What Microsoft should do
Podcast: Play in new window | Download
Before this week’s Lockheed Martin network breach story intervened, I wrote a column about the strategic dilemma faced by Microsoft from downward trends in both product pricing and new installations for its flagship Windows and Office products. That’s on top of an overall market transition to mobile where Microsoft does not seem to be playing a leading role. What’s Steve Ballmer to do? I think that to thrive Microsoft has to turn itself into a very different company. Fortunately there are archetypes — other companies that have faced similar pressures yet gone on to reach even great corporate success. I think the time is fast coming for Microsoft to emulate Warren Buffett’s Berkshire Hathaway.
When Buffett took command of Berkshire decades ago it was a profitable carpet company. But the writing was on the wall for U. S. carpet manufacturers: labor costs were rising while foreign product prices were declining. Berkshire could have protected its carpet business by accepting lower profit margins, but that would have just been delaying the inevitable. Buffett decided instead to turn Berkshire into a conglomerate with a difference, that difference being its decision to buy or buy into existing successful enterprises, keeping current management in place. Buffett was investing as much in the managers as in their companies.
Buffett used his cash flow to buy a share in the futures of many other companies. Like Peter, he became a fisher of men. Following such a strategy is a very real option for Microsoft.
There’s no lack of money for Redmond to diversify. For more than a decade the company has reliably thrown off at least $1 billion each month in cold cash that could be used for diversification without impacting in any way the day-to-day operations of Microsoft. But what I propose is something more than that — deliberately shaping Microsoft operations to maximize cash flow for external investments. If Microsoft eliminated its many products that don’t make money that would free at least another $1 billion per month and maybe a lot more.
I’m not saying to stop development or even to cut back on the necessities. The strategy I propose would be like that embraced by Hitler in 1943 when he canceled all military R&D that would not bring new weapons on-line within 18 months. While der Fuhrer made many tactical errors this decision was not explicitly among them.
Microsoft should look at its current businesses and commit increased funding to those where it is already first or second in market share and where the segment is showing (or likely to show) healthy growth over time. That means continued investment in a number of specialized server-based back-end products including Skype but reducing expenditures for many clients. This strategy that has served IBM well in recent years.
This means accepting a long decline for Windows and Office just as Berkshire did with carpets. It means abandoning phone handsets, for example, as Microsoft has already bailed on the Zune. xBox would continue, but with an intense concentration on integration with back end services.
Just as an aside here, I don’t expect Microsoft to jump immediately out of the mobile phone business. I didn’t anticipate Microsoft’s deal with Nokia (neither did Microsoft, I’m fairly certain) and that will get a chance to play out. If RIM drops much further I think Ballmer will try to buy the Canadian company and may well succeed. This does not mean, however, that Microsoft can buy its way to a successful mobile phone strategy. The train has already left that station. But Ballmer won’t be able to help himself and it might make the Microsoft phone business into something that could be sold or spun-off 2-3 years from now where today it literally has no value and would simply be abandoned.
What I am proposing is a dramatically smaller Microsoft, probably 25-30 percent of what it is today, though vastly more profitable. Converting corporate mass into energy there’s $70-100 billion to play with and probably another $50+ billion that has been stashed overseas, unable to be brought back to Redmond without a huge tax penalty.
Changing Microsoft into a Berkshire eliminates the downside of having all those profits stuck overseas since they can be used for international acquisitions at what’s effectively a 30 percent discount.
What could Microsoft buy with that $150 billion? A lot of the wrong stuff if the company relies on current management to find the deals. Ballmer is absolutely the wrong man for that job. Microsoft needs at the very least a Chief Investment Officer with a new vision and the clout to shout down Ballmer when it is needed… and it will be needed.
One implication of this strategy is in branding. The Berkshire strategy has emphasized buying established brands and allowing them to operate independently. For Microsoft to be successful with a similar strategy they’ll have to do the same. The Microsoft brand would become secondary over time.
Microsoft shares have been in the crapper for going on 15 years, so maybe finding different brands is a good idea. The company’s current course will not — cannot — change that. Bill Gates has played competition bridge for years as Warren Buffet’s partner. It’s time to expand that relationship. The easiest way to do that, in fact, would be for Microsoft to simply buy Berkshire.
Good idea.
June 04 2011 – I just looked at CNETs preview of Windows 8 – all I can say is why do I want another version of something other company’s already make that runs better than anything I’ve ever bought from Microsoft? I think Microsoft has finally really lost it.
We are still running XP SP3 at all the company’s I work for. End of run. I would suggest that Microsoft would be better served if they made their OS work with THEIR OWN HARDWARE – our Bluetooth keyboards tanked suddenly and un-recoverably after the last round of Windows 7 updates. Still we have not got it figured out eh . . . . .
If Microsoft FORCED more compliance with user interface guidelines for all apps, then maybe we’d be getting somewhere. I do not need more fancy stuff that willy and nilly developer flicks up into a software upgrade but only they know how to run.
