First, Microsoft stock has been performing horizontally for the past 7 years. Second, there are profound problems in the workforce stemming from the loss of growth of stock prices and therefore employee stock options constantly being under water. But also management dynamics are out of whack. Finally Microsoft is currently living in welter of contradictions.
The Windows group is getting every other Microsoft group to become tightly coupled to either the server or the client (or both) so that “everything runs best in Windows, and Windows only”. But of course this runs counter to a)the overwhelming interoperability needs of customers large and small and b) reliability/maintainability and security needs exposed to the risks of such a monoculture. Meanwhile, Server and Business Applications group are prevented from going cross platform including other OS, Web 2.0, and/or mobile strategies except in a laboriously gerrymandered and hopelessly non-responsive 1 Microsoft Way. By the time the idea is jury rigged and force fitted into the “Windows model” (think XMLHTTPRequest, Cairo, WinFS for starters), several competitors have beaten Redmond to market. And sometimes great ideas just do not get to surface.
And the Desktop Applications group, envious of the comparative technical and financial carte blanche of the Gaming group, is left to the dirty business of eating alive its Applications, Applications, Applications partners market share and businesses. While the poor Internet group finds itself being whipped Live by both internal groups and more agile external competitors. Bill and Steve, change this! Break up the groups so they can respond to markedly different market conditions and competitive profiles. The synergies in a rapidly diverging market of chip intelligence everywhere areare very diverse and very hard to predict and manage in a monolithic top down approach. The alternative is analysis paralysis and internal Machiavellian Group Grope for favor.
Status Quo Danger
So it should be no surprise why Redmond is not leading but always following in software innovation. Vista, Tablet PC, and BOB/Animated Help are the markers – just a few of the the WrITings on the Wall. There are three major factors why the current Redmond the Monolith will always be second rate on innovation and hence always vulnerable not just to those mocking Apple ads but real market lead giveaways resulting in catch up positions that require Microsoft to be a Monopolistic Bully.
First, the Monolith has built into its DNA “Third Time Charm” and “we dont lead, we just play clean-up – clean-up the market with our economic and technical power”(direct quote from a Microsoft product manager). The Monolith Rationale is that it is constantly monitoring and being “Just Good Enough” until the market reaches a tipping point, breaks and then the Monolith does what it knows best – whatever it takes to beat the competition. This has become a toxically predictable path of buyouts, monopolistic pricing, denial of standards or proprietary embrace-and-extend manipulations, “buddy buddy sweetheart” marketing deals at the outset, ruthless giveaways when it is time to take control and only sometimes, better then “Just Good Enough” software product and services. In effect, the Monolith Rationale just curses Redmond into following a well worn groove to which the broader and bigger players in the software market are now rapidly adapting.
The second danger is sluggishness. The internecine warfare on deciding what is the “1 Microsoft Way” inherently makes the Monolith less agile and responsive, squanders resources and good-will internally as well as externally, and can suffocate good ideas and/or good people. One word – Yukon. But I have talked to Microsoft developers and MVPs and the amount of sheer brilliance that has been left on the table because it could not be sold or did not have enough delivery “allies” was stunning. And the time and wear and tear of the process obviously effected some players. So instead of risk takers, compromisers rise to the top. Now all large corporations face this problem of “getting all the players singing from the same page”. My argument is that given the still rapid change in software and computing (and therefore dramatically and rapidly changing opportunity profiles) the Monolith can ill afford the friction and time-consumption of getting all Redmonds disparate groups “singing from the same page”.
Third is the contradictions. What is Ray Ozzie trying to do as CTO ? Establish collaboration and beneficial loose couplings within the strait jacket that “everything must run best in Windows”. There are inherent contradictions in the visions, winning formulas for the groups versus the Monoculture Windows Monolith Rationale. Even if Linux and LAMP had not appeared and Microsoft had achieved a Server side monopoly equivalent to Windows desktops 90% market share, monopoly prices and EULAs oppressiveness and stinginess would have spawned some other Open Source (the anti-monopoly price and anti-EULA) alternative. Other OS such as Solaris or BSD would be doing the Firefox/Opera long march – slowly but surely wresting away market share from IEs regressive, subservient “everything must ultimately run bust on a Windows desktop/tablet/mobile/PDA”.
Clearly, Economist Joseph Schumpeters creative destruction that is exemplified by contemporary IT and software markets plus Econ 101s “monopolies sow the seeds of their own destruction” (think EULA and “everything must run best in Windows”) means the status quo is not viable for 1 Microsoft Way.
Why Break Up – AT&T, AT&T, AT&T
In a single move, by breaking up into several Softies, Microsoft solves three problems at once. First, significant revenue and profit growth are open to the Softies. This removes the issue of constantly underwater stock options and makes them more viable. Second, personnel succession and retention improves because very good and ambitious managers now have the opportunity to spur on “their” businesses. Third, the history of technical monopoly break ups from Standard Oil in the past to the recent AT&T has been surprisingly positive.
AT&T is the prototype of why a monopoly in a technically sophisticated and rapidly changing market should break itself up. First, Steve and Bill, there is the financial bonanza, financial bonanza, financial bonanza!!! Think of where your stock has gone for the past 5-7 years Steve – sideways. Your personal $20-30 billion could be $60-100 billion. Six years after breakup, AT&T stock held onto was worth 2-3 times its original pre-break up value. Now take a gander at what has happened in the interim. AT&T and the Baby Bells have been able to weather and survive two rags to riches and back again boom and bust cycles (think long distance and fiber optics for starters) despite regulatory hand cuffs and brazen cable, satellite, and mobile competition.
True not all AT&T has come out smelling like roses – think Lucent and Bell Labs. But just imagine the alternative – a group of independent Softies much less likely to do a Godzilla/KingKong-ish nose dive from towering heights and each better adapted to their specific markets; yet big enough to make up the top five of software firms in revenues right from the outset. Finally, break up gives key personnel a chance to shine even brighter. Bill could do a Jack Clark and build up a second company from large but still risk-facing “start-up” to new market dominance. Ditto for Steve – and in his inimitable style. Would Brad come back ? Would the troops be excited ? Would partners feel liberated from being under the thumb and ready to do some radically new things with chosen Softies? Would IBM have to consider doing it too ? Would Apple be able to stand the free-for-all competition ? Would Bill be able to guarantee his charities a huge positive cashflow ? Ditto for Steve ? Come on Steve and Bill – what Vista has had to inform you is that break up can be a monsterously big winner.