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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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RE: he's crazy!!
By Reclaimer77 on 11/8/2013 4:30:51 PM , Rating: 4
If it wasn't for the OS and office business that Gates built, Balmer would have ruined Microsoft.

We can count on one hand his successes that didn't involve standing on Gates shoulders.

And he even managed to screw up Windows. Seriously, all you have to do to ensure Windows dominance is release iterative versions and build on everything that's already great. How can you possibly F that up? Well he found a way with Windows 8.

Sure, Balmer did a "good" job, but for a company like Microsoft good isn't good enough.


RE: he's crazy!!
By Reclaimer77 on 11/8/2013 4:46:46 PM , Rating: 2
Two of the biggest head scratchers under Balmer:

1. Skype Purchase:

So they massively overpaid for Skype and nobody is sure why to this day. There appears to be no long term goal or strategy involved. It hasn't made them any money or gained them market presence.

1. Bing:

What's the point? Why exactly does Microsoft need a search engine again? All it's done is lost them billions of dollars since day one.


RE: he's crazy!!
By kleinma on 11/8/2013 5:17:38 PM , Rating: 2
Why does google need a search engine? Answer that question and you will answer your own...


RE: he's crazy!!
By YearOfTheDingo on 11/8/2013 6:17:44 PM , Rating: 2
Google search engine makes money. Lots and lots of money. Bing doesn't. The unit not only loses money on its own, it's also connected with the disastrous acquisition of aQuantive, which cost Microsoft $6 billion.

The failure to build a viable online business really dates to the original Microsoft Network (circa 1995). At some point you just got to admit that you can't do it. I would fork Bing along with MSN to Yahoo in return for some shares. Having someone else be a strong competitor to Google's online business is worth more strategically to Microsoft than the current futile effort.


RE: he's crazy!!
By inighthawki on 11/8/2013 10:32:54 PM , Rating: 5
Bing doesn't make money because it currently has a significantly smaller marketshare.

But remember that having your own search engine has more advantages than just a website that searches the internet and generate ad revenue. If you integrate it as a core service in other products, it becomes a pretty first class product that is hard to calculate the direct value of, since it's true value is a sum of the value it's added to other products.

Take for example visual studio. As an IDE it's really good, but it also adds value to Windows since people will invest more heavily in Windows development. The end result is that more copies of Windows are sold, yet Visual studio does not get credit for this improvement in sales, since it's pretty much impossible to calculate the direct impact.

The same holds true for products like Bing. Although Bing directly has lost money, it has been used to invest and improve other products. By how much? Maybe a lot, maybe almost nothing.

Google also provides similar functionality by extending their search engine to different apps, as well as Android integration. Microsoft could arguably have used Google as their primary service, but occasionally you run into licensing and legal conflicts while using a competitors products.


RE: he's crazy!!
By Reclaimer77 on 11/9/2013 9:18:07 AM , Rating: 1
Microsoft's core business is Windows. Yet they can't integrate everything into Windows because they'll get smacked with anti-trust accusations. If not here then certainly in the EU.

quote:
Although Bing directly has lost money, it has been used to invest and improve other products.


Like which ones? Even Windows Phone users prefer Google over Bing. Microsoft is desperate to state otherwise, but hard data shows the facts.


RE: he's crazy!!
By YearOfTheDingo on 11/9/2013 10:28:09 AM , Rating: 2
That's not the kind of integration end-users want anyway. They hate it, in fact. I have not met a single soul who actually likes the search integration in Ubuntu Dash.


RE: he's crazy!!
By kleinma on 11/9/2013 12:07:45 PM , Rating: 2
I am a windows phone user and I use bing, so thanks for speaking for me, but you couldn't be more wrong.


RE: he's crazy!!
By Reclaimer77 on 11/9/2013 2:55:33 PM , Rating: 1
Nobody is speaking for you. But you're just one person.


RE: he's crazy!!
By inighthawki on 11/9/2013 5:05:55 PM , Rating: 3
quote:
But you're just one person.
And so are you unless you cite a source that shows otherwise ;)

I for one have a windows phone and find that bing and google provide nearly similar enough results that I find the direct integration of bing as the search provider to be far more convenient than trying to find a google app or go to their website.


