Nadella: Don't Split Up Microsoft!

Ever since former CEO Steve Ballmer announced his retirement late last summer, some on Wall Street were buzzing that now's the time to sell or spin off certain Microsoft businesses "to provide maximum shareholder value."

Proponents of splitting Microsoft up date back to the Department of Justice antitrust trial in the late 1990s. At the time they spoke of creating "Baby Bills," a term derived from the Baby Bells that were spun off of AT&T back in 1984. Founder Bill Gates was dead against that idea for Microsoft and I'd imagine he still is.

But some still think splitting Microsoft up (or at least spinning off a unit or two) is a good idea. Wall Street was enamored with outside candidates because they had less attachment to the so-called sacred cows. Proponents have often touted Microsoft's market-lagging Bing search engine and Xbox gaming business as good candidates Microsoft should shed.

Just because Microsoft tapped an insider as CEO doesn't mean the idea of spinning off units is DOA. Some would even like to see Microsoft split into multiple companies. Analyst Tim Bajarin of Creative Strategies even suggested in a blog post Tuesday that Microsoft should be split into three companies -- one focused on enterprise IT, the second comprising mobile devices including tablets and the third on its Xbox business.

The decision to shed any major assets will be made by the board, though the CEO presumably will have a strong voice in convincing the board whatever he thinks is best. Based on his comments this week, I don't get the sense Satya Nadella is pining to sell off Bing or Xbox but considering he's only been on the new job for a few days, he has a lot to delve into. Nadella said as much in his interview with corporate VP Susan Hauser on Tuesday.

Hopefully he won't succumb to pressure from Wall Street to spin off those businesses. While the Bing search engine may never surpass Google in usage or mindshare, the technology in Bing is crucial to Windows, Office, SharePoint and many other initiatives, some that may not have even borne fruit. Likewise with Xbox.

Perhaps the biggest takeaway this week in Microsoft's selection of Nadella as CEO is the company's acknowledg ment that it is an enterprise software company first. At the same time, consumers drive enterprises and the lines have blurred between the two.  From that perspective, IT pros should welcome the selection of Nadella as Microsoft's new CEO. "It appears he's prepared to carry out the strategy the company has set," said Directions on Microsoft Analyst Rob Helm. "It's a choice for continuity, for enterprises that's somewhat of a relief." Helm added that the choice of Nadella is a strong sign Microsoft will stay the course.

Forrester Research analyst Ted Schadler agreed. "Talk of bringing in an outsider tends to suggest that the entire strategy of the company and the company needs to be reconfigured," Schadler said. "I didn't believe that was true. I believe the path the company has been on is the right path. They have to move from licensed software to software to software as a service, full stop, period."

Posted by Jeffrey Schwartz on 02/07/2014 at 1:55 PM