Software // Operating Systems
News
1/29/2009
01:45 PM
John Foley
John Foley
Features
Connect Directly
Google+
LinkedIn
Twitter
RSS
E-Mail
50%
50%
Repost This

Remaking Microsoft: Break Up The Company

Microsoft needs a makeover from top to bottom.

Microsoft needs a makeover, and not one of those cosmetic restructurings where the org chart changes but the company stays the same.

For evidence that its business is broken, look no further than its financial results for the quarter ended Dec. 31 and the fact that the company's stock hit a 52-week low. Microsoft revealed that its client business declined 8% and that sales of Office to consumers plummeted 23%. Microsoft is laying off employees and cutting costs, and it has stopped offering guidance to financial analysts. In other words, Microsoft isn't sure what the hell to expect next.

The economy is partly to blame, of course, but Microsoft's problems are much more deeply rooted. It's a proprietary software company in an open Web services world, and its laudable effort to reorient itself around "software plus services" is taking too long.

What might Microsoft do to remake itself? It could spin off MSN, its entertainment division, or its ERP business to create more nimble, independent companies. Back in June 2000, when U.S. District Judge Thomas Penfield Jackson ordered Microsoft to be split up to stem anticompetitive business practices, it was considered a strong-arm move that the Department of Justice ultimately rejected.

This time, Microsoft's breakup should be voluntary, aimed at shedding bureaucracy (the company's administrative expenses were $5.1 billion in fiscal 2008), unburdening internal developers from the expectation that everything they create be gunked up with hooks to other Microsoft products, and get better products to market faster.

Microsoft has kept its $60 billion ship intact as a way of encouraging synergies across product lines, but that strategy may have reached the point of diminishing returns. Windows PC users want iPods, iPhones, and BlackBerrys, too, not all Microsoft technology all of the time.

Microsoft also needs to do a better job of capitalizing on its huge investment in R&D--$8.2 billion last year--by finding new ways to expose the innovations coming out of Microsoft Research and getting its patented technologies into the hands of entrepreneurs. The Windows ecosystem spends too much time in Microsoft's slipstream.

A decline in venture capital funding makes this a tough time for startups to forge ahead with bold ideas. Microsoft should consider creating its own VC arm and funding startups directly.

Breaking up the company, throwing open research, and pumping money into boot-strapped ventures will require unblinking leadership. Microsoft has a strong mix of veteran top executives and fresh blood, including Stephen Elop, president of its Business Division, and Qi Lu, president of Online Services. But the questions of who will succeed Steve Ballmer as CEO, and when, hang out there. As part of its overhaul, Microsoft must provide an answer.

Illustration by Sek Leung

Return to the story:
Why Windows Must Go Open Source

Continue to the Remaking Microsoft articles:
Get Out Of Web Search and Go All-In In The Cloud

Comment  | 
Print  | 
More Insights
Register for InformationWeek Newsletters
White Papers
Current Issue
InformationWeek Elite 100 - 2014
Our InformationWeek Elite 100 issue -- our 26th ranking of technology innovators -- shines a spotlight on businesses that are succeeding because of their digital strategies. We take a close at look at the top five companies in this year's ranking and the eight winners of our Business Innovation awards, and offer 20 great ideas that you can use in your company. We also provide a ranked list of our Elite 100 innovators.
Video
Slideshows
Twitter Feed
Audio Interviews
Archived Audio Interviews
GE is a leader in combining connected devices and advanced analytics in pursuit of practical goals like less downtime, lower operating costs, and higher throughput. At GIO Power & Water, CIO Jim Fowler is part of the team exploring how to apply these techniques to some of the world's essential infrastructure, from power plants to water treatment systems. Join us, and bring your questions, as we talk about what's ahead.