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August 22, 2005

The Answer

There has been some speculation about who will succeed Bill and Steve at Microsoft (some of the speculation was on this blog). A few days ago I had an epiphany...I was hit with a blinding flash of genius and I just had to share it with all of you. So pull up a chair, relax, swap the schwag for green, and listen up.

The problem is that it's hard to imagine Microsoft without Bill and Steve, and it's hard to imagine whoever succeeded them having enough respect from employees to impose their vision on the company.

So my solution to who will replace Bill and Steve is...nobody will replace Bill and Steve.

See, there's another problem. Microsoft is becoming a huge company, and it's not clear that any person, even Bill or Steve, can really keep it all in their heads, and use the size of the company to its advantage. There's something like 120 vice presidents, which means 120 people who can pursue their own agenda, while also being able to jump up and complain about each other's agenda. Is Xbox content delivery in sync with Media Center. Does the Smartphone support .Net. Can MSN use Linux for its servers. That sort of thing.

Plus, I'm not sure that Bill and Steve have a natural affinity for the parts of the company that go beyond its roots -- the ones other than languages and operating systems. Bill and Steve are super-duper smart guys, but the people running MSN and Office are also super-duper smart. Does having Bill and Steve review all their plans help them, or does it just add two extra pairs of super-duper smart eyeballs that introduce an extra level of review (and delay) before proceeding with what was planned anyway?

In recognition of the difficulty of coordinating among 60,000 employees, Microsoft has already divided the company into seven "P&Ls" (as in profit and loss) -- business solutions, server and tools, mobile and embedded devices, home and entertainment, MSN, client (meaning Windows Client), and information worker (aka Office). Each of these have their own CFO and in ways function like independent companies, but they all report back to Bill and Steve.

So my idea is that when Bill and Steve retire, they do so together, and at that moment Microsoft is split into seven companies. Actually six companies, because client and server and tools are too intermingled to separate. Microsoft Research either sticks with one of the six, or else gets spun off into a separate company owned by the other six, everything cross-patented to the hilt. Shareholders in Microsoft get shares in all the companies, and then it's up to the stock market to decide.

Some would suggest this should happen now, with Bill and Steve taking the client and server and tools part (producing a nice echo of proto-Microsoft, circa 1983). But hey, Bill and Steve have earned the right to stick around and kibbitz as long as they want. But once they're gone...time for the Big Bang.

Posted by AdamBa at August 22, 2005 09:32 PM

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MS is too big right now and I love the idea of spinning off the 6 entities to see them sink or swim on their own, each with their own stock, which would break the logjam on the stock price.

Posted by: Chris Sells at August 23, 2005 12:54 PM

But right now, the two monopoly businesses (Windows and Office) with huge margins (80%+ and 70%+ respectively) are necessary to support the lower-margin and negative-margin businesses. If you took S&T (fastest growing profitable business) and added it to Client...well, that would be a great business, and the stock would do really well. But who'd take a risk on H&E, MBS, or Mobile? Or even MSN, given the slowdown in revenue last year?

Then again...if they could all reach breakeven by the spinoff time...and they got rid of the "Strategy Tax" (e.g., Xbox no longer has to worry about MediaCenter)...could be a very interesting set of businesses.

The irony of course would be Microsoft choosing to do what Judge Jackson ordered them to do.

Posted by: at August 24, 2005 11:31 AM

A group like home and entertainment and MSN certainly has a big upside that may tempt investors. Lots of companies lose money when they are getting going. At this point I think all the P&Ls can sink or swim on their own. If they turn out to be dogs, they can cut and restructure as they see fit.

It would not quite be what Judge Jackson intended. Remember that IE, Media Player, etc. are all part of client.

- adam

Posted by: Adam Barr at August 24, 2005 03:33 PM

Well put.

>it's not clear that any person, even Bill or
> Steve, can really keep it all in their heads

I can't tell you how much I agree with this - its not their fault but its even worse when all bets are put on the big billg review. "Hey folks, guess what - BillG was ecstatic about the demos!!". Its as if thats what will determine the fate of a product or something, which is totally crazy. In fact, thats the stupidest ide...oh wait never mind ;)

Posted by: ANONYMOUS at August 25, 2005 12:36 AM

Further balkanization as the answer? Not workable, and 5 of those P&Ls would die almost day off, and that's frying-panning the famed Microsoft-style long-term views, Xbox first to die. And the cash hoard is there for a reason, to buffer a missed upgrade cycle and to fund speculation. Microsoft just needs better corporate goverance, mature company-styled management, not two founders micromanaging and kicking the tires of every group, imparting unworkable visions and goals, while changing strategy on a dime's notice. Quite simple, just needs a regular Fortune 500 management system that is able to lay out realistic road maps that are exactly that; Six Sigma for Software styled.

Cults of personalities ruin companies and keep them from growing and are limited or albatrossed with Founders (possible lucid dreaming) visions. When it works, is it more the 'founder but figuredhead' delegation management style, aka (the late) Dave of Wendy's. When it doesn't you get a Steve Jobs Dictator for Life type or Martha Stewart styled-problems. Basically Microsoft falls in the middle, Gates as visionary dictator and figurehead, Ballmer as founder and 'new style' enforcer, with a small army of burecratic 'own agenda' reporting VPs. When they retire? Easy. Copycat the Fortune 500. One company, with a more rigid hierarchy, and an org chart that actually means something and doesn't change like the weather and doesn't flank daily and has a first focus on customers, with developers second. Perhaps more 'inhuman' and far less geeky but less chaotic and better run.

Posted by: Christopher Coulter at August 28, 2005 01:43 AM