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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



Comments     Threshold


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

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!


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