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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.

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.

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: Hmmm...
By amanojaku on 11/8/2013 4:51:52 PM , Rating: 4
and by creating and nurturing a market expectation that an OS actually *was* the bundle
I don't know if I would blame MS for this. Windows wasn't the first OS to include utilities and entertainment applications; UNIX variants came loaded with all sorts of non-OS things long before MS "bloated" Windows. Bloated is in quotes, because you don't have to install all the extra stuff, with the exception of Internet Explorer. And the stuff doesn't run unless you launch it, so the bloat mostly affected disk space.

And recall that most of the world is not technical: if the computer doesn't include a web browser, most people wouldn't know how to get one installed. Remember, there weren't any app stores back then. If it wasn't on a CD, people were helpless, and I don't remember seeing web browser CDs widely distributed other than AOL's.

Anyway, the average person doesn't know what an OS is. Apple released Mavericks, which is about as far from an OS as you can get without false advertising. How many OS features were added to Mavericks?

1) Timer coalescing
2) Multi-display improvements
3) App Nap
4) Compressed memory

How many non-OS (i.e. application or utility) features were added to Mavericks? 15 or more, including social networking integration, iBooks, and Maps. And yet, Mavericks is considered an OS, even though it doesn't even qualify as a dot-release. And the average user is cool with that bundle.

Windows 8 has many improvements over Windows 7, yet most people think it's worse due to two features: the Metro UI, and the lack of a Start Menu. Never mind the improved task manager, file explorer, networking capabilities (including Airplane mode and reduced network consumption if connected to mobile broadband), Hyper-V, Storage Spaces, video performance improvements... The only thing people talk about is how ugly it is, and the lack of apps, bundled or otherwise. Note the distinction between applications, which Windows has a lot of, and apps, which most people are interested in today.
And then to see a possible CEO candidate talking about splitting MS up, in a possibly similar fashion.
Regarding Elop, I have no respect for him as an executive. There are too many failures and not enough wins in his resume. However, I do agree with some of his ideas. MS screwed up by not offering Office for tablets. Let's face it: a tablet is the new PC form factor, and MS isn't selling enough tablets. MS could release Office for tablets and risk losing some desktop licenses, or it could let Apple, Google, etc... improve their own office suites and risk losing everything.

I still don't get Bing; search has never been successful for any company other than Google. Lycos, WebCrawler, AltaVista, Ask Jeeves... all dead or dying. Yahoo still exists largely because of its portal and web hosting.

Killing off or selling XBox is stupid. iPods weren't part of Apple's core business, either, until they started selling millions. Same for iPhones and iPads. Yet, Apple makes more money from music players, phones, and tablets than it does from its formerly-core business. Hence the name change from Apple Computer to Apple, Inc.

MS needs a similar strategy. Continue with Windows (desktop, server, and tablet), Office for all popular desktop and tablet operating systems, and entertainment devices like the Xbox. Killing off Zune and transferring its services to Xbox and Windows Phone was smart. The next step should be integrating the desktop, mobile device, and home entertainment device so that consumers can use software and data consistently across all three. It's working for Apple, and it's one of the few things Apple got right.

The other thing MS needs to continue pursuing is the manufacture of its own hardware. Acer, Dell, HP, etc... have made it pretty clear that they can't produce decent devices without being kicked in the ass. Like I said before, MS produced a tablet, and suddenly a bunch of decent Windows tablets come out from other manufacturers. They cried foul, being unwilling to admit that their products just weren't good enough and would never sell. Surface single-handedly reignited interest in Windows tablets. MS' close partnership with (manipulation of?) Nokia resulted in the best Windows phones to date. The Xbox got past the RROD to compete with the company that killed off Sega's hardware (Sony), and the MS/Sony duopoly are now challenging Nintendo's 30-year dominance. Heck, even MS keyboards and mice were once the best, prompting Logitech to step up its game.

Yeah, MS needs to streamline some operations, but it really needs to expand on others.

RE: Hmmm...
By greenchinesepuck on 11/10/2013 5:26:17 PM , Rating: 2
MS screwed up by not offering Office for tablets
That's total BS, full Office 2013 suite is now bundled with Surface 2 and works quite well, no speed issues, no lag, real fast and fluid PC experience on a tablet. Where are you taking your BS from? Apple Insider or something?

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