Microsoft’s Business Model Ménage à Trois

Ben Thompson of Stratechery wrote yet another brilliant article on Microsoft entitled: “It’s Time To Split Up Microsoft“. Highly recommended reading. I agree with Thompson in part, and I disagree with him in part. Let’s start with the parts where we agree.

1.0 Balmer

1.1 Innovation Inflation

The following is from Steve Ballmer’s 2004 memo “Our Path Forward:”

    “The key to our growth is innovation. Microsoft was built on innovation, has thrived on innovation, and its future depends on innovation. We are filing for over 2,000 patents a year for new technologies, and we see that number increasing. We lead in innovation in most areas where we compete, and where we do lag – like search and online music distribution – rest assured that the race to innovate has just begun and we will pull ahead. Our innovation pipeline is strong, and these innovations will lead to revenue growth from market expansion, share growth, new scenarios, value-add through services (alone and in partnership with network operators), and using software to open up new areas.” ~ Steve Ballmer, via Ben Thompson’s Article

Hmm. If you have to use the word innovation 7 times in the span of a mere 115 words, you probably don’t know what the word means. Dogs chase cars, but that doesn’t mean they know how to drive. And Microsoft can chase innovation all it wants, but that doesn’t mean they know how to innovate.

I suspect what Ballmer was actually talking about in his memo was iteration, not innovation. Iteration is highly valuable too, but it has nothing at all to do with innovation.

  1. Iteration is incremental improvements in an existing product or service.
  1. Innovation is unique, yes. And it is uniquely useful, yes. But its key characteristic is that it meets unanticipated, unexpected, or unarticulated needs.

The trouble with innovation is that truly innovative ideas often look like bad ideas at the time. That’s why they are innovative — until now, nobody ever figured out that they were good ideas. ~ Ben Horiwitz

Iteration is preserving the status quo by enhancing it. Innovation is radical. It’s revolutionary. It’s subversive. It doesn’t build upon the old market, it shatters the status quo and creates a new market to build upon.

Truth be told, Ballmer wanted nothing at all to do with innovation. When Ballmer wrote his memo in 2004, Microsoft was the undisputed king of the tech world. Innovation is a change agent and last thing Ballmer wanted was to change things. On the contrary, Ballmer wanted things to stay exactly the way they were.

1.2 Focus

    “Ballmer then listed (in his memo) 10 different areas of “focus”, the vast majority of which were themselves so broad as to be meaningless.” ~ Ben Thompson

I love the point Ben Thompson is making here. Focusing on ten things is the same as focusing on nothing. Yet Microsoft’s “focus” problem went even deeper than this. In a perverse way, Microsoft WAS very focused. Only they were focused on the wrong thing: their competitors. Jeff Bezos nicely sums up the problem with that approach:

If you’re competitor-focused, you have to wait until there is a competitor doing something. Being customer-focused allows you to be more pioneering. ~ Jeff Bezos

Does this sound like the Microsoft we all know and love? The Zune was a response to the iPod. Windows Phone 7 was a response to the iPhone. Surface was a response to the iPad. And all of those responses came to market late, late, late.

During Ballmer’s reign, Microsoft didn’t so much have a strategy as they had an anti-strategy. (See my article: Microsoft Is The Very Antithesis Of Strategy.) They waited for their competitors to act and then they reacted. They reacted far too slow and far too late. Even worse, they made bad choices, the worst of which was the choice to make their own hardware. The Zune flopped, the purchase of Nokia is a boondoggle and the Surface is a financial anchor weighing Microsoft down. Microsoft needs hardware like a fish needs a net.

1.3 Microsoft’s High-Water Mark

Ben Thompson:

    “Ballmer and Microsoft simply could not break free of their Windows-first mindset, and while it would be another 3 years before the iPhone arrived, it was this memo and what it represented that marked the beginning of Microsoft’s decline.”

A belief is not merely an idea the mind possesses; it is an idea that possesses the mind. ~ Robert Oxton Bolt

[pullquote]Before you criticize someone, you should walk a mile in their shoes. That way when you criticize them, you are a mile away from them and you have their shoes. ~ Dave Barry[/pullquote]

This is the point in my article where I’m supposed to trash Steve Ballmer for being shortsighted. But, truth be told, I have a lot of sympathy for him. The only thing harder than saving a dying company is saving one at the top of its game.

A company near death HAS to focus.

The absence of alternatives clears the mind marvelously. ~ Henry Kissinger

A company near death HAS to be innovative.

Mortal danger is an effective antidote for fixed ideas. ~ Field Marshal Erwin Rommel

[pullquote]Until you walk a mile in another man’s moccasins you can’t imagine the smell. ~ Robert Byrne[/pullquote]

Microsoft’s problem was they didn’t have a problem. Without the impetus of bankruptcy or any credible threat, they had little reason to change. In fact, they had NO reason to change and EVERY reason to stay the same. However, as Carrie Fisher put it, “There is no point at which you can say: ‘Well, I’m successful now. I might as well take a nap.'”

If everything’s under control, you are going too slow. ~ Mario Andretti

If everything seems to be going well, you have obviously overlooked something. ~ Steven Wright

In this business, by the time you realize you’re in trouble, it’s too late to save yourself. Unless you’re running scared all the time, you’re gone. ~ Bill Gates

Broken nesting doll

1.4 Vertical Or Horizontal — Pick One, Not Both

Ben Thompson:

    “(T)ech companies ought to be either vertically/platform focused, with software and services that differentiate hardware (like Apple), or horizontally/service focused, with the goal of offering superior software and services on all devices (like Google and Facebook). To try and do both, as Ballmer explicitly did with his “Devices and Services” strategy, is to do neither well: differentiating your devices by definition means offering an inferior service on other platforms; offering superior services everywhere means commoditizing your own devices. “Devices and Services” was nonsense.”

I LOVE this.

Microsoft used to have a clear and simple business model. They made the operating system, they licensed the operating system to hardware manufacturers. The end.

Microsoft didn’t compete with their hardware manufacturers by selling hardware. They didn’t compete with their developers by selling software. ((There is one HUGE exception to this rule and that is Microsoft Office. Ben Thompson does a great job of explaining why this conflict worked and worked well — for a while — so I refer you to his article, “It’s Time To Split Up Microsoft“. I couldn’t have said it half as well.)) They competed with other operating systems and boy, did they ever compete. During the eighties, Microsoft squashed challenger after challenger and when the dust from the PC wars settled, the only rival operating system left standing was the Mac — and even it was on its metaphorical knees. ((STEVE WILDSTROM: “From the day that the IBM PC overtook the Apple ][, Microsoft software dominated the market. The Macintosh, introduced in 1984, never challenged MS-DOS or Windows for dominance.”

“Other rivals to Microsoft did indeed lose: Novell’s DR-DOS and IBM’s OS/2 operating systems disappeared, along with Netware, Novell’s once-dominant office networking system.”))

Today, of course, it’s a very different story. Microsoft still licenses its operating system to hardware manufacturers. But it also directly competes with those same hardware manufacturers by selling hardware of its own. And while Microsoft is currently making serious inroads into the business of providing internet services that run across all platforms, they continue to directly compete with the very same platforms that they are attempting to sell their services to.

No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. ~ New Testament, Matthew 6:24

It’s really, really tough to make a great product if you have to serve two masters. ~ Phil Libin, Evernote CEO

Two masters? Microsoft is trying to simultaneously serve THREE masters. Yikes!

