What next for Microsoft?

Over the weekend the press were full of talk of Steve Ballmer, the CEO of Microsoft, who has announced his plan to retire next year. This begs the question: what next for the company? Should it revisit the idea of a merger with Yahoo?

Some focused on the somewhat less than gushing terms of the Microsoft release announcing Ballmer’s retirement. Some reckoned they saw hints of a rift between Ballmer and Bill Gates. The two men have been colleagues for decades. By the way, Ballmer was Microsoft’s 30th employee, joining the company in 1980. He became CEO in 2000.

It is not hard to point to what is wrong with Microsoft these days, and as the boss Ballmer will clearly receive most of the blame.

It is not so obvious that things would have been much different if Bill Gates had stayed at the helm. Gates famously failed to predict the rise of the internet, so it is doubtful whether he would have come up with a plan to counter the threat posed by Google, Apple and Facebook.

In fact, you may recall that back in the 1990s Microsoft, led by Bill Gates, and Apple began a joint venture. Some Apple aficionados saw a tie-in with Microsoft as akin to a pact with the devil. Few foresaw a day when Microsoft would be struggling, and living in Apple’s shadow.

But will Microsoft come back?

It is suffering from classic innovators’ dilemma with a little bit of recession to the mean thrown in for good measure. See: The UK’s export-led recovery

The market it has dominated for so long is changing – arguably disappearing – and Microsoft seems to be left plugging technology people no longer want.

It was not always this way. Back in the 1980s, Microsoft learnt how to experiment. To tell the story, we must rewind the clock to 1987. The company had a massive dilemma. It had enjoyed a good run, thanks to DOS, but the world was ready for change. The industry was alive with competitors – many much larger than Microsoft – wanting a slice of the action. Eric Beinhocker tells the story well in his book: ‘The Origin of Wealth’. These days we just assume Microsoft chose to ditch DOS and develop Windows. But it wasn’t as simple as that. It appears that Windows evolved, and a by-product of its development was the failure of most aspects of the Microsoft plan.

In fact, before Windows won through, Microsoft put more resources into beefing up DOS. It entered into a relationship with IBM for the development of OS/2; it held discussions with third parties for products aimed at the Unix market; it bought a big stake in a seller of Unix systems; created software for the Apple market; and, of course, invested in Windows.

By Ballmer’s own admission, Surface was a bet-the-company product, but there was never a need to take such a gamble.

What of the future?

Not so long ago Microsoft tried to buy Yahoo, but the price seemed to be the sticking point. Under  the dotcom seems to be staging something of a renaissance.  Maybe some kind of merger should come back on the agenda, but it’s difficult to see Mayer heading up Microsoft. If, however, she was to head up some kind of joint venture between Microsoft and Yahoo, now that might be more interesting.

© Investment & Business News 2013

Entrepreneurs need to diversify more

‘Seven habits of highly successful people’ was the title of a book published in the late 1980s and seems to have sparked off a trend. Successful people behave in a certain way, so if you behave that way too, you will be successful. But here is something we don’t often consider. How many of these characteristics shared by successful people, are also shared by unsuccessful people?

It depends on what you mean by success of course. But for the sake of this article let’s assume success equates to making a great deal of money.

Maybe what successful people really need is an eighth ingredient, and that ingredient is called luck. You can’t do much about luck; it is after all down to sheer… well to sheer luck. But there is something you can do to ensure fortune favours you. Alas, this is a lesson few entrepreneurs have grasped.

Actually, some successful entrepreneurs seem to have grasped it. Maybe they are trying to appear humble, or likeable, or just plain modest, but many successful people in business admit to luck. They will quite honestly say that if the particular gamble they had taken had not come off, things would have been very different for them.

They might also admit to major mistakes they made in their carrier, or bad judgement calls, but supposing those bad judgment calls were made very early on in their career before they had, as it were, made it? Maybe the difference between a highly creative and hard-working entrepreneur who makes it and one who doesn’t is one of timing. The successful entrepreneurs made the good gambles early on, while the unsuccessful one didn’t.

Bill Gates famously failed to recognise the potential of the Internet. He also admitted to a degree of luck with Microsoft. Supposing his first big business decision was as hopelessly wrong as his judgment over the Internet. Would he still have become the world’s richest man?

Luck is not something to which we like to admit. It is also hard to accept that we are mortal. It is built into us, and for the young especially this is a very hard concept with which to come to terms. But here is something else it is hard to accept; not all our ideas are good, and if we are of an entrepreneurial leaning, not all our ideas will work.

