effectively to the never-ending flow of disruptive technologies nibbling at its foundations.
“It is very hard to be a broad-based tech conglomerate,” said David Yoffie, a professor at the Harvard Business School.
Thirteen years ago, Microsoft’s competitors and a federal judge demanded that Microsoft be split up because of its market power. But trying to do too much rather than wielding too much power is the issue now.
Microsoft already has a video game console, the No. 2 Internet search engine, a major Web portal, an enormous corporate software business, an operating system for personal computers, cloud computing services and applications software. The company is a mash-up of the businesses in which competitors like Google, Yahoo, Oracle, Apple and Nintendo specialize, putting an enormous burden on the company’s chief executive, Steven A. Ballmer, who has announced plans to retire within the next 12 months.
Microsoft’s complexity will make its search for a replacement for Mr. Ballmer more challenging, since the job will require a person with an uncommon array of skills, including fluency in corporate and consumer markets, hardware, software and Internet services. Mr. Ballmer recently announced a sweeping reorganization of the company intended to improve its agility, though its huge portfolio of products will remain intact.
 “It makes it harder to manage, which is a challenge for Microsoft no matter who the successor is,” said Mr. Yoffie. Long before Mr. Ballmer announced his retirement, he and Bill Gates, the Microsoft chairman and co-founder, had both quietly acknowledged that identifying a new leader for Microsoft would be hard. A person who spoke to Mr. Gates several years ago on the subject of succession recalls the Microsoft chairman saying he would support replacing Mr. Ballmer if he could think of someone who could do a better job.
Similarly, another person said Mr. Ballmer himself said a few years ago he would step aside if a better chief executive could be found. These people spoke on the condition that they not be named because the conversations were private.
Larry Cohen, a spokesman for Mr. Gates, did not respond to a request for comment. Frank Shaw, a spokesman for Microsoft, also declined to comment.
In 2000, when Microsoft’s business was simpler than it is now, Thomas Penfield Jackson, a federal judge, ruled that because of violations of antitrust law, Microsoft should be split into two companies — one focused on Windows and the other on applications. An appeals court later threw out the breakup order after deciding Judge Jackson had tainted the legal proceedings by making comments to the press about the case.
Pundits, business professors and alumni of Microsoft have spent years pondering whether, in hindsight, such a breakup might have given the resulting “Baby Bills” the agility to compete better. Several of Microsoft’s businesses would be substantial stand-alone companies, with Windows accounting for $19.2 billion in revenue for the fiscal year ending in June, and its business division, dominated by its Office applications, at $24.7 billion. A third business, servers and tools, had revenue of $20.3 billion in the period — compared with the $27.5 billion in software revenue at Oracle in its latest financial year ending in May.
One argument in favor of such a situation is what some people inside Microsoft call the “strategy tax,” a tendency for the company’s product groups to make decisions that favor other Microsoft products, whether they’re the best decisions or not.
An oft-cited example of this is the reluctance of the Office applications group to release complete versions of Word, Excel and other software for iPads and Android devices. That decision, in theory, could help Microsoft tablets that run Windows, though it hasn’t yet.
Vivek Wadhwa, a fellow at Stanford Law School, has advocated for a Microsoft breakup because he doesn’t think its consumer and corporate businesses can coexist harmoniously. “The strategy for each of those needs to be completely different,” he said. “Because it’s trying to protect its enterprise market, it can’t act freely in the consumer market.”
While there are many successful conglomerates, including General Electric and Berkshire Hathaway, there are fewer that perform well in technology. I.B.M. is often held up as an example of a technology conglomerate that has adapted well to the times, in part by shedding its personal computer business nearly a decade ago. While it has many products and services, Mr. Wadhwa said, the company’s focus on corporate customers has made it easier to manage.
An even broader conglomerate is Samsung, which is in areas as varied as electronics, life insurance and petrochemicals. But each of those businesses is run with a high degree of independence from the others. The company supplies screens and semiconductors for Apple, even though Apple is the main rival to Samsung’s mobile phone business.
Investors have clamored for Microsoft to get rid of its money-losing or less profitable businesses, seeing them as a drag on the stock price. Richard Sherlund, a longtime Microsoft analyst at Nomura Securities, believes the Xbox video game business and Bing search engine are good candidates for spinoffs.
Mr. Sherlund has speculated that Microsoft could give Facebook, with which Microsoft has an existing partnership, control of Bing, in exchange for a share of revenue from the additional traffic it would drive to Facebook’s site. Mr. Sherlund estimates that Microsoft has accumulated losses of more than $17 billion in the search and online business.
Still, while it has sold off or spun out smaller businesses in the past — the travel site Expedia originated at the company in the late ’90s — Microsoft has shown no interest in jettisoning major products.
In its defense, Microsoft notes that its long line of products yields many synergies. Xbox uses a variation of the Windows operating system, while Bing provides search services that are tightly integrated with Windows, Xbox and the Windows Phone mobile operating system.
Further, it could be argued that Microsoft’s competitors are recognizing that, like Microsoft, they need to develop products in areas once considered outside their expertise. Google bought Motorola Mobility to help it get into the hardware business. Apple has been on a start-up acquisition binge to improve its online mapping service. And Amazon, once entirely focused on consumers, has become an important supplier of cloud services to businesses.
Even with those changes, Mr. Yoffie of Harvard said Microsoft’s big rivals are still more focused than it is. “I think the fundamental question for the next C.E.O. of Microsoft,” he said, “is, what is his vision of Microsoft?”
first appeared on nytimes.com
at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)