Microsoft fits the definition of a business model ménage à trois: There are three of ’em, and they’re all trying to screw one another.

Russian Nesting (Matryoshka) Dolls

2.0 Nadella

2.1 Better Than Ballmer

Ben Thompson:

    “To understand why so many serious Microsoft observers were encouraged by Satya Nadella’s week-ago memo, “Bold Ambition and Our Core,” it’s useful to go back 10 years and read Steve Ballmer’s 2004 memo Our Path Forward.”

Hmm. Apparently “serious” Microsoft observers are more willing to overlook the serious problems with Nadella’s memo just because it’s better than Ballmer’s memo, while less serious Microsoft observers, like me, take those serious shortcomings more seriously.

A…speech should be like a lady’s dress—long enough to cover the subject and short enough to be interesting. ~ R. A. “RAB” Butler

[pullquote]He can compress the most words into the smallest idea of any man I ever met. ~ Abraham Lincoln[/pullquote]

Let’s set aside the fact that reading Nadella’s memo was like gargling with broken glass ((With apologies to Hugh Leonard)).

And let’s set aside the fact that what Nadella’s memo lacked in depth it made up for in length. ((With apologies to Chares de Montesquieu))

And let’s agree Nadella’s memo is better than Ballmer’s memo…so long as we also agree that still isn’t saying very much.

So what? At best that’s damning with faint praise. ((Damning with faint praise is an English idiom for words that effectively condemn by seeming to offer praise which is too moderate or marginal to be considered praise at all. In other words, this phrase identifies the act of expressing a compliment so feeble it amounts to no compliment at all, or even implies a kind of condemnation.)) Exactly what was it Nadella said in his memo that “serious” Microsoft observers could possibly have found even remotely encouraging?

2.2 Going Sideways

Ben Thompson:

    “In contrast to Ballmer’s anything-but-“focus,” Nadella was quite specific:”

      More recently, we have described ourselves as a “devices and services” company. While the devices and services description was helpful in starting our transformation, we now need to hone in on our unique strategy. ~ Satya Nadella

What a great start! (Well, technically, it’s not really a “start” since we’re already 558 words into Nadella’s memo. But let’s set that aside, for now.) This is great stuff. Nadella has tactfully repudiated his predecessor’s strategy without actually saying it in so many words. Further, he’s promising to hone in on Microsoft’s unique strategy. I’m all agog. Can’t wait to hear what’s coming next!

    “At our core, Microsoft is the productivity and platform company for the mobile-first and cloud-first world. We will reinvent productivity to empower every person and every organization on the planet to do more and achieve more.” ~ Satya Nadella


Seriously? That’s Nadella’s idea of honing in on Microsoft’s unique strategy? Prepare thyself for a MASSIVE rant.

Microsoft is a “platform” company? That could mean a lot of things. Or anything. Or nothing. Microsoft is a “productivity” company? Whoop-de-doo. Who isn’t? Microsoft is “mobile-first and cloud-first?” Newsflash: They can’t both be “first.” Microsoft will “reinvent productivity?” No, it won’t. You can’t reinvent productivity anymore than you can manufacture new antiques. Microsoft will “empower….” Ugh. Enough said.

    We will…empower every organization on the planet to do more and achieve more. ~ Satya Nadella

Ben Thompson seems to put particular stock in this phrase. I’ll discuss its “horizontal” business model implications below. However, in terms of defining Microsoft’s mission, it’s a complete dud. Microsoft is going to empower people to “do more and achieve more?” Wow, thanks for narrowing it down. Helping people “do more and achieve more” is about as non-specific, over-generalized, feel-good-but-means-nothing, applies-to-practically-every-company-that-ever-existed as it gets. That’s not honing-in, that’s zoning-out.

2.3 Teasing Out A Tortured Message

Ben Thompson:

      “Nadella was clear that focusing on “every person” meant focusing on every device as well:

        [Microsoft’s productivity apps] will be built for other ecosystems so as people move from device to device, so will their content and the richness of their services – it’s one way we keep people, not devices, at the center.” ~ Satya Nadella

This is exactly right. Nadella is making a choice here: productivity as a single unifying principle and, by extension, services based on people, not differentiation based on devices. Moreover, it’s a far more difficult and brave choice – obvious though it may be – than outside observers could likely understand. It was only a little over a year ago Ballmer declared, “Nothing is more important at Microsoft than Windows.”

Last week, Nadella said “No.” ~ Ben Thompson

Let’s break that analysis down.

    “(I)t’s a far more difficult and brave choice – obvious though it may be – than outside observers could likely understand.”

First, I concede I am an “outside observer.” However, I’m not willing to cede the interpretation of Nadella’s words solely to Microsoft insiders.

    “Nadella is making a choice here: productivity as a single unifying principle…”

Second, I’m totally not buying this. “Productivity” is far too broad a term to constitute a “single unifying principle.” And as for it being a “choice,” what exactly is Nadella choosing between: Productive and non-productive?

    “(S)ervices based on people, not differentiation based on devices.”

Third, what I think you are saying is you think Nadella is saying Microsoft is moving toward services, and away from devices. (If that’s what Nadella actually meant to say, it would have been nice if he had actually said it.) Further, I think you are saying you think Nadella is saying Windows is no longer Microsoft’s be all and end all. And — despite the tortured path used to get us there — I kinda agree with that interpretation. Unfortunately, Nadella’s actions — and Ben Thompson’s own analysis — disagree.

2.4 Two Problems

How do I know Ben Thompson’s analysis doesn’t support the suggestion Microsoft is moving away from devices and toward services? Because he says so in his article when he discusses Windows, here ((BEN THOMPSON: “For all the talk of moving beyond Windows (and Windows Phone), I am deeply skeptical Microsoft can truly pursue its potential as a software and services company as long as Windows is around.”)) and when he discusses Nokia, here ((BEN THOMPSON: “The effects of (the Nokia) deal – and understanding why it was made – have convinced me that Microsoft cannot truly reach its potential as a services company as long as Windows and the entire devices business is in tow.”)) and here ((BEN THOMPSON: “When Nadella took over earlier this year Microsoft had not only missed the mobile boat, he was now saddled with a $7.2 billion dollar anchor and 34,000 new employees. That’s the thing about last week’s layoffs: even after shedding 18,000 employees Microsoft will still be about 16% bigger than they were before the acquisition, and still tightly bound to a devices group that is working at diametrically opposed goals from the software and services businesses that are Microsoft’s future.”)) and when he discusses devices, here. ((BEN THOMPSON: “I’m bothered by the phrase “We have a big opportunity.” For (COO Kevin) Turner, the opportunity is in growing that 14%. As quoted by Gregg Keizer: We want to go from 14% to 18%, from 18% to 25%, from 25% to 30%. That’s the beauty of this model … [the opportunity] is much bigger than anything we’ve had in the past.

Turner is still talking about devices, and it’s really too bad.”))

And how do I know Satya Nadella isn’t moving Microsoft from devices and to services? Because his actions speak far louder — and far clearer — than do his words.

We know what a person thinks not when he tells us what he thinks, but by his actions. ~ Isaac Bashevis Singer

I’ll agree Satya Nadella has said “yes” to services. But what has he said “no” to? The Windows operating system licensing business model and the hardware business model (Nokia phones and Surface Hybrid) and the services business model all continue to co-compete, one with the other. Nadella is doing what Ballmer always did. When faced with a choice, he has chosen not to choose. When faced with a decision between business models, he has decided not to decide.