RE: he's crazy!!
By YearOfTheDingo on 11/9/2013 9:30:40 PM , Rating: 2
I'm a WP user and I'd readily confirm that Bing does a adequate job. It's doubtful many WP users goes through the trouble of using a different search engine. Then again, that's damning by faint praise. When you're a challenger you have to do better than the incumbent. Can you come up with any area where Bing does better than Google? The only thing I can think of is that there's less advertisement. But that's just a function of it being a failure from a business perspective.

And I have to say, Bing Map is a net negative on Nokia phones. It sucks and it always pops up when what I want is the Nokia app.


RE: he's crazy!!
By Reclaimer77 on 11/10/2013 9:19:53 AM , Rating: 2
I know Cortana is "on the way", whenever, but Windows Phone is severely lacking in online services integration. Bing isn't an essential part of the WP experience until they can integrate it in the way that Google Now integrates itself into Android.

I'm taking my gf to see the Thor movie today (yeah yeah laugh it up), here is what Google Now will do for me: includes the latest movie ratings from Rotten Tomatoes, helping me pick the right movie. It lets me purchase tickets through Fandango. It reminds me when I need to leave for the theater. And it displays my e-tickets for the movie once I arrive at the theater.

ALL through the Google Now "movies" card!

The lack of that kind of deep online service integration makes Bing and Windows Phone look stale by comparison. Cortana needs to come and come soon, and she better bring her A game.


RE: he's crazy!!
By althaz on 11/10/2013 5:04:12 PM , Rating: 2
This is the first post you've ever made on any subject that has been worth reading. Well done!


RE: he's crazy!!
By inighthawki on 11/9/2013 2:55:43 PM , Rating: 2
quote:
Like which ones?

Well Windows Phones search features are powered by bing. The web search, music search, visual search, voice search etc. Windows 8.1's universal search is now powered by the Bing backend. Xbox one is also powered by Bing.

All I'm trying to point out really is that Bing is more of a service that other products can leverage, and not so much of a standalone product. Most people think of it as just a web search engine, but it is used for more than that, and that it's hard to calculate the value of something like that, since it's more than just "how many people went to bing.com today versus google.com?"


RE: he's crazy!!
By YearOfTheDingo on 11/9/2013 10:14:54 AM , Rating: 2
"It's not a failure. It's part of our long-term strategy." That excuse is really sort of wearing thin. There is no obvious synergy between internet search and what Microsoft's core business. If there were, you wouldn't have to resort to an analogy to explain it.


RE: he's crazy!!
By Varun on 11/9/2013 4:24:01 PM , Rating: 3
I'd disagree completely. Under Balmer we've had the following billion dollar businesses (source ZDNet):
•Windows (which also, up until now, included Surface, which contributed $853 million to the total in fiscal 2013)
•Windows Server
•Windows Azure
•Office (client)
•Xbox
•SQL Server
•System Center (client and server both, so includes Windows Intune)
•SharePoint
•Visual Studio
•Dynamics (CRM and ERP)
•Online Advertising (search and display both)
•Office 365
•Client-access license (CAL) suites (formerly known as desktop access)
•Enterprise Services (including consulting)
•Enterprise communication business (Exchange plus Lync)

Gates laid the foundation for some of these, no doubt there, but under Ballmer there are some pretty big name pieces of the Microsoft revenue chart. SharePoint, Office 365, Enterprise communications, etc etc.

Windows Server, which was around in the days of Gates, grew to dominate the market under Ballmer. All of the cloud services were under Ballmer.

As much as people say Microsoft is always behind the curve, it's not true on cloud services. Amazon is their only real competition there and Microsoft has some excellent pieces now available, but they also expanded all of those cloud services to the consumer, which is something none of their competition has in place. AWS is not for the consumer, and Google's stuff is not for the enterprise.

I'm excited to see what a new CEO can bring to the company but I honestly doubt there will be any significant changes to the operations (especially since they've just announced the Devices and Services re-org). The CEO answers to the board, and the board is still going to be run by Gates and Ballmer.


RE: he's crazy!!
By rsmech on 11/9/2013 5:20:17 PM , Rating: 1
If there were no OS are Office there would be no Microsoft. Your point is silly.

If Google didn't have a search engine I'm sure they would be screwed up also.

Get over Windows 8, you still have 7. I didn't cry when I kept XP over Vista. I liked XP so if Vista didn't work for me I didn't cry all the time about how I didn't get what I wanted. Keep 7 and relax.


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