silhouette of a person

Written By: Gerry Brown
Published: 22nd February, 2011
Content Copyright © 2011 Bloor. All Rights Reserved.

In the last 12 months technology shares on the NASDAQ exchange have appreciated by 28%. Apple’s have appreciated by c. +80%, Oracle’s by +40%, IBM’s by +30%. Microsoft’s haven’t: they have gone in reverse by -3.5%. Apple is now valued at c. $100bn more than Microsoft.

It’s not that Microsoft’s results have been so bad. Their accounts would have a finance man purring like a stroked kitten. Microsoft’s tech industry leading 30% net margin on revenue of $62.5bn created $18.7bn of net profit in 2010. Nice.

But these impressive figures hide a break from the past. Bill Gates was always obsessed with winning market share and beating the competition. Nowadays Microsoft is more interested in making loads of money and retaining the status quo. The decline of the Roman empire was exactly the same. This is what the stock market is picking up on.

While rivals such as Larry Ellison at Oracle are still hungry for scalps (for example, he said recently that he was ‘going after’ HP at the top end of the server market, ‘and then we’ll take on IBM’ with his new Sun servers and Exadata), Microsoft has been focusing much of its effort on internal wrangling and re-structuring.

Four of CEO Steve Ballmer's direct reports have departed since May 2010, including Stephen Elop who left to run Nokia, and Robbie Bach who ran Microsoft’s entertainment division. Three Divisional Heads have now gone (out of 5 Divisions), the most notable being the President of the $15bn Servers and Tools Business (STB), Bob Muglia.

Ballmer’s email to Microsoft employees on January 10th said “I have decided that now is the time to put new leadership in place for STB. This is simply recognition that all businesses go through cycles and need new and different talent to manage through those cycles”. This doesn’t quite square with Ballmer’s letter to shareholders last September that reported ‘outstanding momentum across all our businesses’. The ‘new and different talent’ to run STB is Satya Nadella, a 20 year veteran at Microsoft. He ran the Bing search engine division. A chance to blood new talent has been missed.

The Microsoft mission statement: “to enable people and businesses throughout the world to realize their full potential” lacks real teeth. Previously, one key objective was ‘to take on difficult challenges and see them through to the end’. When Microsoft entered a market it would never let go. It offered a low price point with continually increasing product functionality, the marketing machine kicking in with slick promotions and resellers everywhere. Microsoft’s goal was to become market leader no matter how long it took, and it was a compelling proposition.

Imagine my surprise when they retreated from the performance management market: “we've made it clear in the public domain that we're shifting back, or pulling back… (from) where we were essentially in a competition with the Cognos and Business Objects of the world“ they said. What? Pulling back? Microsoft? Unheard of.

Microsoft’s aura of invincibility has been punctured. Once upon a time, if Microsoft entered a market, existing suppliers knew they were in trouble and clamoured to sell up and get out. Not anymore. Now they fancy their chances of winning against Microsoft and tucking into that soft underbelly of late-to-market indecisiveness that has bedevilled the company in recent years.

The lion needs to wake itself from its gentle slumber, put its teeth back in, get up from its soft bed of grass and go and kill something if it’s going to restore its lost pride of place in the industry. However, a change of leadership may be required at the very top of Microsoft for this goal to be achieved.

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