But the narrative to which so many of us cling tells a different story. It tells us that successful people have seven characteristics in common. We hear of life stories, and how key decisions were made, and it is as if fate was working, making one person’s success inevitable. But if fate really does exist, why is it so hard to predict the future? If it was inevitable that someone was going to be successful, why is that so rarely predicted in advance?

The narrative of success only works in hindsight.

The European Flash Barometer once found that around 43 per cent of people in the UK (compared with 19 per cent in the US) believe that a new business should not be created if there is a risk it may fail. The implications of the findings of this survey are absurd. How can Brits really believe that a business should not be formed if there is a chance it might fail? A business that is guaranteed of success is a business that measures success by the most modest of ambitions.

Those 43 per cent of Brits who think a new business should not be created if there is a risk it may fail have fallen for the narrative that success is somehow predictable.

But while entrepreneurs may laugh at the findings of the European Flash Barometer, they themselves are just as guilty. They concede that risk surrounds us, except that they rarely acknowledge that their own business idea is risky; instead they say and appear to believe that it is guaranteed to succeed.

An entrepreneur might say don’t put money in other companies, on the stock market or in investment trusts, invest every penny you have in your own business. Business advisors may advise focus. A venture capital firm might say it is essential that entrepreneurs do not deviate from their core focus; from their business plan.

From the point of view of a venture capital firm, or VC, with diversified investments, it makes sense to urge entrepreneurs to remain focused. A VC may only need a small number of its investments to come off to stay in businesses. A VC with a portfolio of driven entrepreneurs, who put their heart and soul into their business idea, only need luck to smile on some of those entrepreneurs.

But for the individual, who can see the shortcomings in the narrative sold to them by the VC and public perception, will know that at least some diversification might make the difference between a comfortable old age and one spent in poverty.

© Investment & Business News 2013

Microsoft bets the company, but it should have loaded the dice

Windows zzzz. Sorry, must have nodded off there.

Let’s try again. Windows (yes it is possible to say that word without falling asleep) looks a tad bit like yesterday’s news. Now tablets are a different matter; they can cure the headache of many an electronics company and its shareholders.

So Microsoft is now a tablet company. And indeed it’s a hardware company too. Its Windows RT operating system may well turn out to be rather good.

The snag relates to all that legacy. Windows may be a tad dull, but most of us would be just a bit stuck without Word and Excel.

So Windows 8 has backwards compatibility with all that old Microsoft stuff. Presumably, this means that the price you pay for Windows 8 and its backwards compatibility is a slower PC.

But RT, now that’s different. It’s a new operating system and is not being hamstrung by all that baggage.

The new Surface is Microsoft’s attempt to muscle in on the tablet market. It is too early to tell whether the product is any good, or whether it will fly or dive, but credit where it is due, it’s a bold move.

Microsoft’s partners are a little worried. Microsoft is all about producing operating software, and letting its partners worry about the hardware. Sure, the software company moved into games hardware, but that is different. In the world of PCs, Microsoft always has been software, while the likes of Dell and HP focus on hardware.

Now Microsoft has moved onto their turf, so that’s a risk. Of course Microsoft retorts that the Surface is a kind of shop window; it is just trying to trail-blaze a way forward for its partners.

Microsoft’s new operating system is new. One could even say it’s an attempt to start all over again – new hardware, new software. The old PC is not exactly going the way of the Dodo – not yet – but it is tempting to say it is going the way of the Siberian tiger.

The company’s CEO Steve Ballmer admits the new products are vital; that he is effectively risking the company on them.

Then again, Microsoft has been here before. Before there was Windows, there was DOS and that really was dull.

But when DOS appeared to be coming to an end, what did Microsoft do?

Conventional wisdom has it that it ditched DOS and hyped up Windows.

In reality the company experimented. It considered beefing up DOS; it considered working on a new joint venture with IBM or Apple in the Unix market, and even a company sale. Windows was just one of several ideas. The company was lambasted in the media for being too inconsistent, for not having a clear strategy.

Windows evolved in the true Darwinian sense. It was one of many experiments, but it happened to be the one that worked.

Private equity firms don’t like that kind of strategy. They like to see plans stretching into the future and companies that stick to them rigorously.

Luckily for Microsoft, Bill Gates didn’t see things that way and the company flourished.

The problem with these ‘bet the company’ moves is regression to the mean. In the long run companies don’t always perform better than rivals.

Microsoft seems to have forgotten its own lesson.

©2012 Investment and Business News.

Investment and Business News is a succinct, sometimes amusing often thought provoking and always informative email newsletter. Our readers say they look forward to receiving it, and so will you. Sign-up here