Foley on Microsoft

Why 'One Microsoft' Won't Work

• By Mary Jo Foley
• 09/30/2013

Remember all that talk about U.S. Department of Justice splitting up Microsoft after the federal courts ruled the company was abusing its Windows monopoly, followed later by calls from Wall Street analysts to break Microsoft into smaller companies?

Now it's back, thanks to the blockbuster news that CEO Steve Ballmer will retire, Microsoft is buying the Nokia handset business and Mason Morfit, president of hedge fund ValueAct, is slated to join the Microsoft board.

Microsoft officials have always maintained a breakup is a really bad idea. Microsoft is also pushing its new "One Microsoft" strategy, looking to deliver on its long-stated mission of tying everything together. Ballmer architected Microsoft's summer reorg around breaking down the company's silos and ensuring all of its divisions and engineering units work together in concert to cohesively develop, test, market, sell, and support its different devices and services so they all work seamlessly. It sounds great in theory, but given the fiefdoms throughout Microsoft's ranks, bringing everyone on the same page isn't feasible.

The rationale of One Microsoft is the company needs to be in both devices and services -- and in both enterprise and consumer markets -- to continue to grow. The 'Softies cite Bring Your Own Device (BYOD) and the consumerization of IT as the reasons why the company needs to keep its hand in everything from entertainment consoles and 8-inch tablets, to Microsoft-built Windows Store apps such as Fresh Paint and Health & Fitness.

To some customers, that logic sounds reasonable. To others, it sounds like the 'Softies have lost their collective mind. BYOD doesn't play in vast parts of the business markets where Microsoft has made billions. Many companies don't want their employees using Skype, Xbox Music, SkyDrive and Facebook at work. Their compliance, security and management policies don't allow workers -- even those with expectations of having seamless home/work experiences -- to bring their own devices to work.

But BYOD isn't Microsoft's only justification for keeping Microsoft intact. The 'Softies also have begun using the need to be able to compete with increasingly closed end-to-end computing environments from Google and Apple as another reason Microsoft needs to make its own hardware, software and services. With such moves by Google as refusing to develop Windows 8 and Windows Phone versions of its apps, this argument seems plausible.

Ben Thompson, a onetime Microsoft product manager and now author of the oft-cited Stratechery blog, believes a services strategy and a devices strategy are "fundamentally opposed to each other." Thompson, also a growth engineer at WordPress, adds: "Your services will be forever paying a strategy tax to support your devices, which won't even be fully differentiated." He makes the case that Google has a services strategy, and Apple a devices strategy, so there's less conflict for those companies.

That argument has some merit.

However, I'd go beyond his overly simplistic "silo" claims. To me, it seems Microsoft as an end-to-end ecosystem provider and as a provider of services across Microsoft and non-Microsoft platforms puts the company at odds with itself. If Microsoft's plan is to provide Office and Office 365 on iOS, Android, and Windows and Windows Phone devices -- which the plan does seem to be, at least for now -- what's the advantage of going all-Microsoft? You can get Office Mobile on your iPhone, just like on your Windows Phone. You can access SkyDrive from any platform, and you can use Office Web Apps on Mac, Linux and Windows. Where are the exclusive benefits for being part of the Microsoft ecosystem?

At the same time, I don't agree with Wall Street's calls for Microsoft to simply lop off Bing or Windows Phone and either turn these businesses into standalone companies or sell them off to others. There are already a lot of cross-divisional dependencies inside the company that would make this more trouble than it's worth. (That said, I still think a case could be made for spinning off Xbox, Xbox Live, and Xbox Music and Video.)

While I don't think One Microsoft can work, with its conflicting missions and approaches to remain a single company, there's also no simple way to orchestrate a clean break that can satisfy all stakeholders. That's the quagmire Microsoft's board and new CEO face.