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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: I agree with Elop
By Tony Swash on 11/10/2013 6:56:40 PM , Rating: 1
quote:
You suggest MS to drop the new developing markets because they can't do good job in there yet. Ballmer suggests MS not to drop these markets but instead learn how the things are done in them.


How long will it take Microsoft to 'learn' how to make a profit out of Bing? And if it ever does how much profit can it make at the cost of how many billions of investment?

How can Microsoft 'learn' how to make sizable profits from selling it's own gaming console when nobody selling gaming consoles makes profits in any quantity?

How can Microsoft 'learn' how to make money in any quantity from mobile phone OS licenses when it is competing with two huge incumbents in Android and iOS that are free? I cannot imagine any circumstances in which Microsoft can make sizeable profits from selling mobile device software licenses, can you?

I am just suggesting that dropping all those non-profit making lines of business, products that occupy a huge amount of Microsoft's time and capital, could improve and secure Microsofts business performance. Remember when Jobs came back to Apple, the first thing he did was was slash numerous projects, many very large and very high profile, and refocus Apple on it's core business. That's what Microsoft needs to do. In some ways Microsoft's sprawling and nonsensical product lines reminds me of Apple at it's worst in the 1990s. Unfortunately for Microsoft it's legacy products are still very profitable so it hasn't had, yet, a near death experience like the one Apple had and that may mean it won't bite the bullet and start the painful product amputations that are needed to prevent a continuing slide into irrelevance.


RE: I agree with Elop
By greenchinesepuck on 11/11/2013 1:07:29 AM , Rating: 2
quote:
How long will it take Microsoft to 'learn' how to make a profit out of Bing? And if it ever does how much profit can it make at the cost of how many billions of investment?
What's the point in giving up and leaving 100% of the search market to Google? Why would MS benefit from giving up and ceding all the potential market share in tablets and phones to Google? Isn't it better to try and put up a fight instead of immediately giving up just because they can't get profits immediately, like in the first year or so?
quote:
How can Microsoft 'learn' how to make sizable profits from selling it's own gaming console when nobody selling gaming consoles makes profits in any quantity?
If no one has any profits from consoles, then why would three big companies (Sony, MS and Nintendo) fight for dominance in console market for so many years? Are you saying that you, Tony, are the only smart guy here and these three big companies are all idiots?
quote:
How can Microsoft 'learn' how to make money in any quantity from mobile phone OS licenses when it is competing with two huge incumbents in Android and iOS that are free?
Why can't MS learn how to include their own OS for free with their own phones and tablets, just like Google and Apple do?
quote:
I cannot imagine any circumstances in which Microsoft can make sizeable profits from selling mobile device software licenses, can you?
No, I can't, and we both know they won't sell licenses for the mobile OS, this business model is dead from the start because Android is free, but why can't they sell their own devices with bundled free Windows instead? Their tablets are the beginning of that new era of MS selling DEVICES, not just SOFTWARE. Their purchase of Nokia clearly signals EVEN MORE about this. Did you even understand why they bought Nokia? Come on Tony, you can't be THAT dumb to not understand their motives about Nokia, now can you? ;)
quote:
dropping all those non-profit making lines of business, products that occupy a huge amount of Microsoft's time and capital, could improve and secure Microsoft's business performance
Well, what happens when desktop Windows is finally dead? Bringing Office for Windows down with it. This is inevitable, and you know it. What will they do then? If they invest in new lines of business like Xbox (which turns into powerful all purpose home entertainment hub, not just simple gaming-only device like 10 years ago), Surface, RT, Nokia phones, Bing - they MAY have a line of businesses integrated with each other and offering full suite of devices and services, not worse quality wise than Google's for example. Then they have some chance at surviving.

You, however, tell them "hey guys, don't worry about the future, don't invest in it, you have Windows that it profitable NOW - so focus JUST ON WINDOWS, do NOT invest in any future products that can't be profitable right NOW"

You know what? Jobs would kick you out of Apple if you were working there under him. He was investing for many many years in some expensive and quite risky projects, like iPod, iTunes, iPhone and iPad. There was no way he could predict these products would be hits or misses.

Now imagine smart ass Tony coming to Jobs's office and telling him "dude why waste $$$ on this stupid iPod when we have Macs, let's focus on MacOS man, this is THE way to get profits! froget about iPod, stop investing in the projects with uncertain future!"

He'd kick you out right there and I'd kick your stupid ass there second time if I were standing at the exit door hehe :P Seriously!


