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  (Source: Microsoft)
Sources close to Microsoft unveil Mr. Elop's controversial vision to sell of Xbox, Bing units

Incoming Microsoft Corp. (MSFTexecutive vice president of devices Stephen Elop is considered a front-runner for the CEO job, with the departure of Steve Ballmer, who took over from company cofounder and long-time CEO Bill Gates in 2000.  His candidacy is sparking a fierce debate over his executive track record and what direction Microsoft should move in as it looks to adjust to the new reality of an increasing mobile-centric devices and software market.

I. A Strange Track Record

Depending on who you ask Mr. Elop is either a quiet genius at saving companies -- or a bizarre master of destroying them.

The Canadian executive grew up in Ontario and went to school at McMaster University in Hamilton, Canada, studying computer engineering and management.  Six years after his 1986 graduation, he scored his first major position as director of consulting at Lotus Software.  At Lotus he played an admittedly smaller role in big direction decisions.  But following an acquisition by International Business Machines Corp. (IBM) in 1995, he would soon move on to more influential roles.

Stephen Elop
Stephen Elop [Image Source: IBTimes]

Joining Boston Chicken (and Einstein Brothers Bagels), a rapidly growing fast-food franchise, he was appointed CIO.  He rode along until 1998 when the company's large debts led it to file for Chapter 11 bankruptcy protections.  Boston Chicken was subsequently acquired by McDonald's Corp. (MCD) and rebranded Boston Market.

Again, Mr. Elop jumped ship to another role, becoming an IT manager at Macromedia, a software firm who wrote the widely used Flash plugin and the Dreamweaver webpage development environment.  Mr. Elop ascend to CEO in 2005, and three months later the company was sold to a top web/graphics software firm Adobe Systems Inc. (ADBE) -- apparently Mr. Elop had learned a trick or two from the sales of Lotus and Boston Market.

Macromedia
Mr. Elop was CEO at Macromedia in 2005 and suprvised its sale to Adobe. [Image Source: Fotki]

But it is here that opinions diverge.  Some believed that Adobe had overpaid and that Stephen Elop had played a clever game by first stoking rumors of a possible Microsoft buyout, which in turn triggered a panicked bid from Adobe.  Indeed, Adobe paid $3.4B USD for Macromedia -- a 25 percent premium on share prices before the deal was announced.  While Macromedia was profitable [PDF], at the time investors were still quite wary with the fresh memory of the burst of the dot com bubble still in their rear view and this kind of premium for a software firm due to speculation about secret counterbids from another rival seemed downright "paranoid" to quote one analyst.

Others weren't as impressed with Mr. Elop's decision.  Adobe had a poorer reputation for customer service at the time and many were angered at the prospect of it gaining a virtual "monopoly" over key internet software.

Even as this debate raged on, Mr. Elop didn't take long to leave from his new position as president of worldwide operations at Adobe.  In 2007 he jumped ship to Juniper Networks, Inc. (JNPR) a Californian networking equipment manager.  He spent a quiet year there as COO.

Office Launch
Stephen Elop, at an Office 2010 launch event [Image Source: Microsoft]

Then he jumped to Microsoft, where he served as head of the business division, producing a number of successful, if controversial products, such as Office 2010, which continued to back the "ribbon" menu format, introduced in 2007 before his arrival.

II. Nokia Run -- A Trojan Horse or a Turnaround Wizard?

In 2011 he would make another surprise jump up the corporate ladder, becoming CEO of struggling Finnish phonemaker and telecommunications equipment firm Nokia Oyj. (HEX:NOK1V).  Many were wary of his ties to Microsoft and track record of being tied to firms who were acquired.

At the 2011 Mobile World Congress (MWC), the mobile industry's top trade show, Stephen Elop was asked outright by one member of the audience during a Q&A session whether he was a "Trojan horse".  Indeed if Mr. Elop's history didn't raise enough eyebrows, his subsequent decision to switch Nokia over to solely using Microsoft's Windows Phone platform certainly did.

Stephen
Some accuse Stephen Elop (right) of being a Trojan horse during his two year reign at Nokia. [Image Source: Reuters]

In the end he restored Nokia to profitability -- but also ended up orchestrating a sale of Nokia's devices unit to Microsoft for $7.2B USD.  Given that Nokia had a market cap of $32.84B USD in 2011, clearly Mr. Elop's cuts had taken a heavy toll on the phonemaker.

Again, here's where controversy take hold.  Some say that Mr. Elop indeed has proved that he was a Trojan horse on a clear mission to devalue Nokia, briefly restore it to profitability, and then pass it off to Microsoft as a vehicle for Windows Phone.  They cite a $25M USD payout Mr. Elop received as part of the purchase deal as "proof" of this alleged conspiracy.

