Today Microsoft and GE announced a new joint venture that combines Microsoft’s Amalga, Vergence, and ExpreSSO products with GE’s Qualibria and eHealth offerings in a new company to be named later. GE’s Michael J. Simpson will be CEO of the new company, and Peter Neupert has announced his retirement from Microsoft.
I’m not surprised by the deal, it has been in the works since before I left Microsoft. The two companies are very well connected: Ballmer and Immelt are old friends, they have existing JVs (e.g. MSNBC), and many of Microsoft’s HSG people are GE Healthcare alumni.
The deal makes sense because:
- Both Microsoft and GE have struggled to come up with innovative product strategies that scale beyond early adopter customers.
- Neither company’s culture is conducive to innovation in health IT. GE is an expert at getting into any business where it can dominate on a global scale, and dominating health IT on a global scale is harder than winning a land war in Asia. Microsoft is an expert at being a fast follower in businesses that leverage its dominance in the desktop OS market, but it chose to try to create a new product category rather than follow a health IT incumbent. Both lack the organizational structure and the right processes, people, and incentives to take a risk on something new and innovative and really disrupt the industry.
- Disruptive innovation tends to emerge at the low end of the market, and giants like GE and Microsoft are not well-suited to start new businesses serving only a few customers that they have never heard of and generally don’t care about.
- These two companies burned well over a billion dollars between them over the past 5 years trying to solve very similar problems in the same market. If you are Ballmer or Immelt, teaming up with your trusted friend to cut your collective burn rate in half seems like a no-brainer.
The deal concerns me because:
- As one of my mentors at Microsoft once said: “Two limping men don’t make a running one.”
- Microsoft had assembled quite a health IT brain trust over the past five years, and I hear rumors that this spin-out was accompanied by a significant layoff. I’m sure the same is true for GE. Still trying to get in touch with a few insiders to learn more.
- HealthVault is not included in the JV. Will it serve as anything more than a lifeboat for key people who Microsoft wants to retain?
My hope is that this new entity will be able to transcend the barriers to innovation that its people faced inside of Microsoft and GE. A smaller, stand-alone company may be a better fit for the risk tolerance required to disrupt the market. But the new management team will have to work to counter the brain drain that has preceded this announcement, that has accompanied it, and that may yet happen as the lifeboats fill up.