Action expresses priorities. ~ Gandhi

Yes, action expresses priorities. And inaction obscures them.

It’s true services may gain primacy at Microsoft. However, so long as three business models remain — like nesting dolls, one within the other — Microsoft’s internal conflicts and external turmoil will continue, unabated.

Deciding what not to do is as important as deciding what to do. That’s true for companies, and it’s true for products. ~ Steve Jobs

Matryoshka doll


Okay, let’s agree Nadella isn’t the best communicator in the world. That’s too bad because words can make your heart soar…or they can make your head sore. ((Tip of the hat to Dr. Mardy and his aphorisms.)) However, words aren’t everything. When the Nokia phone line is cut; when the Surface hybrid is cut; then we won’t have to read Nadella’s memos to know where Microsoft is headed. Nadella’s actions will speak far louder than any words could.

A man is judged by his deeds, not by his words. ~ Russian Proverb

Until that day, Microsoft should be careful that they don’t become a joke:

A Jewish woman had two chickens. One got sick, so the woman made chicken soup out of the other one to help the sick one get well. ~ Henny Youngman

Microsoft is in danger of making chicken soup out of their healthy business divisions in order to sustain their ailing businesses. If they’re not very, very careful, they’ll end up with a bunch of dead chickens and egg all over their face.

4 Facts; 3 Acts; 1 Microsoft Mission

If you know the enemy and know yourself,
 you need not fear the result of a hundred battles.

If you know yourself but not the enemy, 
for every victory gained you will also suffer a defeat.

If you know neither the enemy nor yourself, 
you will succumb in every battle.

~ Sun Tzu, The Art of War

Today’s Microsoft knows neither itself nor its enemy. The first thing Microsoft needs to do is to acknowledge and accept four facts. Then they need take three actions. Then they need to more forward with one mission, with one objective, as one Microsoft.

Chaos concept.

FACT #1: The Mobile Wars Are Over And Microsoft Has Lost

If I were running Apple, I would milk the Macintosh for all it’s worth and get busy on the next great thing. The PC wars are over. Done. Microsoft won a long time ago. ~ Steve Jobs [Observation when running Pixar]

Good advice from a deceased arch-rival.

If I were running Microsoft, I would milk Windows and Office for all they are worth and get busy on the “next great thing*. (*Hint: Neither Windows Phone 8, nor the Surface, nor the current bastardized version of the Windows 8 operating system is the next great thing.)

The mobile wars are over. Apple’s iOS and Google’s Android have won. Windows Phone 8 has lost.

Let me illustrate this fact with a riddle:

Q: If it took two pigs six hours to eat the apples in the orchard, how many hours would it take three pigs?

A: None, because the two pigs have already eaten them all.

There are no more apples left for the third pig and there is no more meaningful smartphone share left for Microsoft either.


Microsoft needs to acknowledge this reality, and move on.

There is an immeasurable distance between late and too late. ~ Og Mandino

[pullquote]Never under-estimate our ability to ignore the obvious. ~ Po Bronson[/pullquote]

Microsoft is not late — or very late — or very, very late — to the smartphone and tablet party. They are too late.

Will it be painful to acknowledge this reality? Absolutely. The only thing more painful would be not acknowledging it. Until Microsoft cuts itself loose from the idea they can still win in mobile, their ship of state will be moored to the past. Mobile is a battle Microsoft cannot win and — just as importantly — it is a battle they cannot afford to fight.

Four things come not back: the spoken word, the spent arrow, the past, the neglected opportunity. ~ Omar Ibn Al-Halif

FACT #2: Microsoft Windows Is A Legacy OS That Is Going To Become Less And Less Important With Time

Windows 8 is an aged battleship sinking rapidly and firing every available gun on her rescuers. ((With apologies to Alexander Woollcott))

The idea Windows is a legacy OS is, of course, a bitter pill for Microsoft to swallow. Windows has been their cash cow since at least 1995. However, it’s now isolated on notebooks and desktops and both are in permanent decline. And even in the Enterprise — Microsoft’s castle keep — Windows is no longer the platform of choice, with Enterprise users overwhelmingly preferring Macs.


Window 8 is an aberration. It is a failed attempt to extend the life of Windows by stretching it to cover tablets as well as notebooks and desktops. But that strategy has badly backfired as users flee the OS in droves. And Microsoft’s attempts to “fix” Windows 8 by returning it to its Windows 7 roots reminds me of a joke:

Moses trudges down from Mt. Sinai, tablets in hand, and announces to the assembled multitudes: “I’ve got good news and I’ve got bad news. The good news is I got Him down to ten. The bad news is ‘adultery’ is still in.

I’ve got good news and bad news for Microsoft. The good news is Windows 8 is becoming less and less like Windows 8. The bad news is the worst of Windows 8 — its dual operating system — is still in.

FACT #3: Microsoft Has No Business Being In The Hardware Business

In an exit interview, Steve Ballmer said one of his regrets was Microsoft didn’t move into hardware earlier.

Say what?

Hardware Is Abhorrent To Microsoft’s Existing Business Model

You can’t license your software to hardware manufacturers and then simultaneously sell competing hardware. This is not hard to understand, yet many, many people work very, very hard not to understand it.

Hardware Has No Margins

Why would Microsoft want to go INTO hardware when most everyone else is trying to get out? Only Samsung and Apple are making money in hardware and Apple is doing it via software integration and ecosystem added value. Samsung? Cracks are beginning to show in its business model. It’s possible they’re getting by with smoke and mirrors and the biggest advertising budget under the sun.

Hardware And Software Integration Is Not Microsoft’s Area Of Expertise And It Is Apple’s Area Of Expertise

As per yesterday’s article, if you’re going to fight, don’t do it where your opponent is strongest. Hardware/Software integration is Apple’s forte. It makes zero sense for Microsoft to challenge Apple at what Apple does best.

Hardware Is Being Used As A Crutch To Support The Fading Software Business

Microsoft is not going into hardware so much as they’re trying to prop up their old licensed software model. And that way lies madness. Let’s recap.

Mobile software moves on without Microsoft and desktop sales go into permanent decline. Microsoft responds by creating Windows Phone 8 and trying to stretch their Windows 8 operating system to work on both desktops and tablets. Both of these tactics fail miserably. Microsoft responds by buying Nokia and creating the Surface hybrid to boost software sales. This too fails miserably.

Which reminds me of a joke:

“Jenny!” called her mother, “Why are you feeding birdseed to the cat?”

“I have to,” Jenny replied. “That’s where my canary is.”

Selling hardware (at a loss) in order to save your licensed software business model is like feeding the cat birdseed. It’s not going to keep your bird, or your software licensing model, alive.

FACT #4: Microsoft Is A Business — Not A Consumer — Company

A zebra does not change its spots. ~ Al Gore

Microsoft is a great company. But they are a terrible consumer company. To deny it is to deny their very nature.

Look at their awkward advertising, their tone of fear marketing. They simply don’t know how the consumer ticks. That’s fine. Microsoft needs know itself and be true to itself. Until it does, it will continue to struggle, fighting battles it is ill-prepared to wage.

Chaos concept.

ACTION #1: Accept That The Past Is Over

It is hard to get to the summit, harder to stay on it, but hardest to come down. ~ Aleksander Fredro

I know Microsoft wishes the four facts I listed above weren’t so, but denying reality doesn’t change reality. They cannot move forward until they stop striving to hold onto a past that no longer exists.

