This is the second of two articles about what lies ahead for Microsoft and Windows. In the last month, there have been two huge corporate shakeups that will change Microsoft’s competitive posture in ways that are completely unpredictable.
STEVE BALLMER RESIGNS AS MICROSOFT CEO
Steve Ballmer, Bill Gates’ college roommate and one of the original Microsoft employees, unexpectedly announced that he will retire as soon as a successor is chosen – no more than 12 months from now and perhaps much sooner. He has been CEO since he took the reins from Bill Gates in 2000, taking a huge and diverse company and steering it through the last thirteen years to record profits and revenues, but making mistakes along the way and failing to keep pace with Apple and Google in the market for mobile devices that has become all-important.
In 2013 Ballmer embarked on a massive corporate reorganization to reorient Microsoft as a “devices and services company” – quite a shift for a company built on software that has not been successful with many of its forays into devices or services. Devices? XBox is popular but not profitable (and the buildup to the new XBox One has been anything but smooth) and Surface tablets have been a financial disaster so far. Services? The future may be bright but the most visible Microsoft service in the last decade has been Bing, originally developed as a Google search competitor, which has lost piles of money.
The restructuring was announced a few weeks ago, with executives shuffling around to new positions and responsibilities and some important ones leaving Microsoft completely. No one knows why Ballmer’s retirement followed closely on the reorganization – was it always Ballmer’s plan to put the reorganization in place and then leave that as his legacy, or was he pushed out by the board? Is it his decision or was he gently coaxed out by his old roommate?
There are many talented executives at Microsoft but no obvious successor to Mr. Ballmer. Microsoft is a behemoth which generates vast amounts of money from a diverse collection of products. It’s easy to look from the outside and spout off about how the new CEO should “change everything,” but that’s not the way it works in big companies with established revenue streams of billions of dollars. Someone from inside the company might not bring the fresh perspective that many people believe is necessary to push Microsoft further and faster, but someone from outside the company will have a difficult (perhaps impossible) task to come to grips with the complexity of Microsoft’s divisions and the entrenched relationships and personalities.
Still, a new CEO has the chance to come in and make bold moves. Paul Thurrott suggests dropping the license fee for Windows Phone 8 to draw attention from manufacturers and developers. Lots of IT pros think Microsoft should refocus attention on its relationship with Microsoft partners, who are disgruntled by Microsoft’s efforts to bypass partners and work directly with businesses on cloud computing. Ideas are flying: Drop Windows RT! Break up into several smaller companies! Spin off the XBox division! Give up on consumer products and focus on enterprises only! There’s no shortage of pundits and journalists and bloggers and analysts with ideas about how Microsoft could assert itself.
There are two things to worry about.
The first is that Microsoft might choose poorly for its next CEO. There are many talented senior executives who could be tapped for the position, inside and outside the company, but it would take a real visionary to seize control of Microsoft’s businesses and personalities. Stephen Elop, the CEO of Nokia, is considered a front-runner; he’s a former Microsoft executive and a strong executive, but his history doesn’t inspire confidence that he would bring creativity and flair and change Microsoft’s direction.
The second is that Microsoft might simply be too complex for any CEO to manage, much less turn around. The New York Times made the argument a few days ago:
“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.”
MICROSOFT BUYS NOKIA
Shortly after Mr. Ballmer announced his retirement, he dropped another bombshell: Microsoft is buying Nokia’s phone business and licensing its mapping service and patent portfolio. In the process, Microsoft will add 30,000 employees and directly enter the hyper-competitive phone market.
Nokia had a near-death experience a few years ago when it was caught unprepared for the world’s instantaneous shift to smartphones, abandoning Nokia’s Symbian-based phones seemingly overnight. When Mr. Elop became Nokia CEO, he committed the company to a partnership with Microsoft and devoted the company’s entire energies to Windows Phones. Nokia came within a hairsbreadth of filing bankruptcy when Windows Phone 8 was delayed and initial sales were disappointing, but now there are some encouraging signs. Nokia has developed a wide range of phones that are all well designed, from inexpensive models aimed at developing countries on up to the Lumia 1020 with the best camera of any smartphone by a very wide margin. Windows Phones are starting to sell reasonably well in many places other than the US, which has not paid much attention to them so far.
If Microsoft acquires Nokia but does not change much other than the logo on the phones, then there is reason to doubt the wisdom of the Nokia acquisition. A fading company does not become more strong by buying another fading company. It makes Microsoft more complex at a time when its complexity has already been part of the problem for a CEO with thirty years experience with the company. It will make it that much more difficult for a new CEO to get a handle on it all.
But the Nokia acquisition creates some opportunities, too. Perhaps fresh leadership will help Microsoft emulate Apple, a vertical powerhouse with great devices and a strong ecosystem, after some bold moves to simplify its products and services and to cut through the barriers that have kept app developers away – open the platform, drop the license fees, push out developer tools.
There’s one more thing to remember about Microsoft. If you look at its history, it has had a strength that it has demonstrated again and again: the strength to keep going. It has seldom been an innovator and its first entries into new areas are frequently not very strong. But it keeps going, incrementally improving its products, staying the course while its competitors grow and fade, leaving Microsoft still standing.
Windows 8 is less than a year old. Windows Phone 8 – the first version of a Windows phone that matters after years of uninspiring versions – is less than a year old. Windows tablets are less than a year old. Apple and Google have commanding leads in the phone and tablet markets but those are young markets and Microsoft appears ready to keep going, to keep improving, to keep borrowing the best ideas from the others, and to keep leveraging its strengths. It is the tortoise and it’s not impossible that it will start to catch up with the hares. Microsoft is the only company that can build an ecosystem that fully embraces Windows, which is still your primary technology tool, after all; and Microsoft is the only company that can build devices that can be fully managed and secured by enterprises running Windows Server-based networks, the hidden strength of its mobile devices that Microsoft has not yet fully exploited.
It’s simple, then. Microsoft is poised to grow, or to stagnate, or to fade into irrelevance, under the leadership of a CEO who brings freshness and creativity, or lets the company stay the course, or misses more market shifts and governs its decline. Windows 8 will become the new standard for personal computing, or it will be resented and avoided and eventually become another Vista-like debacle. Windows Phones manufactured by Microsoft will become a strong contender, gaining market share from Apple and Android, or they will always be an also-ran with single-digit sales percentages. Windows tablets built on Haswell chips will be exactly what many consumers have been looking for as a lightweight, portable notebook replacement, or they’ll be a boat anchor that drags down Microsoft and its hardware partners.
Simple as that! Go ahead and place your bets – and beware of anyone who says they know the answers.