Others contend that Nokia's aging Symbian "burning platform" left it in an uncompetitive position and that Mr. Elop performed admirably given the circumstances, and that Mr. Elop's past relationship with Microsoft was not a factor in his strategy.  They point out that the sale allowed Nokia to focus on the stable telecommunications market rather than dividing its focus.
 

Ford Motor Comp. (F) CEO Alan Mulally (left), former Nokia CEO Stephen Elop (center), and former Skype CEO Tony Bates are considred front runners for the CEO job. [Image Source: AP/Reuters]

Now even as he settles in to his position at Microsoft, some consider him a front-runner to be CEO at Microsoft.  One theory is that he might receive the position as a reward for his successful role as Trojan horse at Nokia.

III. Stephen Elop's Wild (Alleged) Plan for Microsoft

But a new report in Bloomberg is raising fresh questions -- not only about Mr. Elop's historical connections to major corporate acquisitions, but also regarding his fitness to lead Microsoft.

Bloomberg reports that Mr. Elop's proposed plan to Microsoft's CEO search group is to untie Microsoft's various software products -- most notably Office -- from Windows.  While Office is current available for Apple, Inc. (AAPL) Mac computers, Mr. Elop wants to offer full fledged versions of Office for the Apple iPad, tablets running Google Inc.'s (GOOG) Android, and notebook computers running Google's Chrome OS.  He'd pursue a similar approach for other products such as the Visual Studio development environment.

Windows 8
Windows sales have fallen, but should Microsoft kill the OS and focus on software?  That seems to be Mr. Elop's alleged vision. [Image Source: Reuters]

Furthermore, Mr. Elop reportedly wants to directly sell off some non-software, non-mobile devices business.  Bloomberg elaborates:

Besides emphasizing Office, Elop would be prepared to sell or shut down major businesses to sharpen the company’s focus, the people said. He would consider ending Microsoft’s costly effort to take on Google with its Bing search engine, and would also consider selling healthy businesses such as the Xbox game console if he determined they weren’t critical to the company’s strategy, the people said.

At Nokia, Elop cut 40,000 jobs and reduced operating expenses by 50 percent. While Microsoft doesn’t face the same cost constraints, Elop would probably impose job cuts and belt-tightening to create smaller teams, said the people.

Many nodded in approval of the thought of selling the money losing Bing.  But the idea of selling the Xbox business is much more controversial as it is a unit Microsoft has said is profitable, and at worst is accused of being a "break even" business by critics.

Bing losses
Maybe unloading Bing would be a good idea. [Image Source: Business Insider]

Between breaking an exclusivity -- an approach which to many, would be akin to Microsoft abandoning Windows, its core product -- and the plans to chop off other business units for the auction, the most prevalent reaction at the overall plan appears to be shock.  Some are asking -- is Microsoft "Trojan horsing" itself?

Of course, this report has not been confirmed, and even Bloomberg makes it clear that its sources said Mr. Elop had not finalized his proposed plan to the search committee.

Trojan Horse
Is Microsoft "Trojan horsing" itself? [Image Source: Venitism]

Microsoft's Frank Shaw mocked the report, stating, "We appreciate Bloomberg’s foray into fiction and look forward to future episodes."

However, top Windows blogger Paul Thurrott calls the report "credible" and actually agrees with Mr. Elop's (alleged) controversial plan.  Likewise Paul Ghaffari, manager of Microsoft co-founder Paul Allen's $15B USD portfolio (which includes $2B USD worth of Microsoft stock -- about a 0.6 percent stake) has backed a similar proposal for spinning off Xbox and Bing, a move he says would pump Microsoft's profits by 40 percent, by reducing operating expenses.

He comments:

The search business and even Xbox, which has been a very successful product, are detracting from that. We would want them to focus on their best competencies.  My view is there are some parts of that operation they should probably spin out, get rid of, to focus on the enterprise and focus on the cloud.

Sounds like true or not, some have the same idea Mr. Elop supposedly does for radically transforming Microsoft.

It's worth watching this one carefully, as Stephen Elop does have an uncanny knack for both scoring unlikely positions of power and for chopping up and packaging companies for sale.  Could Microsoft appoint Mr. Elop CEO?  And if it does, would he make the wild decision of leaving the struggling Windows platform to a slow death and unloading major portions of Microsoft's diverse hardware, software, and internet service empire?  We shall wait and see.

Sources: Bloomberg, FT



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This article is over a month old, voting and posting comments is disabled

The downsides of being a public company
By 91TTZ on 11/8/2013 2:53:53 PM , Rating: 3
Some of these "bizarre" moves are quite logical when you think about who is now in control of the company- investors. Investors often think in the short term and don't care about the long-term health of a company. Once investors wrestle control of a company they often steer it to sell itself or break it up and sell off its divisions.