Some of us think holding on makes us strong; but sometimes it is letting go. ~ Hermann Hesse

The difficulty lies not so much in developing new ideas as in escaping from old ones. ~ John Maynard Keynes

There is no sin punished more implacably by nature than the sin of resistance to change. ~ Anne Morrow Lindbergh

ACTION #2: Stop Doing What Doesn’t Work

To get what you want, stop doing what isn’t working. ~ Dennis Weaver

Microsoft needs to stop competing in phone handsets, stop competing in tablets, and move all of their focus to cloud business services. It’s that easy. And it’s that hard.

Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks. ~ Warren Buffett

ACTION #3: Redefine Yourself

In the animal kingdom, the rule is, eat or be eaten; in the human kingdom, define or be defined. ~ Thomas Szasz

The Licensed Software model is going away. Integrated hardware is taken. The mobile wars are over. But the Cloud wars have just begun.

Define yourself. Find your mission. Then pursue it with a vengeance!

Stop being who you were and become who you are. ~ Paulo Coelho

Progress lies not in enhancing what is, but in advancing toward what will be. ~ Khalil Gibran

Conclusion – Get To It!

It is not because things are difficult that we do not dare; it is because we do not dare that they are difficult. ~ Lucius Annaeus Seneca

Advice would always be more acceptable if it didn’t conflict with our plans. ~ New England proverb

Microsoft’s past is over. Its future awaits So get to it!

Career Decision

Microsoft: Point and Counter-Point

On April 10, I wrote: Say Goodbye To Microsoft. On April 17, I wrote Say Hello To Microsoft 2.0. The two articles, when taken as a whole, argued that:

1. In the beginning, Microsoft’s business model was simple — create the personal computing operating system (Windows) and license it to as many hardware manufacturers as possible.

2. Microsoft’s vision was equally clear:

A computer on every desk and in every home. ~ Bill Gates, Microsoft chairman and chief executive officer, 1980

3. By the turn of the century, Microsoft’s singular vision and simple, yet powerful, business model had virtually achieved its audacious goal of putting a computer on ever desk and in every home and having Microsoft’s Windows operating system running on each of those computers.

4. Ironically, having achieved the seemingly impossible, Microsoft was left without a goal to power them and without a vision to guide them. They drifted from product line to product line and from business model to business model.

5. Microsoft long knew the Mobile Wars were coming but when the revolution finally arrived, the mobile wars were fought with weapons so unfamiliar to Microsoft, and the front lines shifted so quickly and so decisively, that the wars were all but over before Microsoft was able rearm themselves.

  1. By the time Windows Phone 7 was released in October 21, 2010, ((Windows Phone 7 came out seven months AFTER Apple started selling the iPad. In other words, Apple had started the next revolution in computing before Microsoft even fired a single shot in the nearly completed smartphone revolution.)) Apple’s iOS had already sewn up the premium end of the smartphone market and Google’s Android had already locked down the low end.
  2. By the time Windows 8 and Microsoft’s Surface tablet was released in the Fall of 2012, millions upon millions of iOS and Android tablets were already in the hands of consumers, and businesses and educational institutional buyers had already adopted iOS as their preferred tablet operating system. By the time Microsoft entered the fray, they found themselves fighting a war already over.

6. In a matter of only a few, short years, Microsoft went from being the only relevant company in computing to a company that was completely irrelevant in mobile computing.

7. Microsoft’s board, which sat idly by for over a decade, finally acted by forcing Steve Ballmer out and naming Satya Nadella as their new CEO.

8. It’s still early days, but it appears Satya Nadella is realigning Microsoft around a horizontal business strategy which strives to sell services in the Cloud layer resting atop today’s modern personal computer (phone, tablet, notebook, desktop) operating systems and to sell those services to every type of personal computer maker and user.

9. If Satya Nadella is truly moving Microsoft to a horizontal-first model, then it logically follows Microsoft will want to jettison unprofitable vertical hardware projects like the Surface tablet and the Nokia phone lines and demote the importance of vertical software offerings like Windows 8 and Windows Phone 8.

Push Back

The truth will set you free, but first it will piss you off. ~ Gloria Steinem

My twin articles produced some extremely thoughtful and thought provoking responses. So I decided to give one reader — RATIONAL GEEK — a chance to respond which, in turn, allowed me to refine my original thinking on the matters discussed above.


Microsoft’s Functional Re-Organization


Microsoft’s divisional organization may have been dysfunctional but, in my opinion, Steve Ballmer’s attempt to move Microsoft to a functional organization was a disaster waiting to happen.

First, Microsoft’s culture and product lines were simply incompatible with the goals of a functional organization.

Second, making a transition from a divisional organization to a functional organization in these perilous times is like changing the proverbial horse in the middle of the river — or perhaps more like changing the proverbial horse while plunging over a waterfall.

Satya Nadella’s recent job reassignments indicate to me he is starting to undo some of the reorganization that began during Steve Ballmer’s final days. Frankly, I’d like to see Nadella, like a new broom, sweep some people clean out of Microsoft. But — as I was recently reminded by Ben Thompson of Stratechery fame — Microsoft “fires” gently.


In what way is Nadella undoing the reorganization? I don’t see it.

The One Microsoft reorganization is important because the old Microsoft would have powerful groups like Windows, Office and Enterprise hunker down and protect their operating margins at the expense of collaborating towards a common goal. One Microsoft is an attempt to “align the wheels”.

Everything they do is now with a common goal in mind.

We will see our product line holistically, not as a set of islands. We will allocate resources and build devices and services that provide compelling, integrated experiences across the many screens in our lives, with maximum return to shareholders. All parts of the company will share and contribute to the success of core offerings, like Windows, Windows Phone, Xbox, Surface, Office 365 and our EA offer, Bing, Skype, Dynamics, Azure and our servers. All parts of the company will contribute to activating high-value experiences for our customers. ~ Steve Ballmer

The old organizational structure was once one of Microsoft’s biggest criticism. In-fighting everywhere resulting in counter productive disconnects. We’ve all seen this amusing org chart comparison right?

The important takeaway is Microsoft recognizes their sacred cows of the past are no longer sacred. They’ll need to look beyond them towards cloud, devices and services to compete in the future.


Microsoft’s Surface Tablet


I think Microsoft should recognize the Surface Tablet for the disaster it is and drop it like a hot coal.

Surface business worsening? Q2: Surface lost $40 million on sales of $890 million. Q3: Surface lost $45 million on sales of $494 million. ~ Peter Bright (@DrPizza)

First, while it’s very true a few people definitely DO desire and desperately DO need a hybrid device — something between the tablet and the notebook — those road warriors are far fewer than Microsoft thinks (thought?).

Apple is right to shun the MSFT hybridization/bastardization. ~ Jean-Louis Gassée (@gassee)

For example, some people find hybrid utensils such as the spork and knock useful. However, the vast majority of utensil users stick with more traditional categories like spoons, forks and knives. Similarly, while the Surface and other hybrid tablets are extremely useful for some, the vast majority of users will stick to using phones, tablets and notebooks to satisfy their computing needs.

Second, Microsoft’s Surface tablet is in direct competition with Microsoft’s tablet manufacturing partners. How can people not see this is a bad idea? Let me illustrate what a god-awful strategy this is through the use of an equally god-awful joke:

Two Eskimos, sitting in a kayak, were chilly so they lit a fire in the craft. Unsurprisingly it sank, proving once again you can’t have your kayak and heat it too.

