Bloomberg has a piece today in which multiple off the record representatives of the Stephen Elop campaign share their candidate’s vision for the future of Microsoft. In a nutshell: more Office and axe Bing and Xbox. This is a hearty endorsement for what has become the conventional wisdom, on Wall Street and amongst its followers.
The Right Way to Break Up Microsoft
The premise seems to be Microsoft should give up, retreat to the “enterprise” because Microsoft at least still knows how to do that boring stuff, and milk the remaining cash cows for as long as possible. It is easy to see why Wall Street likes this model because they value short term earnings and find it hard to model messy technology transitions. But optimizing for past success and present financial return is not the best way structure the company going forward, because it doesn’t address the challenges facing the core businesses.
Instead of just lopping off money-losing parts, I reiterate yet again my call for a more fundamental breakup of the company with Windows, Office and Server & Tools (STB) all becoming their own companies (and I apologize for not being able to use much less understand the new super-matrixed, n-dimensional segment labels). There are a whole bunch of reasons to do this, but the core rationale is both Office and STB are better businesses if they don’t have to pay the Windows strategy tax. Both Office and STB are net payers of the tax while Windows is a net beneficiary. That may have made sense pre the Post PC era, but it no longer makes sense.
Office’s mission must be to enable productivity everywhere. Holding back iOS and Android support to advantage Windows Phone and Surface has been a disaster for Office and hasn’t helped Windows. There are companies like Box that exist but shouldn’t exist because of this strategy tax. Office could also straighten out their server strategy by decoupling it from STB (SharePoint is a floor wax and a dessert topping, both in terms of use cases which is Office’s fault but also architecturally which is a strategy tax).
Server & Tools can further embrace the heterogeneity they must and a clean break would let them truly focus on being cloud first where the operating system is an afterthought. Azure is already emerging as the clear challenger to Amazon Web Services and strategic clarity would help them focus on this battle for the future.
As for Bing and Xbox, I don’t really care but on balance would keep those businesses. Yes, they lose money but in the scheme of things it is not a lot and they are necessary assets for the future. The alignment of Bing and Office has attracted extraordinarily little comment, but is potentially a very interesting strategy. And while I am not particularly optimistic about Xbox One (too expensive, too focused on everything but games), Xbox should be part of a Windows company that offers you local devices and a cloud experience that spans however many screens you have in your life.
Making Windows, Office and STB independent businesses will not only unlock value, but also solves the CEO search conundrum. Finding someone who can manage the sprawl of today’s Microsoft is extraordinarily difficult and creating more focused companies makes it much easier to find successful leaders. Which leads us to…
The Curious Candidacy of Stephen Elop
Stephen Elop’s presence on the short list of Microsoft CEO candidates has always puzzled me. Why is he on the list? Why is he out actively campaigning for the job? His resume is that of a short-tenured opportunist who has left little mark on his employers except of course Nokia where he presided over the company’s collapse and ultimate exit from the mobile handset business. Nokia may have been doomed regardless of who was the CEO, simply a helpless pawn in the face of titanic disruption, but there is ample argument that the Burning Platform decision, the singular decision attributable to Elop over the course of his career, was a disaster. Many have claimed it was both the wrong decision (the argument is embracing Android would have played to Nokia’s strengths) and rolled out in an extremely damaging way. We can only debate hypothetical outcomes, but the fact is the recent global leader in mobile handsets finds itself out of that business with the assets sold at firesale prices to Microsoft.
But Elop is touted as an “insider” so his time at Microsoft bears examination. What impact did he make on the company that would qualify him to fill Ballmer’s shoes and lead Microsoft through the multiple transitions it faces? He inherited a smoothly running Office business that, to his credit, he didn’t screw up while he was there.
His signature initiative at Microsoft was developing Symbian clients for Office. This did introduce him to his next employer, where upon arrival he promptly cancelled Symbian. Bloomberg now tells us he believes Office should be more aggressive with iOS and Android clients. But the time to do that was when he was running the Office business, not years later.
He also doubled down on Dynamics, Microsoft’s business applications portfolio (the fact I feel compelled to include that definition tells you all you need to know about the outcome).
Neither the Symbian clients nor the Dynamics focus are on par with the Nokia catastrophe, though the opportunity cost incurred may be of that magnitude if the Office business doesn’t make the transition to the cloud. But nothing about Elop’s tenure at Microsoft suggests he is a exceptional candidate to help the company successfully navigate its many challenges. Beyond that, and perhaps most ominously, the Office development team apparently stopped talking to Elop, at which point he decided he wanted to relocate to Finland. Alienating your development team is bad form for software executives.
Elop is a polished, hard working and by all accounts nice guy (he arrived just as I left, so I have never met him but have talked to many people who have worked with him at different companies) who plays the executive role well. But Microsoft has big shoes to fill and needs a world class software executive. There is nothing in Elop’s record that suggests he is a guy who could return Microsoft to greatness. Boldly leaping (albeit anonymously) on the bandwagon of proposing to axe Bing and Xbox as if that will somehow address the Post-PC challenges of the Windows business does nothing to mitigate this concern.
It may be that Elop’s inclusion on the short list is to help manage a sensitive partnership and acquisition beset with interesting optical issues, and he is not really a candidate. But he is clearly campaigning for the job so invites this scrutiny. I fear for the Seattle real estate market if he is the only guy who actually wants the job.