Once this happens the you either need to be content with investors ripping apart your company and killing it for profit, or you can bite the bullet and take it private again. I'd be curious to see whether Gates and Ballmer sit silently on the sidelines or whether they'll make a power play to purchase the company and take it private.




RE: The downsides of being a public company
By mcnabney on 11/8/2013 2:58:47 PM , Rating: 2
MS is way too big to be taken private.


RE: The downsides of being a public company
By Flunk on 11/8/2013 3:36:09 PM , Rating: 2
Not if you totally run it into the ground first!


By retrospooty on 11/8/2013 11:55:46 PM , Rating: 2
MS isn't going anywhere... Virtually the whole business world runs off of their desktop OS, Office suite, and server OS's with zero competitors on the horizon.


RE: The downsides of being a public company
By Varun on 11/8/2013 3:26:38 PM , Rating: 2
I agree with you 100%. Services like Bing and Xbox have longer term goals than what investors want. They want instant profits now even if it means the company will go belly up in the future.

Look at KitKat. It's basically a 100% search app for Google now. How is Microsoft supposed to compete if it sells off the very businesses that compete against these players?


By Guspaz on 11/8/2013 6:10:34 PM , Rating: 2
Well, how long should they keep shovelling money after losing propositions? XBox products have been on the market for 12+ years now, and the division still haven't broken even (the total lifetime revenue from hardware/software/services has not yet surpassed the total money spent). They're also about to launch a new console, which typically digs the hole a lot deeper due to all that up-front investment...

As a platform, XBox has been very successful. But as a financial proposition, it's been an unmitigated disaster.


By rsmech on 11/9/2013 9:21:13 PM , Rating: 3
Can't mark you up but agree there is a difference on what a company wants and investors. Investors want bigger profits even if it means breaking apart a business for those higher returns. Dell was smart in the way that as a business they can make a profit and survive but they can't make the profits investors demand. Dell owners should make a comfortable living without the pressures that would be negative to company's future.


RE: The downsides of being a public company
By phatboye on 11/10/2013 5:51:07 AM , Rating: 2
KitKat isn't a company it is owned by Nestle, the largest food company in the world measured by revenue.


By Varun on 11/11/2013 12:32:44 AM , Rating: 2
LOL did you really just type that?

We're talking about tech here not candy. Please use your favorite search engine to search for "Android 4.4"


RE: The downsides of being a public company
By kleinma on 11/8/2013 5:24:48 PM , Rating: 2
Gates has no interest in returning to Microsoft. Zero. It will never happen. He already plans on reducing his stake in Microsoft to 0 by 2018. That is from being the biggest single shareholder now.

He is much, much more concerned with the ventures he has started since leaving Microsoft. He is not a Steve Jobs, he thinks that he accomplished his personal goal already with microsoft when he set out to put a PC in every home.

Besides, Gates would not be a good fit to lead Microsoft into the future anyway. The things he was brilliant for in terms of Microsoft's rise to dominance are no longer applicable in the market that exists today.


By superstition on 11/11/2013 5:53:49 PM , Rating: 2
A PC that runs a Microsoft OS and software, right? Personal computers were already in homes before even the IBM PC was released -- the Apple II, Commodore VIC-20, TRS-80/CoCo line, Atari 800, et cetera.


By 91TTZ on 11/12/2013 9:23:15 AM , Rating: 2
quote:
Besides, Gates would not be a good fit to lead Microsoft into the future anyway. The things he was brilliant for in terms of Microsoft's rise to dominance are no longer applicable in the market that exists today.


I disagree. I think that's narrow-minded thinking. Bill Gates is a brilliant industrialist. The things he was previously brilliant for are now outdated not because he has lost his vision but rather because he stepped down from an executive role 13 years ago... you just don't see him making any strategic decisions for the company any more (unless he had something to do with Ballmer's firing). But if you watch interviews with him it does seem like he intimately follows the industry and still follows Microsoft's long-term planning.

If you look at his vision when he was there it was obvious that he was able to clearly see the direction the industry was going to take years before it actually happened. Brilliant people can correctly anticipate and plan ahead while those less intelligent can only react when the conditions are upon them. He'd have no problem leading Microsoft again.

But I do agree with you that the desire isn't there to return. He's already accomplished his goal and feels that solving health problems in third world countries is a better use of his time and money.


"You can bet that Sony built a long-term business plan about being successful in Japan and that business plan is crumbling." -- Peter Moore, 24 hours before his Microsoft resignation














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