Microsoft needs to acknowledge reality and admit they can’t license their software to hardware manufacturers while simultaneously competing directly against those manufacturers too.

What you can expect from Microsoft is courage in the face of reality. ~ Satya Nadella

Third, I reject — and more importantly the market rejects — the entire concept of using the Microsoft Surface tablet as a “showcase” device.

Microsoft didn’t write off 900 million dollars on the Surface last year because they were trying to make the Surface their “showcase” device. Microsoft was all in with the Surface tablet.

One might argue Google’s Nexus devices are a successful example of how to do a showcase device right. One might argue that if one wanted to be wrong.

The concept of a Showcase device DOES NOT work. It’s been a great big zero for Google, it’s been far worse than a great big zero for Microsoft and it will forever and ever continue to be a losing strategy for anyone foolish enough to employ it.

Fourth and finally, while I agree the Surface tablet demonstrates Microsoft’s commitment to Windows 8’s dual OS (desktop and tablet touch) philosophy, I vehemently disagree with the notion a hybrid OS is something Microsoft SHOULD be making a commitment to. The philosophy behind Windows 8 is deeply flawed and it’s not going to be fixed by “committing” to it. On the contrary, the first thing Microsoft needs to do is to abandon, not commit to, the Frankenstein’s monster that is Windows 8.

It is better to run back than run the wrong way. ~ Proverbs


There’s no denying the $900 million dollar loss is a good indicator people didn’t want what Surface, version 1, had to offer. I do however think it is not accurate to then conclude people are rejecting the idea of a converged device — one that is a tablet and can also potentially replace your laptop/desktop. I think the failure to sell has more to do with the painful transition from old style Windows to the new hybrid Windows 8. We are already seeing many small but significant improvements in Windows 8.1 that helps the two modes blend more seamlessly. This stuff happens. The first version tends to be rough around the edges but through iteration we begin to see a more polished product.

EDIT: This just in! Gartner’s latest report shows “hybrid PCs” are on the rise as iPad sales slow down.

This is notable because with all the talk of a declining PC market – if you combine hybrid PCs with traditional PCs, that segment is actually trending upward for 2014. No, this is not worthy of a victory lap just yet but it may be the beginning of a bright future for hybrid PCs.

I confess I am a bit biased, but not blindly. My bias is based on reality. My primary PC is a Surface Pro 2. It connects to a 27″ monitor, mouse and full sized keyboard when I’m at my desk. On the go, it’s just the Surface Pro 2 and a Type Cover. It easily morphs into a tablet when I want one – giving me a great touch experience – AND a laptop when I need it with full desktop support. Who else might be interested in a device that fits this flow? Possibly anyone carrying around an 11″ MacBook Air AND an iPad. Oh! and add to that everyone trying desperately to turn their iPads into laptops with various 3rd party keyboards. That’s no small market.

Regarding Surface itself, we should consider the state of the Windows OEM market at the time Windows 8 launched. Most had no idea what to make of Windows 8. It was new and confusing and expensive to include a touchscreen for their mainstream offerings. They weren’t sold. Left to their own devices, it’s not hard to imagine them abandoning the concept altogether.

Microsoft producing Surface did a couple of important things. One, it showed without a doubt their commitment to Windows 8. There was no hedging. This was their idea of a device that fully embraced the concept of Windows 8. If Microsoft didn’t believe in it then neither should their partners. Two, it represented *one* form factor but left the door wide open for OEMs to build and fill in the rest. You probably won’t see a Surface Ultrabook or a Surface desktop and everything else in between any time soon.

This is somewhere in the middle of old Microsoft where OEMs built the entire range of devices and Apple who builds all their devices. Understandably, Apple’s hardware selection is limited because they can’t make them all. For example, there is no 17″ MacBook Pro but I bet many would love there to be. Microsoft’s new approach is effectively the best of both worlds. They can produce a showcase lineup – though limited – and rely on their partners to build everything else.

Lumia+Surface+Xbox = Microsoft sells several billion dollars worth of hardware per quarter now. ~ Alex Wilhelm (@alex)


EDIT: Two hundred million IT workers want Windows tablets. ~ Forrester

Microsoft’s Nokia Phone

A reminder: Microsoft now is the world’s biggest software company, and 2nd biggest phone maker by sales. ~ Shira Ovide (@ShiraOvide)


I don’t think Microsoft should be making phone hardware any more than I think they should be making tablet hardware (See “Microsoft’s Surface Tablet”, above). Unsurprisingly then, I think Microsoft’s acquisition of Nokia — which was just completed this week — was a huge mistake.

I would like to blame Ballmer for the monstrously confused and strategically backwards Nokia purchase. It was, after all, done on his initiative.

But the Microsoft board has to take the lion’s share of the blame. Apparently, the board didn’t agree with Ballmer’s pursuit of Nokia — but they let the purchase go through anyway, even as they were forcing Ballmer out the door. What the heck were they thinking?

The best thing — perhaps the only thing — the Microsoft board did on Microsoft’s behalf in the past ten years was to replace Ballmer with Satya Nadella. The second best thing they could do now would be to resign, en masse, in order to allow Nadella to get on with the job of fixing the mess they allowed Ballmer to make.

Please understand, the purchased portion of Nokia is still capable of making great products. But that is irrelevant. What is relevant is having one consistent business strategy. Microsoft can’t expect phone manufacturers to make Windows 8 Phones if Microsoft is making them too. It’s just common sense.

Further, you can’t justify the purchase of Nokia by pointing out Windows 8 phone sales are bad. This is tortured logic. If third party Windows 8 phone manufacturers are having trouble selling their wares now, how the hell is that situation going to be improved by having Microsoft compete against them too?

Reports indicate Satya Nadella originally opposed the idea of purchasing Nokia but later agreed it was the right thing to do. I take this as a good sign. I don’t think Nadella truly changed his mind. Instead, I’m hoping Nalella still thinks the purchase of Nokia is a mistake — but he was politic enough to know the Nokia acquisition was going ahead whether he was on board or not and he choose to climb on board rather than risk being left standing at the dock.


This one is interesting because if the circumstances were different, i.e. Windows Phone was not dominated by Nokia and was getting traction with other OEMs, I would agree. But because the exact opposite is true, Nokia is too important to be left out of Microsoft’s control. Microsoft has recently announced WP will be free of charge. This should help entice more OEMs to build Windows Phones. Carriers have incentive to see a 3rd platform emerge and OEMs do as well. The fact Microsoft is now making WP free is a great example of OEMs benefiting from this competition.

Also, I wouldn’t compare Microsoft’s Zune to their current foray into hardware. Side note – the Zune was pretty great! 🙂 The big difference is the MP3 player market was a dead end. Apple completely dominated it and by the time Zune came along people were already transitioning away from dedicated players to their phones.

Unlike the MP3 player, no one would dare say the mobile phone market is a dead end. This space is full of potential – and it keeps growing!


Cash Cows


Microsoft has two cash cows — Windows and Office — that are NOT fully aligned with Microsoft’s new horizontal strategy.

In my opinion, Microsoft should milk those cash cows for all they’re worth. However — and here’s where it gets hard — they should always, always, always favor their new horizontal strategy over their cash cows whenever conflicts inevitably arise. For example, they should release Office for iPad, regardless of how it affects the sales of Windows licenses, Surface tablets, etc.

Oh wait…Microsoft just did that!

