25 August 2013

Microsoft for the day

Steve Lohr has an article in The New York Times about Ballmer's replacemen. (or lack thereof)t:
Two months ago, Bill Gates met with members of The New York Times editorial board and a few editors and reporters. Public health was on his mind, and he spoke eloquently about the progress being made to combat diseases like tuberculosis and malaria, and the work of the Bill and Melinda Gates Foundation.
About an hour into the conversation, someone asked about Microsoft. The company seemed to be treading water, the mantle of high-tech leadership had passed to Apple and Google, and investors were impatient with Microsoft’s stagnant stock price. The question: Would Gates, the former Microsoft chairman, consider going back to run the company?
That question comes to mind again, after Microsoft announced that Steven A. Ballmer, the chief executive, would step down within a year.
The prospect of Gates’ riding to the rescue at Microsoft is intriguing but highly unlikely. Steven P. Jobs, the other celebrity entrepreneur of the early personal computer era, returned to Apple in 1997 and remade it. But, in June of 2013, Gates brushed aside any suggestion that he would again lead Microsoft. The messiah option, he insisted, was not on the table. He had moved on, he said. Gates stepped down as CEO in 2000 after a bruising courtroom battle with the Justice Department. A Federal court ruled that Microsoft had repeatedly violated the nation’s antitrust laws.
Gates felt he was being penalized for success,” says Michael A. Cusumano, a professor at the Sloan School of Management at the Massachusetts Institute of Technology. “He left at a critical time, when Microsoft was facing new challenges, and he didn’t really look back.”
Ballmer was Gates’ old friend and chosen successor, but there is no obvious successor to Ballmer. One thing is clear: “Being the next chief executive of Microsoft isn’t going to be an easy task for anyone,” Cusumano says; he is the co-author of two books about the company, Microsoft Secrets and Competing on Internet Time, which chronicled Microsoft’s assault on the commercial pioneer in Internet browsers, NetscapeCusumano and his co-author on the Microsoft-Netscape book, David B. Yoffie, a professor at the Harvard Business School, are now writing a book that examines the strategy and leadership lessons to be learned from three technology executives: Gates, Jobs, and Andrew S. Grove, former chief executive of Intel.
There are examples for Microsoft to follow: a onetime technology leader has experienced a revival each decade since the 1980s. Back then, Intel was staggering under the Japanese challenge in the memory chip market. IBM stepped in to make a twenty percent investment because Intel was a valued supplier, and the help gave the chip maker some financial breathing room. Intel then made the leap into microprocessors, the brainy chips that power personal computers.
In the 1990s, IBM almost went under as the profits from its mainframe business were gutted by competition from low-cost PC-style computing. But IBM retooled its mainframe business and moved into higher-margin software and services businesses.
In the 2000s, it was Apple’s turn. Under Jobs, the company first stabilized its desktop computer business with some nifty designs. Then Apple went on to transform the digital music business and smartphones, with the iPod, the iTunes store, and the iPhone. And the iPad created the modern tablet market.
Can Microsoft pull off a similar revival act in this decade? Microsoft is different from the other three companies in one important respect. It is facing a crisis of technology leadership, but not a financial crisis. Microsoft’s Windows operating systems and Office productivity software remain immensely profitable. By contrast, Intel, IBM, and Apple were fighting for survival. In each case, it was clear that drastic action was needed and was taken, successfully.
Microsoft’s seeming strength, according to George F. Colony, the chief executive of Forrester Research, has proved a weakness. “I would argue that Microsoft does have a financial problem, and it’s been the fear of losing those massive profits from Windows and Office,” Colony says. “By doing everything it can to try to protect those profits, Microsoft has taken a defensive position for more than a decade. And, in technology, if you play defense you’re going to lose.”
Still, thanks to the success of its mainstay businesses, Microsoft has been able to afford multibillion-dollar investments in newer fields like Internet search, digital media players, smartphone software and, recently, tablets.
The problem for Microsoft has been that it has often been forced to make those investments while playing catch-up. In the search and smartphone markets, all the snowballing effects of leadership, brand recognition and consumer habits that helped Microsoft in the PC market are working against it as it tries to catch Google and Apple.
Past success can obscure new opportunities when emerging markets or technologies don’t operate by the same rules as a company’s tried-and-true products. And Microsoft has suffered from that kind of corporate myopia. In an interview with me in 2007, Ballmer acknowledged the problem: “One of the biggest mistakes I’ve made over time is not wanting to nurture innovations where I either didn’t get the business model or we didn’t have it,” he said.
In his memo to Microsoft employees, Ballmer pointed to the challenge ahead for the company. At 57, he has decided to make way for a successor who can guide “our transformation to a devices and services company.” No mention of software as such. But a big part of the job for Ballmer’s successor will be re-engineering Windows and Office for delivery over the Internet onto all kinds of devices including smartphones and tablets, according to Yoffie of the Harvard Business School.
Even if that is successful, the profit margins of the PC days will probably never return, especially when competing against free and low-cost alternatives, like Google’s Android operating system and Google Docs. “But unless Microsoft makes that transition with its core products,” Yoffie says, “the company is in danger of heading into the kind of crisis it is trying to avoid.”
Rico says live by the POS, die by the POS...

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