Microsoft’s Board of Directors are faced with some debilitating problems. The company has proceeded to devastate its Windows Brand in the past 8 years and the results are starting to breech the desktop monopoly fortress. The stock price that had been static for 8 years at $25-35 is now taking a downturn into the $15-19 dollar range. With desktop and Netbook prices reaching $300-400 per machine prices (and this is before the $20 laptop from India and the spread of $100 machines from the likes of One laptop Per Child and others), the price of $150 for Vista or $200 for Office just don’t make sense. This is especially true in tough economic times and with very good Open Source software available for free. When users add the fact that the primary thing Open Source makes money on is their education, services, and refinements to their products, it is no surprise that Open Source software is starting to win converts at both ends – consumers and small to large businesses. The latter really appreciate including source code available for making fixes in a pinch or for developing competitive opportunity. In sum, companies can hardly afford MSFT’s proprietary and increasinly expensive software.
But the killer is that with Vista, Microsoft has gone backwards. Instead of delivering a finally triumphant and superior OS with Vista, Microsoft delivered an OS plagued with 5 key problems that has made Windows the OS to avoid. Microsoft is right now doing 3 rewrites of Vista. One for consumers and the desktop which tries to get close to the old and nearly discontinued Windows XP (Windows 7). There is a second Vista for server usage that bulks up on the ability to do depth or processing intensive computing and a third Web version of Vista/Windows called Astra which is geared to the breadth of tasking required by Web Servers. Here we go again – Microsoft on 3 more Death Marches of surely commendable goals but also just as surely, as previous versions of Windows have proved to be – highly risky outcome.
Meanwhile Consumers are being forced fed Vista - as retailers can no longer sell its much-better-than-Vista predecessor Windows XP. But corporates are avoiding upgrading to Vista like the plague. And why not ? Vista runs 40% slower, consumes 3 times the resources, and costs nearly twice as much as its Windows XP predecessor. Worse – Vista’s one area of comparative competence, security, has been staggered in the past few months with the emergence of the Conficker virus and a large rise in patches for Vista and its IE browser.
Meanwhile developers have been deserting Microsoft because the company has slowly but surely eaten their markets. Any software market worth $100-300 million per year is a fair target for Redmond take-over – just ask any Project management vendor or Adobe about Acrobat and Flash or try and find any surviving, medium to large scale Windows utility vendors beyond Symantec and the other security shops (who you going to trust, Microsoft ?). But as well developer’s interest has followed the action moving to the fast growing and still not monopolized and so profitable markets of mobiles phones, embeddeds and the Web. These are all huge markets where Microsoft faces wary and formidable competition – notably Adobe, Amazon, Apple, Google, Nintendo, Nokia, Samsung, Sony and others others.
The Crux of the Problem: Windows Monopoly Sucks the Life out of Competition and Innovation
Talk to the Microsoft developers at any of their many developer conferences (MIX is one of the best for getting to their senior Web developers coming up in March of 2009). Ask them why Microsoft stopped all development on browser functionality from 1999 through to 2006. They will hem and haw and try to barter you down to 2001 to 2005 (the latter year when Firefox, Opera and Safari browsers started to take 2-5% annual chunks out of IE6’s once 95% browser market share). Then one or two managers will play the Windows card. “Windows and Office are our strategic assets (read that as strongest and most profitable monopolies). We would be fools to relinquish those. Instead the company has to find a way to protect those markets against any number of insurgent systems such as the the Web, free Linux, the smart-phones, and Apple Mac (read these remarks as proof against any claims that we have any desktop monopoly). So we bring value to customers by linking the Web, other desktops, games , mobiles and other devices tightly with our Windows and desktop Office assets – making it easier for users to tap and empower Windows and Office functionality wherever they are.”
In effect the explanation for why all innovations in browser and Web technology stopped dead in its tracks in 1999 is that the Windows and Office markets have to be protected. So W3C and other Web Standards such as XForms, SVG, JPG2, E4X are rejected and many years later, lo and behold, the Windowized-versions ASPX, XAML, WMP, and LINQ start to appear in the market. Do these tools build on the Open Web Standards? Of course not. Rather they are proprietary technologies that “work best with Windows”.
In sum, it is time for the Microsoft Board of Directors to do the AT&T Splits.
The AT&T Splits
Back in the early 1980’s the major communications monpoly in the US, AT&T, was confronted with the same internal conflict – the local Bell service companies were in conflict with the AT&T long lines services for capital dollars and directions on technology and where to get it from. So AT&T’s Board of Directors resolved to split up the company into the the Baby Bells, the LongLine Long Distance Services, and the Bell Labs + Bell Capital Production division. The financial market analysts were not sanguine; and some within Bell predicted a disaster. Five years after the voluntary break up found the original stock which was distributed to AT&T shareholders was worth 3-4 times its pre=split value. And the country benefited because such new technologies as cellphones and dial-up connections to PCs enjoyed unbelievably rapid development as the Baby Bells competed among themselves to offer the best versions of these services.
Microsoft’s Board of Directors should do the AT&T splits. The logical dividing companies would be the Server, the Web, the Games and Embedded, and the Client divisions. Each has its own stand alone raison d’etre. Each would profit from being unchained from the current monopolies. The current Microsoft monopoly markets are about to break up in any case. The monolithic PC is no more as embedded, smartphones, Netbooks, game consoles, graphic workstations, and many others develop their specific hardware and software requirements. Microsoft’s Board should not strap its divisions to the waning Windows OS desktop and Office monopolies but rather, like AT&T before, it unleash the hidden value of its natural divisions. Co-operating in some cases but competing vigorously in many others, these BabySofts would be exactly the opposite – no pushovers in the IT market. I personally would love to see what the Games+Embedded and the Web BabySofts would do.
But many would argue that this is all Michael Phelps pipe-dreaming. The Chairman has the last word and he loves playing Monopoly. But there are contrapoints. Bill knows that the company is well past the optimum size for innovation – now there is a great deal of a)overlap and b)internal “conflict resolution”. He also should be well aware of the antagonism of trying to square the the goals of all the current divisions. Also he is losing some very polished and highly achieving executives. Finally, it would please Bill to one-up say Jim Clark who did 3-4 major Silicon Valley start-ups – imagine having 4-5 Babysofts leading the US economic recovery. There is appeal.