Split Up Microsoft to Regenerate a Great Company

As we wait respectfully for Microsoft to anoint its next leader, there appears to be a growing school of thought in favour of the company splitting itself up. Even co-founder Paul Allen seems to have tacitly expressed his support for the idea. It’s a grand irony that many wanted US regulators to enforce a slimming-down of the software giant over a decade ago. My feeling then was that this would help rather than hinder the company’s progress and I feel the same today. Here’s why.

Under Bill Gates, Microsoft had an admirable ability to kill things that weren’t working out, no matter how big or precious they were. The great example of this was the way the company turned off development of its proprietary online service in favour of the web when it became apparent that open, free portals would prevail over gated, paid-entry communities. It sounds like common sense, doesn’t it, but I can hardly say how unusual this is. Most companies persist in wrongheaded strategies because executives fear they will face the bullet if they capitulate. There is too much ego and politics involved, so bad decisions are perpetuated and spread like cancers.

Today, Microsoft is just too big. Of course, companies like IBM and Oracle are big too but they have developed an efficient means of profiteering from M&A and they focus on business-to-business IT. Microsoft remains largely dependent on the Windows and Office super-franchises for profit but it sweeps widely and wildly across the technology landscape, from Xbox to web properties to HPC and cloud activities. You might argue that Google is similar, betting on many projects to unearth the next gem, but Google’s core business is rampant whereas Microsoft’s is under siege and Google culls those projects that are failing and does so early. Microsoft’s breadth of ambition can no longer be justified; it has kept too many plates spinning for too long. At the very least, the Xbox and web properties could be spun off. It would also make sense for Microsoft’s infant hardware systems division to be hived off, given the broader opportunity to be a software and services enterprise. Building the next Microsoft is a big enough challenge without being distracted by peripheral activities.

A bold move would see Microsoft focus on client-side software, server software and cloud services which could be expanded with a growing roster of consulting services for companies that want to remain ‘Microsoft shops’. The rest of the business should go and the resulting new businesses will, logically, become strong Microsoft partners but with their own leadership and direction.

Microsoft needn’t be afraid of the future but it has become the daddy-long legs of software, a precarious, unwieldy beast that is easy meat for predators. Look at tablets where it is acquiring Nokia on top of its own Surface effort, or collaboration where Skype, Lync and SharePoint overlap.

Microsoft’s predicament is highly reminiscent of that of DEC and IBM 20 years ago. DEC persisted in vanity projects and preferred to point at shiny objects (the Alpha microprocessor, for example) and placed too much faith in declining versions of Unix. Compaq bought DEC but declined to make the big switches necessary and now the company is a footnote in computing history.

IBM, by contrast, sold off non-core operations such as printing and even PCs, the category it invented, to focus on software and services for profitability. Microsoft needs to learn the lessons of IBM and return some much needed focus, sharply reducing the vast number of SKUs it possesses. IBM showed that elephants can dance, Apple reformed itself under Steve Jobs’ Second Coming and Microsoft today is far, far healthier than either of those companies at their respective nadirs. There’s no reason at all that Microsoft can’t be renascent but it needs to make significant changes, removing clutter and getting its house in order. The time to act is now. 


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Martin Veitch

Martin Veitch is Contributing Editor for IDG Connect

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