Microsoft’s Attention Deficit Disorder

July 16th, 2006 · 1 Comment

Steve Balmer

There has been plenty of discussion this week about the new Microsoft Music Player code name Zune. The first thing that struck me was the odd nature of the announcement, through a series of leaks to key on-line sites such as Engadget and the New York Times. Secondly what struck me was why does Microsoft feel it has to be in every part of every piece of every software business?. Elements Wall St has been for a while upset at the seemingly “boundless ambitions”.

Like other analysts, Misek has an optimistic view of Microsoft’s long-term potential and says the new chief software architect, Ray Ozzie, could be an inspirational boost for developers and engineers. In the meantime, the real question for the company’s future, and stock price, is whether management can execute on its boundless ambitions. Microsoft, he says, is “developing in so many areas that trying to keep control and focus is a monumental challenge.”

Microsoft also announced earlier that it would boost product investment to develop new product areas and the stock promptly tanked:

Most analysts think a substantial share of that outlay will go to building Microsoft’s online business to compete more effectively against Google and Yahoo! Inc. (YHOO ). But without details, investors can’t decide for themselves if that will generate solid returns.

These two events are no unrelated. They are symptomatic of the unease that investors have with MSFT and have discounted the company significantly since 2001.

Peter Cohan has the stats:

Unfortunately for Microsoft shareholders, the stock price has gone in a different direction. Since hitting its $59 peak in 1999, the stock has dropped 63%. Its stock market capitalization has declined a stunning $383 billion to $225 billion. And the stock market values Microsoft’s earnings prospects at a level far lower than its competitors’ – assigning Microsoft a Price/Earnings (P/E) ratio on current earnings of 17.6, which is 72%, 74%, 87% and 39% lower than Red Hat, Google, Salesforce.com, and Apple respectively.

Although Microsoft argues that this was not communicated well and thus confused the market, it needs to be viewed in the light of the continual slippage of both the Vista products as well as the Office Products. The market is reacting negatively because they believe, rightly, that if you cannot deliver on your core products, why are you fighting battles on every software battlefield. What used to be labeled smart and savvy street fighters, is now labeled inattentive and distracted.

I am calling like Peter Cohan on Blogging Stocks for the break up of Microsoft. Although Peter argues from a Technical Stock point of view, I argue from a management talent perspective. It is simply impossible for someone like Ray Ozzie to keep track of all the projects and products going on. Even from a high level strategic view, what do these things have in common other than they run on Windows Software. What does Microsoft CRM have to do with the Xbox, or indeed the latest music player. You can argue that the Office Group has benefit in keeping close to the CRM group, but this can be done with inter company partnerships like other companies.

It maybe that Bill Gates was adamant that the company stays as one company because of the long history, or that Steve Balmer has something to prove, but cooler heads should prevail. A strategy is only as good as the one that everyone in the organization understands. We are rapidly getting to the point with Microsoft, where the over arching strategy of using the applications lock and dominant the Operating System market is becoming an Achilles heel.

It is time Microsoft to get focused and rid itself of the tired strategy of Global Software Domination and move to a model of flexible responsive company. That is by being smaller and more agile. After all it is now battling far greater forces than it has ever done in it’s 30 odd years, and that is market forces that are moving away instead of towards it. Those of you who argue that other companies have a management structure that supports more than $40 billion dollars are forgetting that those companies don’t make product design decisions at the very top nor insist in having their fingers in every decision. This is unlike Microsoft who is very top heavy in this respect. It is time for Microsoft to realize they are a traditional value stock like ~~General Motors~~, ~~Ford~~, ATT, GE, IBM and act that way.

Technorati Tags: apple, ipod, microsoft, msft, zune xbox itunes
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Tags: Blogroll · Microsoft

1 response so far ↓

1 Troubled Teen // Dec 18, 2006 at 9:43 am

Microsoft is an Empire and that’s the naked truth that nobody can even deny. There is a time when even the empires have to fade and die. Microsoft is near that border now and if they do not transform into a powerful republic or kingdom they will suffer a dramatic breakdown. Now it’s the time of alternatives and they have to accept this situation.