Microsoft mitosis: how breaking up the company makes sense

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.

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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 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.

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  • Just like AT&T break up

    We can have baby M-Softs. gee by splitting the company up will give Bill gates more stock with it broken and more money. If I was a Investor I would like the Baby M-softs. invest in one and slowly they will gobble each one up and you make more money as they buy each one out.
    rupaa62
  • RE: Microsoft mitosis: how breaking up the company makes sense

    I fail to see how this is a long term solution. As with Ma Bell in the 80's were split and AT&T has pretty much reformed the ma bell empire over a 25 year period. Same will apply here and we have gained nothing by the ma bell breakup. I think MS just needs to focus on there priorities.
    MLHACK
  • Yes, they should.

    It would be a better option than the present mediocre struggle. The smaller groups, each under new leadership, would HAVE to do good work, in order to survive. (The structure and financing also needs to put them into that sink-or-swim position).
    The results would not be predictable, though, because some would have talented managers and staff, while others might not.
    I'd disagree with you about having Cloud in the same group as classic Windows software. I believe there is little compatibility, either practically or philosophically. Putting them together would be highly corrosive and wasteful of their efforts because they'd be arguing!
    peter_erskine@...
  • RE: Microsoft mitosis: how breaking up the company makes sense

    A company is only as good as the people working in it. Management and employees have to preform. Splitting it up will not make a bit of difference if the same employees and management are there. Besides, Microsoft is still a money machine. Windows still works on more hardware and has far more apps; apps use by more businesses and individuals than any other operating system. Office still rules. X box is at the very least competitive. Things are not that bad. Microsoft has always followed the market, gradually improving the product and gaining market share. False starts in phones, and slates remind me of windows 2.0 and 3.0. Window 3.11 was the first decent graphical system they had, and they swept the market. There may be more competition now, but I would not count MS out.
    hayneiii@...
  • RE: Microsoft mitosis: how breaking up the company makes sense

    You need to get your facts straight first before you write a Microsoft hate article. Your almost as bad as AKH. Microsoft never acquired Yahoo so you can't say it was a failed acquisition for that. Microsoft Vista was quite good for an OS, its bloggers who gave it a bad rep only because it was "Microsoft", see the Mojave experiment on that one. Microsoft is also one of the top competitors in the cloud. I'm sure your aware of live@edu which is cloud based educational suite. Azure is going well. I just don't understand where your first paragraph came from. The Kin was killed because of Verizon, not Microsoft. You need to go to Verizon and ask them why they thought they could charge teens who don't have jobs to pay full price for a data plan. That was completely out of Microsoft's control.

    I wouldn't mind a split of Microsoft though, because 3 Microsofts (or 8 if you look at their key focuses) are better than 1 Microsoft. I'm surprised you would agree with this considering your general distaste for the company. Although they would work a heck of a lot better as one company so they can integrate each division into their new products, 3 Microsofts will give you 3 times the amount of Microsoft required in your daily diet. Now, as a Microsoft hater are you sure you really want this?
    Loverock Davidson
    • RE: Microsoft mitosis: how breaking up the company makes sense

      @Loverock Davidson <br><br>Is his and I quote your dig "general distaste for the company" any different from YOUR day in and day out FUD in support of them ....... I think not
      Over and Out
    • RE: Microsoft mitosis: how breaking up the company makes sense

      @Loverock Davidson [b]The Kin was killed because of Verizon, not Microsoft. You need to go to Verizon and ask them why they thought they could charge teens who don't have jobs to pay full price for a data plan.[/b]

      I thought we had this discussion - the Kin did not fail because of Verizon... The Kin failed because it was a starter level smartphone and people expected it to act as an advanced smartphone... either way VZW charged a data plan appropriately for a smartphone. Also the hardware itself was mediocre... the Kin 1 looked like a cheap version of the Palm Pre (which IMHO was a cheap looking device to begin with) and the Kin 2 looked like a basic WM phone... both of which would not have excited the target market.
      athynz
    • You are using Alice in Wonderland "logic" here ...

      @Loverock Davidson

      <i>Microsoft never acquired Yahoo so you can't say it was a failed acquisition for that.</i>

      Why, if you try a thing and fail, it's not really a failure, because, you see, you haven't really done anything at all! You must believe as many as six impossible things before breakfast.

      Here's real life: Microsoft bid to acquire all outstanding shares of Yahoo! stock. This is a link to Microsoft's own press release announcing the bid:

      http://www.microsoft.com/presspass/press/2008/feb08/02-01corpnewspr.mspx

      As we know, the bid was rejected. Thus it was a failed acquisition.
      RationalGuy
  • RE: Microsoft mitosis: how breaking up the company makes sense

    <b><i>"Microsoft never acquired Yahoo so you can't say it was a failed acquisition for that."</i></b><br><br>Failed, as in "failed to acquire".<br><br>That's like saying North Korea wasn't eliminated from the World Cup -- but instead they were unable to score enough goals to allow them to place. It's semantics. Microsoft went through a huge, year-long back and forth to attempt to acquire Yahoo, and the CEO, Jerry Yang, blocked them at every turn. Any way you look at it they failed to acquire the company, period.
    jperlow
    • Yes, and they were darned lucky they failed too, IMHO (nt)

      @jperlow

      nt
      Economister
      • RE: Microsoft mitosis: how breaking up the company makes sense

        @Economister Probably, but they wasted a LOT of time coming to the conclusion they didn't need them.
        jperlow
      • wasted a LOT of time . . .