No no no no Microsoft.
Now I really do tend to think that Bob’s right – PLEASE get out of the software business and into investing in railroads or whatever (but for all our sakes, please stay away from writing software that runs the signal blocks and switches . . )
If your keyboards are Bluetooth (not a proprietary wireless standard) they should still work with Windows. However, if proprietary, you may need updated drivers from the hardware manufacturer.
Or install the old non-BT drivers in Windows 7 in compatibility mode for the original OS they were written for. Granted, Windows Update can cause problems at times and Bluetooth is a strange “standard” due to its many optional profiles, many of which don’t come with Windows; however keyboards and mice are the most basic BT profiles and none of the Windows 7 updates have affected my Logitech BT keyboard and mouse, so it should be possible to simply delete and reinstall the Microsoft BT devices if they stopped working for any reason.
The word is COMPANIES
Hi,
First I wanted to thank EVERYONE for such an educative discussion Inc. Henry Roth as many people will have forgotten the 90′s Microsoft, the other history, and for bob for setting it off.
I’ve long not been a fan of MS, but some perspective is required:
What’s the difference between Google and MS as conglomerates, except for a shorter legacy responsibility (which inherently effects iteration)?
How many companies will never ever in a month of Sunday’s let core data leave their premises?
How many of the new Apple’s core products came by way of acquisition (+ patent infringement), from the iPod and iTunes down?
Before Apple’s Eco-system hub strategy, bar possibly the CE companies like Sony or as with Matsushita’s 3DO, there was Microsoft hence (just as others have to with Qualcomm) the patent fees – because they were actually spending on fundamentally thinking about everything Inc. Tablets, tv’s, interaction, phone software, etc.
When you’re pretty broad with vying for hardware compatibility, it’s always going to be more cumbersome than deciding a core reference platform and leaving it at that- which is what are the essentially similar Philosophies of apple and Google.
Remember how much comment there was on MS buying into Facebook at the price at the time, now with 600 million users ( as with hotmail), maybe not so stupid? So maybe astute enough to have those skills already.
Across it’s various assets, how much reach does Microsoft have: bing, live, hotmail, windows, office, Skype, wp7/Nokia (200m+ phones p.a.), yahoo, xbox live, et al – it is already effective in all of them, and with a few manoeuvres, can be as successful as both apple and google, but as has been previously shown here (and just like in politics) when MS release a product the mediasphere doesn’t hype about it, but add the magic words “Google” or “Apple”, and now “Facebook” and “Twitter” and you’ll get no escape for the most mundane and unoriginal events/announcements.
With so many users, and the only public force against the 80% Market-share Google (not facing the same scrutiny as MS would, and how Google is entwined in govt. Without public notice), with so much cash being thrown off by MS and it about to hit revenue-benchmarks itself, it might be viable for MS to buy into majority ownership of FB itself or treating it as Paypal was with eBay pre/post-IPO.
Just imagine the digital cross-platform app-leading potential then (Inc. Integrating Email, live office, currency and developer code)……
I could go on, there has been a long-running (if not immediately successful implementation) strategy of various pieces coming-together, it still might not fulfil it’s challenges, but if they do – and xbox is the clearest form – MS equity will be on a trajectory far closer to Apples, than most grown-up tech. companies.
Yours kindly,
Shakir Razak
The cloud? As a replacement for Office? I may hate Office with as much virulence as the rest of you, but in the past five years of using the cloud-based alternatives side-by-side with Office, I can say with confidence that there is _still_ no effective replacement for Microsoft’s productivity suite.
That’s a shameful indictment of the cloud.
Hey Bob,
Novel idea.
I don’t know man, I understand how popular mobile is right now.
I also understand that it’s only going to get better from here.
And I hate to be one of the perennial nay sayers, but I’m still not seeing mobile anything as a viable replacement for the PC.
PC’s just do so much. There are entire areas of computing that you just can’t realistically do on a mobile device of any kind that you can do easily on a PC.
And while cloud services are amazing, remarkable, awesome, inspiring even; I have yet to see one that can totally replace the PC.
I’m not saying I won’t be wrong, or that I won’t eat my words.
All I’m saying is that we’ve been talking about this since 1996, and it’s only now that we have mobile operating systems that make any sense at all.
How much longer do you think it will be before we have some good ones?
many of which don’t come with Windows; however keyboards and mice are the most basic BT profiles and none of the Windows 7 updates have affected my Logitech BT keyboard and mouse, so it should be possible to simply delete and reinstall the Microsoft BT devices if they stopped working for any reason.
Free Alternative to Microsoft Office 2007-2010…
[...]I, Cringely » Blog Archive » What Microsoft should do – Cringely on technology[...]…
Projektowanie Stron Warszawa…
[...]I, Cringely » Blog Archive » What Microsoft should do – Cringely on technology[...]…