RE: I agree with Elop
By greenchinesepuck on 11/11/2013 1:28:16 AM , Rating: 2
quote:
How long will it take Microsoft to 'learn' how to make a profit out of Bing? And if it ever does how much profit can it make at the cost of how many billions of investment?
According to the same analysis of yours, Apple should sack everyone working on OS X, iWork, and iOS. After all, these three products are all given away for free. Apple has even warned that giving away the software is going to cut revenue by $0.9 billion. Software development at Apple is a money pit!!! Oh gosh!! :)))

Of course, nobody (except you Tony :P) would actually make such an argument, because they would recognize that even if OS X, iOS, and iWork are not monetized directly, they still provide value to Apple as a whole.

Situation with Bing is exactly the same.

Data-driven services are becoming integrated operating system features. The best shipping example of this is probably Google Now, on Android. Google Now integrates data from a range of sources—both personal data, such as appointments and historic searches, and public data, such as sports results, traffic, route finding, and so on—to provide useful and relevant information proactively.

So, for example, Google Now will tell you that you'll have to leave now to get to your next meeting on time, given the current traffic, or that the exchange rate is exactly £1.00 : $1.60 when you're in London on holiday, or that you'd better pack an umbrella because it's probably going to rain today.

Apple's Siri is similarly data-driven, though arguably substantially less integrated.

These kinds of integrated services are increasingly important parts of modern operating systems, especially on highly mobile (and highly personal) smartphones and tablets.

Microsoft doesn't yet have anything as extensive as Google Now or Siri in its operating systems, but the company has started down that same path. Windows 8.1 search feature uses Bing to provide meaningful, structured search results. Bing also powers a number of apps, such as News and Weather. Windows Phone has extensive localized search capabilities, as befits a smartphone platform.

As these services become richer and more important, Bing will, accordingly, become more important. This infrastructural role may not be immediately reflected on the balance sheet, but it's an essential strategic investment. Bing is embedded into Microsoft's products. It can't be yanked out and sold.

Here, your stupid analysis thoroughly debunked. Enjoy! haha


RE: I agree with Elop
By Tony Swash on 11/11/2013 1:04:17 PM , Rating: 2
Why does Microsoft have to be in the search business? Especially as they don't seem to be able to make any money from it. What unique advantages does Bing bring to any other Microsoft product?

As for consoles - all console maker are skating to where the puck was and not where it is going to be. Does anybody really think anymore that big powerful, dedicated computers permanently attached to TVs are the way to win the living room. After Chromecast and Apple TV? Console brans like Xbox and Playstation are lucky to sell 100 million devices over many years years, smart phones and tablets are close to selling that number in a month.

As for Microsoft making a transition to making healthy and substantial profits from selling integrated hardware, I fear they will find that fiendishly difficulty to carry off.

Your arguments about the threats to Microsoft's legacy business and the need to move beyond it are correct. Microsoft was a giant software company making huge markups selling vast amounts of costly software. Now in a matter of years the value of software has collapsed. Microsoft needs to innovate it's way out of it's impasses, it's just that Bing, Xbox, Windows 8 and Windows Phone are not the route to future success just millstones dragging the company down.


RE: I agree with Elop
By greenchinesepuck on 11/11/2013 1:47:40 PM , Rating: 2
quote:
Why does Microsoft have to be in the search business? Especially as they don't seem to be able to make any money from it. What unique advantages does Bing bring to any other Microsoft product?
Data-driven services are becoming integrated operating system features. The best shipping example of this is probably Google Now, on Android. Google Now integrates data from a range of sources—both personal data, such as appointments and historic searches, and public data, such as sports results, traffic, route finding, and so on—to provide useful and relevant information proactively.

So, for example, Google Now will tell you that you'll have to leave now to get to your next meeting on time, given the current traffic, or that the exchange rate is exactly £1.00 : $1.60 when you're in London on holiday, or that you'd better pack an umbrella because it's probably going to rain today.

Apple's Siri is similarly data-driven, though arguably substantially less integrated.

These kinds of integrated services are increasingly important parts of modern operating systems, especially on highly mobile (and highly personal) smartphones and tablets.

Microsoft doesn't yet have anything as extensive as Google Now or Siri in its operating systems, but the company has started down that same path. Windows 8.1 search feature uses Bing to provide meaningful, structured search results. Bing also powers a number of apps, such as News and Weather. Windows Phone has extensive localized search capabilities, as befits a smartphone platform.

As these services become richer and more important, Bing will, accordingly, become more important. This infrastructural role may not be immediately reflected on the balance sheet, but it's an essential strategic investment. Bing is embedded into Microsoft's products. It can't be yanked out and sold.

Did it answer your question, no? If not, what points you still don't understand?


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