Tim Cook says he’s happy to have Office on the iPad. “If it had been done earlier it would have been even better for Microsoft, frankly.” ~ Harry McCracken (@harrymccracken)

And Microsoft should give up the notion that they’re going to be able to make a profit from licensing mobile operating system software.

Oh wait…Microsoft just did that too!

These are, in my opinion, signs that things are changing at Microsoft and changing in a very positive way.

Ideals may tell us something important about what we would like to be. But compromises tell us who we are. ~ Avishai Margalit


I think we mostly agree here. Microsoft should definitely continue to milk their cows except I don’t think abandoning Windows and Office should be part of the goal. The strategy to move to the cloud should not require they abandon Office and Windows. In fact, the ultimate goal for Microsoft would be for people to continue using Office and Windows while leveraging Microsoft’s cloud and services. The key difference here is it is not “all or nothing”. Microsoft understands the current reality. There will be a mix of users on different devices and platforms and Microsoft wants to be a part of their flow. But their goal should still be people will get the best experience using all of Microsoft.

In the world of ubiquitous computing, we want Windows to be ubiquitous but that doesn’t mean one price or one business model. It’s actually a market expansion opportunity and that’s how we’ll execute on it. ~ Satya Nadella

Microsoft’s Universal Apps


Microsoft has announced Metro and RT apps will run across the phone, tablet, PC and even Xbox form factor. I am DEEPLY suspicious of the concept of Universal Apps. It sounds as if Microsoft has done a wonderful job with them but this “write almost only once and run almost everywhere” concept has been the Holy Grail — desired by all, found by none — of personal computing ever since there were two or more form factors or two or more operating systems to choose from.

I am willing to wait and learn but I am not willing to give Microsoft the benefit of the doubt. They can’t just tell me universal apps can be done. They have to show me they can be done.


Yes I’m old enough to remember Java’s promise a long time ago. I think one of the big challenges for Java was it depended on Virtual Machines installed on various platforms, i.e. Windows, Mac, Unix, Linux etc. The same Java code would need to be interpreted and translated to each operating system’s specific language. I don’t think it’s unreasonable to say this model had many variables working against it. Contrast this to Windows RT. You are no longer dealing with multiple operating systems. There is only one – Windows. The universal app developer should be able to leverage the bulk of their code while focusing on adapting their User Interface to various form factors.


Microsoft’s Muddled Thinking


In my opinion, having a horizontal business model that emphasizes services in the cloud AND having a hardware business model that sells Surface tablets and Nokia phones AND having a proprietary operating system model that licenses software and tries to create operating system lock-in, is muddled thinking. A company should have only one, not multiple, business models.

The response I often get when I suggest Microsoft has to choose one business model or another is: “Why? Why can’t Microsoft do it all? In fact, it’s Microsoft’s ability to do it all that makes them unique; that gives them a competitive edge.”

I’m sorry, but that kind of thinking is not just wrong, it’s dangerously wrong.

There is nothing worse than a sharp image of a fuzzy concept. ~ Ansel Adams

A company’s products are like the wheels of a car. They support the vehicle and enable it to speed ahead. A business model aligns the “wheels” of a company. If they’re not aligned, the vehicle will shimmy and shudder and run inefficiently.

Having multiple business models that prioritize different things is like pointing the wheels of your car in four different directions and expecting that to make your car go faster. What’s going to happen instead is you’re going to get a lot of wheel spinning, a lot of rubber burning, a lot of noise, a lot of smoke, a lot of engine wear and tear and not a lot of traction. In other words, you’re going to get the old Microsoft.

Satya Nadella has said “It’s gold rush time” in the cloud and SaaS markets. There are just a couple of companies positioned to capitalize on the dual opportunity of SaaS and infrastructure services and Microsoft is one of them.

Well, there are two ways to make money in a gold rush. You can pan for gold or you can sell the pans to the gold miners. This is the key — YOU CAN’T DO BOTH.

Microsoft is a big company but it’s not now, nor was it ever, so big that it could ignore the laws of business. If it wants to be good at any one thing, then it has to stop trying to be good at multiple things.


I look at all of this in the context of ecosystems. The ecosystem story is important – maybe the most important. Microsoft, Google and Apple are all working very hard to keep users in their world. I think it would be quite compelling if Microsoft is uniquely capable of offering users the ability to buy an app on the phone once and download a version on a tablet and PC for free – or in any order therein. This is a value proposition easy to understand. With respect to apps, Google’s Android ecosystem starts at the phone and ends at the tablet. Same with Apple and iOS. With Windows RT, Microsoft can complete the circle.

I’d also like to note that competing ecosystems can be hostile. Take Apple for example. Their move to drop Google Maps from iOS and use Bing as Siri’s default search engine is a good example of why relying on another platform to deliver your services can be risky. Then there’s Google who’s still denying Microsoft any native Youtube application for Windows Phone. It would be wise for Microsoft to take necessary steps to control as much of its destiny as possible.

Microsoft’s Satya Nadella

Satya Nadella has really impressed me. The tone at Microsoft has completely changed since he’s taken charge and he’s saying all the right things.

In particular, Nadella has said Microsoft needs to “ask the hard questions” and have the “courage to face reality.” To many, these seem like mere platitudes. To me, they are an accurate diagnosis of what ails Microsoft and a prescription for how to fix it.


Your Turn…

One of the quickest ways to find out if you are wrong is to state what you believe. ~ Penn Jillette

I want to thank Rational Greek for helping me with this point/counterpoint experiment. He went above and beyond the call of duty. Truth be told, I’m not sure I agree with a single word he’s written (and I think the feeling is mutual – he doest agree with a single word of what I’ve said) but I do deeply respect his arguments. They were rational and well thought through. They were just built upon a different set of premisses than my own.

Fencing with Rational Geek has helped me to hone my arguments and further clarify my thinking on the future of Microsoft.

The aim of an argument or discussion should not be victory, but progress. ~ Joseph Joubert

You’ve heard from me and you’ve heard from Rational Geek. Now it’s your turn. What do you think is going to happen to Microsoft? Let us know in the comments, below.

The point of seeing both sides isn’t to hover between them but to be able to come down on the right side with the right degree of conviction. ~ Julian Baggini

Say Hello To Microsoft 2.0

Last week I said goodbye to Microsoft. This week I say hello to Microsoft 2.0. But before we look at where I think Microsoft is headed, let’s take a quick look at where they’re coming from.

The further back you look, the further forward you can see. ~ Winston Churchill

Microsoft 1.0 had one of the most successful business models of all time. But no matter how successful Microsoft became, management seemingly could not abide the thought of any other technology company sharing the spotlight of success.

  1. If a competitor was being successful with customers Microsoft wasn’t addressing, Microsoft had to have those customers as well.
  2. If a competitor was being successful in a market where Microsoft didn’t compete, Microsoft felt compelled to compete there as well.
  3. Most damning of all, if a competitor’s success could be attributed to its business model, Microsoft felt compelled to assimilate that business model and make it their own.

Microsoft wasn’t setting their own agenda. Instead, they were letting the successes of their competitor’s set the agenda.

Next to knowing when to seize an opportunity, the next important thing is to know when to forego an advantage. ~ Benjamin Disraeli

[pullquote]Thinking that adding another business model will make your company stronger is like thinking that adding another iceberg would have made the Titanic more seaworthy[/pullquote]

No company can satisfy every customer. No company can satisfy every market. And as for simultaneously employing different business models, thinking that adding another business model will make your company stronger is like thinking that adding another iceberg would have made the Titanic more seaworthy. ((Inspired by Chet Hurley))


As an example, look at how Microsoft responded to the success of the iPod.

