Why MS needs to break itself up in order to survive – IDC
An IDC customer bulletin suggests radical breakup would be good for customers and MS. You might not like that...
In among last week's flurry over a claimed DoJ proposal to accept breakup of Microsoft as part of a settlement, an IDC bulletin got a couple of name-checks. The bulletin had been circulated to IDC customers last month, but by happy coincidence had been leaked, apparently by several of those customers, to the press just in time to add fuel to the breakup flames. It remains probable that the DoJ will go for a breakup, but the vehement response to the suggestion from Steve Ballmer, Bill Gates, and the generality of Microsoft PR flacks means - if they're telling the truth, of course - that the proposal will be flatly refused. Despite this, IDC's document deserves further attention, because although the writers themselves accept that it's highly unlikely Microsoft will act on their advice, it's an interesting take on how Microsoft could disentangle itself from the antitrust action and "time warp [itself] into the next millennium with renewed purpose and a shining political patina." The point of the IDC bulletin, really, is not that it's proposing a solution to the antitrust problem but that it's putting forward a strategy that will enable Microsoft to compete and grow in the next decade. The flip side of this is that authors Anthony Picardi and Dan Kusnetzky conclude that the company's current strategy is "reminiscent of the failed strategies of the systems vendors of the late 1980s, and... Microsoft's long-term growth as a software company will ultimately be constrained by this strategy." We shouldn't run away with the view that this means they reckon Microsoft's doomed, but it does suggest that that at least some competitors will tend to do better, and that a flabby and unresponsive Microsoft will begin a long, slow decline. The central reason why IDC thinks this is the case is the monolith of integration. "Microsoft's goal is to own the computing platform and to create barriers to efficient interoperation with its products while also building its own functionality inside the barrier." This isn't a particularly nice way to put it, but it's nicer than some. But customers don't want this: "Customers voted decisively to be freed of single-vendor standards at the beginning of this decade, and the growth and popularity of the Internet and the World Wide Web demonstrate that they are voting to be freed of similar constraints today." It's worth noting here that although Microsoft's control of the desktop strengthened massively during the 90s, the company has so far failed to establish similar ownership of Web infrastructure. The Next Generation Windows Services (NGWS) strategy it announced when Gates resigned could be seen as the next bid to do this, but customers may vote against this as well, for as long as Microsoft tries to swim against the tide. IDC thinks that Microsoft will attempt to settle the case rather than be broken up, but if the DoJ pitches for breakup and won't shift, then settlement is obviously out of the question. In that case, IDC scenario number two, "involuntary breakup after a long appeals process," is the most likely. But during this process Microsoft could quite possibly start to change its mind. "While Microsoft may pursue tactics to maintain itself whole in the short term, the costs of the struggle will steadily increase and the benefits relative to a voluntary breakup scenario will steadily decrease." IDC's recommendation is more radical than the commonly-suggested 'three companies' split, both in terms of the number of companies proposed (five) and in the way those companies would operate and interoperate. Nor do they fit in with the current group structure of Microsoft, which itself follows the fault lines of the three breakup company scenario. Instead, IDC sees the split as being as follows: - Operating systems and middleware - Application development tools, languages and databases - Business and consumer applications - Hardware devices - Content, telecoms and integration services There's clearly scope for leveraging within the first suggested company, but in other areas the segmentation would be more effective in blocking this than the standard three company scenario. For example, the separation of middleware, databases, applications, hardware devices and integration services all into different companies does a fair job of strewing Bob Muglia's current group to the winds. This is clearly entirely contrary to Microsoft's current thinking, but if implemented would mean a radical change of strategy. Which according to IDC is the point. Aside from getting the Feds off the company's back, the split would regenerate Microsoft, and this would be good for the market (nobody said IDC was full of Linux-lovers, OK?): "long term, the value of five highly competitive companies optimising products for different technologies across a much larger base of opportunity (beyond Windows-only markets) will be much higher than that of a single company that is forcing all its products through the same desktop and server operating environment." Because the individual companies wouldn't be dominant, they'd have to ally with other companies, and aim for best-of-breed products in order to grow. They'd have to react to market demand, and they (and Bill Gates' bank balance) would be the better for it. "The resulting products would consist of smaller code bases that were packaged to plug and play with the competition." This would mean smaller code bases and products packaged to plug and play with competing products. The apps division, for example, could react to market demand for a Linux version of Office, rather than being constrained by a Microsoft monolith view of Linux as a competitor, and there would be plenty more such opportunities available. It won't happen, of course - IDC itself rules out immediate voluntary breakup, and these recommendations are far more radical, a seismic blow to the current corporate psyche, than anything the courts are likely to recommend. But if IDC's right about the way Microsoft thinking will change over a period of trench warfare, and as its current strategy becomes less and less viable, then a more devolved and less Windows-centric Microsoft could start to take shape. But in the meantime, things are likely to get messy. The authors conclude: "We believe that Microsoft will act aggressively to prevent any such corporate surgery and rebirth. We believe that Microsoft will make bold statements that it will fight this battle to the bitter end and then it will eventually opt for a settlement that will maintain its power to cost shift, control channels, and build monolithic (bundled) products." They don't specify how Microsoft is going to do this, but given the current state of the antitrust case, it'll be a good trick... ®
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