Who can save Microsoft?

8:53AM Tuesday January 27, 2009

I while ago I wrote a fantasy piece asking ‘could Steve Jobs save Microsoft?'.

People wondered how I could think Microsoft possibly needed saving, with its size and money and power, but the firm has indeed been faltering. The latest financial results for most tech firms are now in, confirming Microsoft's position. So it's clearer what I was getting at a couple of months ago.

Microsoft's revenue still rose - by 2 per cent, to $16.63 billion. But the average analyst forecast was for $17.1 billion. After the announcement, Microsoft's shares dropped 11 per cent, representing the lowest level since January 1998, and this on top of a 40 per cent decline over the past year.

Microsoft's profits haven't actually crashed. They are just lower than hoped. Revenue is still rising - until you take the rate of inflation into account, anyway. Microsoft's stock has lost nearly half its value over the past year, but tech stocks are down everywhere, including Apple's.

The point is, Microsoft has looked increasingly jaded with its complicated product lines and some under-performing divisions. The financial results could add weight to any perception that the corp is losing its way. Some of Microsoft's divisions have been allowed to wander down paths they should never have been given passes to, becoming reactionary instead of calling the tunes. And yes, I do mean the Zune.

Microsoft's ill-conceived answer to the iPod may look like a great device on paper, but a pocket player is hardly what anyone would consider an essential product for a company renowned for its operating systems and productivity software.

Of course people said that about Apple a few years ago too, when it introduced the iPod, but since then Apple has pretty much sewn up the market which, effectively, it created.

Microsoft launched its Zune against Apple's extremely successful device even though it had clearly already established both market dominance and platform independence, having already stolen the hearts of legions of PC users. Frankly, the Zune has been a disaster and has now led to losses Microsoft could do without.

The Zune platform, according to Engadget, suffered a 54 per cent drop (that's a US$100 million loss) compared to the same quarter last year. Ouch. Meanwhile, Apple saw a three per cent increase in its already strong iPod sales, despite the recession, over the same period.

On the back of the latest earnings reported by Microsoft, CEO Ballmer announced that up to 5000 jobs will have to be cut. This represents about five per cent of the workforce and the biggest cuts ever for the Seattle company. Over two thirds of those cuts will be in Seattle itself. The US west coast city of three million is reeling; it's already slated for 4500 job losses from Boeing (the huge aeroplane builder) and by the collapse of Washington Mutual Inc (9200 jobs gone). Reuters reports that another big Seattle firm, Starbucks, is also expected to begin lay-offs.

Microsoft will shed people in research and development, marketing, sales, finance, legal and corporate affairs, human resources and from the information technology departments. Cuts could include another 5000 or so contractor positions.

As long as he doesn't get rid of those who can get Microsoft back to its central business, all may turn out for the best. I imagine it would be about making Windows 7 fast, lean and, above all, functional and secure. You know, like the Mac OS, which turns 25 this year.

Security can't be stressed enough - even when times are good, unsecured operating systems are a bane. In bad times it's even more of a pain. Currently fifteen-million Windows' PCs have been infected with a new mystery virus called ‘Conficker' or ‘Downadup'. And no, these viruses can't touch Macs - unless they're running Windows XP in virtualisation, of course. The virus has already struck New Zealand, with the Ministry of Health's 2000 PCs afflicted with Conficker.

Microsoft Office, for both Windows and Mac, has continued to be a success story for Microsoft, and needs to keep its developers employed. Don't fire these people, Mr Ballmer, fire those who told you to make the Zune.

Windows Mobile should be evaluated too, I would think. It's up against stiff competition from many. How essential is it to hold this space?

Microsoft's Entertainment and Devices Division continues to be profitable at US$151 million. That's the Xbox 360 console and its associated games (those developed in-house, anyway). Microsoft has been doing this right and should not even entertain (hardi-hah) dropping the ball on this one.

Microsoft's operating system revenue is still OK, so even with the Vista problems - which seem now to be mostly problems of perception - Microsoft has been producing results. This is Microsoft's core business, right? So keep those people on.

Microsoft makes some excellent products and has some excellent people, but if Steve Jobs was to wave his magic wand over Microsoft, some dead branches would be summarily lopped off and other product lines would be simplified - drastically, in some cases. Microsoft would get back to its core business, having redefined, hopefully, what that core business might be.

And that should be, above all, focussed on making Windows 7 absolutely essential for all those looking hard at the alternatives right now.

You'd think.

With Microsoft employing an estimated 90,000 plus workers even after the cuts, you'd think there'd be someone there who can put things right.

- Mark Webster

Pictured above: Microsoft Corp CEO Steve Ballmer. AP Photo / Paul Sakuma

Submit a comment