In 2001, Apple introduced the iPod to mostly tepid reviews. However, approximately two years later, Apple added iTunes integration. The iPod’s popularity skyrocketed, becoming the vehicle that both saved Apple from the technology graveyard and later propelled Apple to technology greatness.

Now what does any of this have to do with Microsoft?

Absolutely nothing.

And that’s the point.

The iPod was no threat to Microsoft’s overall business strategy. In fact, when iTunes came to Windows, the iPod STRENGTHENED the Windows ecosystem.

However, the iPod’s success drove Microsoft mad with envy. Like a spiteful neighbor, Microsoft couldn’t stand to see Apple enjoying any success, even in an area where Microsoft didn’t compete and had no compelling reason to compete. Without ever clearly addressing the question of “why” they needed to respond to the iPod, Microsoft decided that it had to crush the iPod with a competing product of its own.

At first, Microsoft came out with their own MP3 software layer called “Plays-for-Sure” and licensed it to their hardware partners. When that failed to make a dent in the iPod’s success, Microsoft abandoned its traditional licensing business model (and their so-called hardware “partners”) and, with the Zune, adopted a vertical business model — the very same vertical business model that Apple had been honing and perfecting for over thirty years.

The Zune experiment was a dismal failure. Are we surprised? The goal of strategy is to make our opponents play to our strengths — to play our game on our home field. Microsoft did exactly the opposite. NO ONE does vertical technology like Apple. Apple lives and breathes vertical. Yet Microsoft — with virtually no experience in using a vertical business model — challenged Apple where Apple was strongest; where Apple had an inherent advantage; where Apple held the home field advantage.

It was a bloodbath. Not only did the Zune fail, it failed so spectacularly that it became the poster child for how NOT to compete with Apple ((The iPod remained the poster child for how not to compete with Apple until 2007, when Steve Jobs famously introduced the iPhone and Steve Ballmer famously responded by laughing at it.)).

If you can’t imitate him, don’t copy him. ~ Yogi Berra

Multiple Business Models

If you don’t know where you’re going, you might not get there. ~ Yogi Berra

Business models are not cords of wood that can be stacked up, one upon the other. You do not grow better by adding a new business model; you grow confused. You do not become bigger by adding a new business model; you become bloated. You do not become stronger by adding multiple business models, you become stranger.

FAKE CAPTION: The Simplest Known Explanation Of Microsoft 1.0’s Conflicting Business Models

A good business model — like a good argument — should be consistent, self-supporting and contain no inherent contradictions. You can tell when you have a good business model by how little internal friction it causes. You can tell when you have a bad business model by how your company always seems to be at war with itself.

To arrive at a contradiction is to confess an error in one’s thinking; to maintain a contradiction is to abdicate one’s mind and to evict oneself from the realm of reality. ~ Ayn Rand

Say Hello To Microsoft 2.0

With the changeover from Steve Ballmer to Satya Nadella, Microsoft has entered into a new era.

We can’t quite be sure yet exactly WHERE the good ship Microsoft is headed, but we can be very sure that Microsoft’s new Captain, Satya Nadella, is steering Microsoft in a radically different direction.

Microsoft is no longer pretending that its Office software suite will help it sell more Surface tablets. They have accepted the reality that Office should be untethered from their Windows operating system and from their Surface tablets so that it can be free to reside on Microsoft devices, Apple devices, Google Chrome devices…and as many other personal computing devices as possible.

It’s but little good you’ll do a-watering the last year’s crops. ~ Eliot Adam Bede

Microsoft is also no longer pretending that they can make a profit from selling mobile operating systems. They have accepted as reality the fact that Apple’s bundled hardware/operating system model and Google’s freemium operating system model have reduced the price of mobile operating systems to zero.

Face reality as it is, not as it was or as you wish it to be. ~ Jack Welch


Microsoft offering free Windows on phones and tablets is nontrivial. This is a big move, as it changes their business model entirely. ~ Aaron Levie (@levie)

Month’s back I stated Microsoft needed its “hell freezes over moment.” I wonder if giving Windows software on smaller screens for free is it. ~ Ben Bajarin (@BenBajarin)

For a company which has been too long stuck in the fog of Redmond, it’s a remarkable turnaround. ~ Kontra (@counternotions)

Microsoft is re-inventing its business model which is the same as saying Microsoft is re-inventing themselves.

Say goodbye to Microsoft 1.0. Say hello to Microsoft 2.0.

Entrepreneurship is essentially identifying the path that everyone takes; and choosing a different, better way. ~ Sheldon Adelson


A coming together, a cloud for everyone and for every device; the first step on a journey. ~ Satya Nadella

Microsoft is going to a horizontal business model with a services layer above device platforms that isn’t dependent on any one operating system and provides Cloud services to all operating systems. Microsoft 1.0 was about Windows on every computer. Microsoft 2.0 is about MICROSOFT on every computer. It’s a subtle distinction with huge implications.

Horizontal business models thrive on cooperation and abhor confrontation with their vertical partners. Microsoft 2.0 — and its horizontal business model — wants its products to run almost everywhere, therefore it wants to be friendly with almost everyone.

Before Microsoft moved to a horizontal business model, try to imagine the following Twitter exchange taking place:

Welcome to the #iPad and @AppStore! @satyanadella and Office for iPad ~ Tim Cook (@tim_cook)

Thanks @tim_cook, excited to bring the magic of @Office to iPad customers #cloud4mobile ~ Satya Nadella (@satyanadella)

Or try to imagine John Gruber being on-screen at Microsoft’s Build conference:

This is odd/interesting. MS highlighting Apple watcher @gruber’s Vesper as an Azure developer/customer #bldwin ~ Mary Jo Foley (@maryjofoley)

jobs_macworld_1997In my opinion, John Gruber on screen at Microsoft’s Build Conference in 2014 is the poor man’s equivalent of when Bill Gates towered over Steve Jobs at Macworld in 1997.

Sometimes I’ve believed as many as six impossible things before breakfast. ~ Lewis Carroll

We didn’t know it then, but in 1997 Steve Jobs had just stooped to conquer — he had just conceded the PC wars to Microsoft thereby setting the table for his later post-PC triumphs. I think Microsoft — on a lesser scale — is doing the same today. They’ve conceded the post-PC wars…because they want to win the next war – the war for the Cloud.

Horizontal v. Horizontal

When you have a Horizontal business model, Verticals (like Apple) are not your enemies, they’re your friends. Your enemies are other horizontal business models competing in the same space as you. Hmm, who else do we know who has a Horizontal business model and competes in the Cloud?

Microsoft is clearly gunning for Android more than Apple now. ~ Matt Rosoff (@MattRosoff)

Legacy Business Models

Even if I’m right and Microsoft is trying to move toward a pure horizontal business model, they are still burdened with several dysfunctional legacy business models. I expect Satya Nadella to employ a two-pronged strategy to rid himself of these cancerous business models:

1) Unprofitable strategies (like Windows RT, the Surface tablet, Windows Phone 8, buying Nokia, moving to a functional organization) will be undone. This will take some doing but the process has already begun.

2) Profitable strategies (like the cash cows of Windows and Office) will be milked until they’re “udderly” dry. Then those cash cows will be put out to pasture while Microsoft moves on to the next great thing.