        @jperlow

        You have to remember that a lot of these Large Companies take a while to turn around. They're kinda like an aircraft carrier in that respect.

        Even if they made the decision to change themselves 6 months ago, you won't see any announcements or such for about another year, at least. It would take time to figure out who gets what, etc.

        And I still would get rid of Ballmer. He simply has no clue about how to run a company. He tends to Manage, rather than lead, which is fine if you're not the CEO, or if you don't plan to grow the company any, rather maintain what is there.
        JLHenry
    • Failed, or desired not to?

      There's a difference: Just because you want something at one time, then as things change you decide not to get it,
      sure people can say "you failed to get it" but at that point the meaning of the word is different.
      John Zern
      • Failed

        @John Zern They put out a bid for all outstanding shares of Yahoo! stock. The bid was rejected. They failed. There's no ambiguity here at all.
        RationalGuy
  • RE: Microsoft mitosis: how breaking up the company makes sense

    Turning MS into a few little companies would allow the individual units to be more agile in an Apple dominated consumer marketplace for sure. Having to kowtow to top heavy committees every time you try and innovate is what Jobs eliminated at Apple when he came back on board and you see what effect that had.
    Unfortunately, the culture at Microsoft is grounded in a monopolistic rut. They know, or think they know, how to squash competition (vaporware) and dominate a market (threats). Unfortunately those tactics only work when you are in pretty much total control of your marketplace.
    The fact of the matter is they are in control of PC OS, and their Office Suite. After a stumble with Vista they've recovered nicely with 7, but frankly the commodity PC market gets smaller with each passing year. Add to it the threat posed by iOS where MS is not only not even close to a monopoly but is rapidly sliding down a slippery slope, in no small way aided by the Linux clone Android and you have a company whose future isn't all bells and roses.
    Apple has eaten MS's lunch in the past decade and continues to do so. Even the Mac has maintained a decent market share overall, but if you look at the price point of Macs they dominate that market share. That means MS is being squeezed to the bottom and even there companies like Asus are turning to open source Android and Linux.
    Tough times ahead for Mighty Microsoft.
    dheady@...
  • What's the point?

    It's not going to happen, so why waste time writing about it? Seriously, man...write about something that MIGHT acutally happen.

    Write an artcle that investigates the iPad's insufficient 256Mb of RAM...Will it support the new iPad-specific Apps in IOS4?

    I'd read that.
    trickytom2
    • RE: Microsoft mitosis: how breaking up the company makes sense

      @trickytom2 Of course you would - it would be another "I hate Apple clickbait" article...
      athynz
      • Not true!

        @athynz

        It would be no more fanciful and far-fetched than writing an article about breaking up Microsoft, which isn't gonna happen.
        trickytom2
  • Why would Microsoft do this?

    After all, after DoJ the obvious way for them to break into new markets is to use not product leverage which got them in trouble, but burning vast amounts more cash than their competitors can afford. If they split up then Office/Windows money won't be available to do that and the other divisions would most likely fail and fail quickly.
    zkiwi
  • Let's not forget....

    That MS did not become big and powerful because of good products. It strongarmed and outright extorted honest American companies in order to build its illegal predatory monopoly (please don't post back with your OPINIONS about how you love microsoft and they didn't do anything wrong, yada yada yada. Unless you've read the antitrust trial transcripts, you don't know the whole story)

    So, you have a company built on a house of cards, that is now falling apart because even though they dished out big campaign contributions to W and Ashcroft so that they would not be punished after their conviction, their monopoly weakened just enough to let Apple and Google in.

    Gates saw the writing on the wall; he took his illegally gained billions and decided to give a trickle of it to charity and rehabilitate his image. He knew that most Americans wouldn't know the findings of the court, that he and MS execs were compared to Columbian drug lords in the way they ran MS, and that he's a crook and a horrible person to boot. He knew people would hear about him giving money to charities along with other companies (does he still own that munitions company that bombs arms and legs off children?) and people would think he was a philanthropist.

    Bill Gates, the man that stifled innovation, extorted competitors and OEMs, and screwed customers out of billions, is now considered a philanthropist by some people. Only in America!! But I digress.

    Because of MS illegally gained billions, they were able to fund businesses that would've failed if they had been attempted by other companies. The Xbox lost billions, it shouldn't even be around, same with Zune, etc so breaking MS up would finally level the playing field. As long as MS couldn't artificially fund the other failing companies, we'd finally see the end of MS; and innovation will finally be free from the bonds of MS.
    openureyes