Microsoft mitosis: how breaking up the company makes sense

Summary:A failed Yahoo acquisition, the re-mediating of Windows Vista, as well as the inability to germinate cohesive Cloud offerings and congeal a focused mobile and slate strategy has made Microsoft into a weakened organism. The solution? Break the company up, voluntarily.

A failed Yahoo acquisition, the re-mediating of Windows Vista, as well as the inability to germinate cohesive Cloud offerings and congeal a focused mobile and slate strategy has made Microsoft into a weakened organism. The solution? Break the company up, voluntarily.

Microsoft indeed has been in something of a slump of late -- it's significantly behind on its mobile and device products, a situation which has attracted criticism from Wall Street and its own investors regarding the company's ability distinguish itself and compete against both Apple and Google in the emerging but rapidly developing smartphone and tablet space.

Also Read: Microsoft's misguided tablet strategy is the the Apotheosis of the company

At a recent meeting of investors and financial analysts, the company and its chief executive responded defensively, stating that its tablet/slate solutions are "shipping as soon as they are ready" and in doing so will use its cash cow, Windows on Intel, as its focal point and enabling technology for slates as opposed to a light, ARM-based design using Windows Compact Embedded or a variant of Windows Phone 7.

Also Read: Microsoft, Your Mobile Focus Needs More Focus

It hasn't helped that the company has recently had a complete failure with a mobile product launch, the Kin, which was unable to attract the Gen-Y and younger market segment that the company had hoped would be an early beach-head offensive ahead of Windows 7 Phone, which would be targeted towards Gen-X and older consumers.

Besides Mobile, there are other aspects of the company that are a complete mess and lacking focus. As reported by Mary Jo Foley recently, Microsoft sees itself participating in eight distinct businesses:

  • Xbox and TV
  • Bing
  • Office
  • Windows Server
  • Windows Phone
  • Windows
  • Business users
  • SQL Server

The company's Cloud strategy has also been a moving target and its identity as it resides within those businesses are also remain unclear, this despite Microsoft's attempts at explaining it in various presentations and marketing materials.

Microsoft's cloud offerings breakdown (Source: Microsoft)

How did Microsoft get this behind and discombobulated? Well, to do that, you need to go back two years, which in this industry is an eternity.

You have to start with the "Microhoo" distraction which took up an inordinate amount of time and energy, followed by the scrambling to correct the dud which was Windows Vista and quickly turn around Windows 7.

Residing among the above described chaotic environment, there lived the on-again-off-again experiment with the Courier, which was run in tandem with the political and consumer disaster that was the Kin that eventually resulted in a huge management shake-up.

This has all culminated with Windows Mobile's inability to coalesce into a desirable next-generation consumer smartphone product until the recent complete "do over" as Windows Phone 7 which has yet to prove itself beyond developer-grade software and reference hardware.

You add this all up, and it makes for a company that is totally distracted and unfocused and unable to wrap itself around its core strengths or take on new products and businesses effectively. The slow economy hasn't helped them either.

So how does Microsoft dig itself out of this mess? Some have suggested replacing its current CEO, Steve Ballmer. But I think this would only hurt the company in the long run, as there's no apparent successor in the wings that could take on the role at least as well as Ballmer has in the past, this despite recent setbacks. And Bill Gates is NEVER coming back, nor does he ever want to.

What I believe Microsoft needs to do in order to save itself from a Soviet or Roman Empire-style collapse is to do what the Department of Justice and Judge Thomas Penfield Jackson failed to do in 1999 -- break itself up into several distinct businesses that could operate independently.

Also Read: How a Decade of Antitrust Oversight has Changed Your PC

In 1999, the industry called this theoretical scenario "Baby Bills", after the "Baby Bell" break-up of AT&T during the early 1980s.

I'd now like to call this "Microtosis". You know, what happens when giant software companies asexually reproduce. It sounds like a better word than corporate agamogenesis, anyway.

What I envision is three different Microsofts that would be completely independent companies that would be spun off from the original, much as the remaining AT&T spun off Lucent Technologies before it merged with Alcatel, or how IBM divested and split off its printer business in what is today known as Lexmark.

The first would be the classic Microsoft as we have known in the past, the one that owns Windows and Enterprise software, the two strongest and most profitable product lines. It would also own Microsoft's Cloud portfolio and be the largest of the three firms. Steve Ballmer would remain as Chairman and CEO.

The second is what I am tentatively calling Microsoft Consumer Systems Corporation (MCSC). This company would entirely own XBOX, Zune, Windows Phone and the Slates as well as any enabling technology required to produce those products, such as Windows Compact Embedded. Additionally, it would also own Bing and various Windows Live properties, such as Hotmail.

The third is what I would call Microsoft Global Services, or MGS. This company would be the neglected Microsoft Consulting Services arm as it exists today, and it would also have the charter of acquiring or merging with another smaller but Microsoft-focused consulting player such as UNISYS.

While Microsoft, the parent company has chosen to outsource its services to companies like HP, Fujitsu and Dell, it would make sense to spin off and cultivate an independent but Microsoft-aligned service firm in the event those relationships go sour.

Some people might call this proposed strategy crazy or a bit far-out. But if you talk to any Microsoft investor, they'd probably tell you getting 3 different and healthy companies worth of stock for their current price of one big deteriorating one sounds very attractive indeed. And being able to solve Microsoft's problems without unseating Ballmer in the process and creating a succession nightmare is probably a good idea.

Should Microsoft engage in cellular division? Talk Back and Let Me Know.

Topics: Enterprise Software, Banking, CXO, Microsoft

About

Jason Perlow, Sr. Technology Editor at ZDNet is a technologist with over two decades of experience with integrating large heterogeneous multi-vendor computing environments in Fortune 500 companies. Jason is currently a Partner Technology Strategist with Microsoft Corp. His expressed views do not necessarily represent those of his employer... Full Bio

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