If I were running Apple, I would milk the Macintosh for all it’s worth and get busy on the next great thing. ~ Steve Jobs [Observation made before returning to Apple]

Part of me feels, at times, that Microsoft’s base case for mobile is to wait it out until the next disruption hits the reset button. ~ Ben Bajarin (@BenBajarin)

The End…Or Is It The Beginning?

Success wayIt’s still early days for Microsoft 2.0.

Lots of good stuff at the Build keynote, but it feels like Microsoft is still in the fairly early stages of a years-long transition. ~ Harry McCracken (@harrymccracken)

Any prediction would be premature.

Never make forecasts, especially about the future. ~ Samuel Goldwyn

With Microsoft’s bankroll, there’s still time to make the transition from Windows everywhere to Microsoft everywhere.

It’s never too late to be what you might have been. ~ Mary Ann Evans (under the pen name, ‘George Eliot’)

Microsoft 2.0 is very, very late to the game. Or maybe I’ve been looking at this all wrong. Maybe Microsoft is very late to the post-PC game but very early to the Cloud game. If so, then Microsoft 2.0 may have been well worth the wait after all.

If a girl looks swell when she meets you, who gives a damn if she’s late? Nobody. ~ J. D. Salinger, The Catcher in the Rye

Microsoft’s Puppet CEO

Last week, after a painfully long 6 month search, Microsoft made the transition from Steve Ballmer to Satya Nadella at CEO.

As of late, Ballmer had become the master of making nothing happen, very slowly. Microsoft is still cash rich, but their strategic position has been deteriorating rapidly. Microsoft dominates sales of Operating Systems sold to notebooks and desktops but this portion of the market is rapidly declining. And Microsoft is nowhere in the rapidly accelerating mobile phone and tablet markets.


Even Apple — the minority player in mobile — sold more computing units in the fourth quarter of 2012 than did Microsoft and its OEM partners.



There was certainly no shortage of advice as to what Nadella should do.

The Stoic, Thales, who when asked “What is difficult?” replied “To know oneself.” (When asked “What is easy?” he said “To give another man good advice.”)

Jean-Louis Gasse of Monday Note says that Nadella should prioritize. And he is certainly right.

Well begun is half done. ~ Aristotle

Horace Dediu, in his Critical Path podcast, suggested that what Nadella does immediately — in his first 100 days — is crucial. And he is certainly right.

The first thing you need to do when you find yourself in a hole is stop digging.

Harry Marks of Curious Rat, talked about how quickly Google had pivoted from Android vs. Blackberry to Android vs. iPhone and how Microsoft needed to act just as quickly and decisively now as Google had then. And he is certainly right.

Success is the child of audacity. ~ Benjamin Disraeli

Ben Thompson of Stratechery suggests that Microsoft’s “Devices & Services” strategy is flawed. And he is probably right.

He who wants to keep his garden tidy doesn’t reserve a plot for weeds. ~ Dag Hammarskjöld

Ben Thompsons then goes on to suggest that horizontal services should be Microsoft’s focus. And he is probably right.

When solving problems, dig at the roots instead of just hacking at the leaves. ~ Anthony J. D’Angelo

But none of that advice matters. Here’s why.

Marching Orders

No amount of advice, no matter how good, matters because Nadella already has his marching orders in hand. Just look at the sequence of events leading up to his promotion to CEO:

Nadella is an insider.

    “Microsoft has a new CEO – a safe choice, steeped in the old culture, with the Old Guard still on the Board of Directors.” ~ Jean-Louis Gasse

We find comfort among those who agree with us – growth among those who don’t. ~ Frank Howard Clark

The Old Guard is still firmly in charge.

The Board that allowed Ballmer to drive Microsoft’s current strategy is still in place and Ballmer, the CEO who drove that strategy is still on the board.

Incumbents get disrupted because the very moats a company builds up to be successful in one era become a liability in the next.

Bill Gates Is “In The House”

Bill Gates has “stepped down” from the board to “assist” Nadella. That is the same Bill Gates, who sat idly by while Ballmer ran Microsoft into its current dreadful strategic position and this is the same Bill Gates who didn’t recognize the strategic mistakes that Ballmer was making.

Never let your ego get so close to your position
that when your position goes, your ego goes with it. ~ Colin Powell

The Strategy has been preordained:

Before Nadella even came close to becoming CEO, Microsoft had already locked in its strategy by:

Businessman On Strings1) Shifting to a Device & Service Model;

2) Changing from a divisional to a functional organizational structure; and

3) Purchasing Nokia.

There are not things you do BEFORE you bring in a new CEO. These are the kinds of decisions the new CEO is supposed to make. Microsoft is not, in fact bringing in a CEO, they’re bringing in a puppet and the board is pulling all the strings.

I don’t want any yes-men around me. I want everyone to tell me the truth even if it costs them their jobs. ~ Samuel Goldwyn

Prisoner’s Of Company Culture

What the Microsoft Board has done to Microsoft is a disgrace. They let Ballmer’s reign go on for far too long. They ousted Ballmer without a successor and without a clue. After announcing Ballmer’s departure, they allowed and then took strategic decisions that tied the hands of his successor. They discovered, to their apparent surprise, that no competent CEO wanted to have Bill Gates and Steve Ballmer on the board looking over their shoulder. When the Microsoft board calls the roll at their next board meeting, they should not answer “present, they should all respond “guilty”.

We cannot become what we want to be by remaining what we are. ~ Max Depree

Microsoft may someday turn their ship of state around, but that day is not coming anytime soon. They have made it abundantly clear that they intend to double down on their current strategy. That means that things are going to get a lot worse before they can ever start to get better.

If you do not change direction, you may end up where you are heading. ~ Lao Tzu

If Nadella is to shake things up at Microsoft, he needs to do it now, immediately. But that’s not going to happen because the board doesn’t want it to happen and because Nadella was brought in as CEO with his marching orders already in hand. After a short while, his window of opportunity will be lost and Microsoft’s bureaucracy will fall back into their comfortable patters making change all but impossible.

There is no passion like that of a functionary for his function. ~ Georges Clemenceau

Inevitably, Nadella will try — too late — to make the changes that he should have made at the start, but by then he will be working against the bureaucracy, not with it.

The most dangerous strategy is to jump a chasm in two leaps. ~ Benjamin Disraeli

Nadella seems extremely capable, but there is no power like a bureaucracy. It must be broken early or it will, in its turn, break you.

If you are going to sin, sin against God, not the bureaucracy. God will forgive you but the bureaucracy won’t. ~ Hyman Rickover


At Microsoft, the old way is the problem, not the solution, but the old guard is still firmly in control.

We can’t solve problems by using the same kind of thinking we used when we created them. ~ Albert Einstein

It won’t matter how competent Nadella is because, to quote Peter Drucker, there is nothing so useless as doing efficiently that which should not be done at all. One can attempt to climb the ladder of success as fast as one wants, but:

If the ladder is not leaning against the right wall, every step we take just gets us to the wrong place faster. ~ Stephen R. Covey

I predict that Nadella will fail to turn Microsoft around because to succeed he will have to fight the very board that put him in power and become the CEO they never wanted him to be. Will Nadella need intelligence, savvy, and vision? Yes, yes and yes. But most of all, he’ll need courage. The courage to do what he was not hired to do.

Clear thinking requires courage rather than intelligence. ~ Thomas Szasz

We’ll know soon enough.