It’s Time for Microsoft to Break Up


microsoft-org-structure[1]

A lot has happened since my last post about Microsoft. There has been rampant speculation about who should be the next CEO. The company acquired the mobility business of Nokia, perhaps signaling that Stephen Elop is the man to beat for the top job.

But an article in today’s New York Times offers a perspective that aligns most closely with my own: That the company is too big to manage, too unwieldy to be agile, that the Nokia acquisition makes this problem worse, and that Microsoft would be able to compete better if it split itself into smaller, more focused companies.

The fact is that Microsoft will not solve any of its problems by growing. More products, more markets, more features: These go-to plays fueled the company’s past growth. To get itself unstuck, the company now needs to do much less: Fewer strategies, fewer products, fewer features, fewer businesses, fewer employees. Microsoft will need to make a difficult pivot in the near future if it wants to remain relevant, and it’s far easier to turn a small ship than a large one.

So I’ll add my voice to those calling for Microsoft to split itself into several smaller companies that will be easier to manage.

One of the mini-Microsofts might focus exclusively on corporate customers. The winning strategy here is customer intimacy, not product leadership. The company can run a successful business catering to the needs of enterprise IT customers for many years with only modest incremental enhancements to its current set of products, but not if they are undergoing the kind of rapid change necessary to compete effectively in the consumer market. This mini-Microsoft might end up looking a lot like Oracle.

Another mini-Microsoft might focus exclusively on consumers. The goal here needs to be to pursue product leadership, to run faster, to recapture lost mojo, and to establish a thriving developer ecosystem at the low end of the overall software market where customer expectations are relatively low compared to those of enterprise IT. If this mini- is successful, consumers will drag its platform into the enterprise market the way they did with Windows 20 years ago, and they way they are doing with the iOS and Android platforms today. This business will benefit from shedding the Microsoft brand. Its product portfolio might end up looking a lot like that of Apple.

Finally, there will be leftover pieces of the company that will need to be either sold to strategic buyers or spun out on their own. I like the NYT article’s suggestions that Bing would pair well with Facebook and that the Xbox business might make a nice stand-alone company.

There are thousands of ways that a company with hundreds of businesses might be sliced up. What other combinations of Microsoft businesses do you think would stand a chance of success on their own?

5 thoughts on “It’s Time for Microsoft to Break Up

  1. I am not sure your suggestions would work.

    During/after anti-trust cases, Microsoft was re-set up to be like GE. Each independent business units with its own president and own P&L. In theory they could have spun out that way too. But that is exactly what created the above diagram that supposedly represent Microsoft. BUs were not interested in helping each others, as it did not help their bottom line directly. They pursued what they thought was the right thing for their business. I think services and devices focus, and rearranging the BUs to a small set of common goals (similar to Apple or Ford under the “One Ford” plan) is a better approach.

    Also, Enterprise only approach will not work. Your #2 about consumer only approach answers that question. Those consumer devices will show up in the enterprise, and soon “enterprise grade” devices and software will be replaced. Mainframe, Mini-computers all got replaced with “consumer grade” PCs, because they were “good enough”. (The points made by Clayton Christensen in his books many times).

    After saying all that No’s, do I have own suggestion? No. :-) But I don’t think Microsoft will be able to dominate the market without creating a market on their own. Playing catch up on Search, Phone and Tablet will get you some shares, but not dominating kind. They must be innovative in their own areas to be able to take enough market shares away, or better yet, create an entirely new market. Easier said than done, as you know, when you have a huge cash cow to protect….

    1. John, your points about the Innovator’s Dilemma are spot-on. During the minicomputer era none of the leading vendors succeeded in creating a decent personal computer until IBM built a Chinese wall around its PC team and enabled it to build a consumer product that would end up cannibalizing the company’s core enterprise computing business. This was an exceedingly rare instance of a disruptive innovation coming from an incumbent market leader.

      The problem with all those other minicomputer vendors was that they paid too much attention to their best customers, the ones who were paying the bills at the time and were eager to pay for expensive features that the nascent PC platform just was not ready to deliver. Microsoft continually falls into this trap of trying to build consumer software and devices that aim to satisfy their most demanding enterprise customers (see Excel on the early Windows Mobile phones, etc.) and the resulting products don’t please anyone.

      Consider also the recent Windows 8 hybrid user experience, which belies a company that can’t seem to decide whether it wants to build a consumer or an enterprise operating system. The return of the Start menu in 8.1 is an admission that the company is still trying desperately to please its best customers today and is making ugly tradeoffs that confuse and alienate its best future customers.

      Microsoft has proven that it just can’t manage the complexity of trying to be best in the world at both the customer intimacy and product leadership strategies. It needs to simplify its portfolio, and it’s running out of time, hence the call for drastic action.

  2. Great post again, Zach!

    One problem that seems inadequately addressed is the issue of partial set membership in categorizing users. Corporations have gotten greater productivity from their workers in part due to the cultural shift that has blurred the lines distinguishing work from non-work. People work nights and weekends, do home chores during the day, utilize a unified inbox that intermixes work and personal email accounts, etc… When work has invaded the home, and the home has invaded work, then will software succeed by choosing whether to focus on “consumer” vs. “business”? I have my doubts.

    It appears to me that MSFT made critical strategic, tactical, and design missteps in trying to address this problem of partial/multiple set membership. To reference my hypothesis in my comment on your last MSFT-related post along with the terminology from the video in your homeschooling post, it looks as if they attacked the problem using ham-handed convergent logic (just as ham-handed as the logic of using a stack-rank to encourage employee excellence), instead of identifying a truly innovative solution. Innovation requires divergent thinking, while the “hybrid” Win 8 approach and so much else that we see from MSFT looks exactly like the result of convergent thinking. Of course there are some innovative elements on the Win8 platform, but the overall product concept (“1 + 1 = 3!”) seems like the result of convergent thinking all the way.

    While I agree that MSFT may be too big to win right now, I’m not sure I’d pick the cleavage planes you described above if they were to split up. I also readily admit I haven’t thought about what might be the cleavage planes I would choose if I were in the driver’s seat. :)

    1. Interesting points, Jon. I agree that the lines between consumer and enterprise are blurry, and specifically that there is always a current pulling consumer products into the enterprise but not vice-versa.

      So my proposal to cleave the business along that plane centers on the idea that the enterprise business is by definition a more mature, lower-growth, risk-averse market that requires a different strategy than the more nascent, higher-growth, faster-paced consumer market.

      I don’t think a business can succeed at both in the long term.

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