Awooga, Awooga... Abandon Ship!
What do you do when you find yourself aboard the USS Caine and unable to locate enough fellow deckhands willing to stage a mutiny? Why, abandon ship of course. And that's what MSFT shareholders have been doing - in droves. I wonder if Ballmer is holed up somewhere right now, in front of the Board of Directors, with a scene like this playing out? Okay, maybe not. Must be my excitement over the upcoming Academy Awards talking. Reality is probably more like Alfred E. Neuman's "What, Me Worry?" anyway.
Meanwhile, MSFT shareholders are paying the price - a $73,000,000,000 tab in just the past three months ($85B if you go back to the peak in Oct.). Of course, some of that was the mysterious inability of the stock to hold its rally coming out of the strong earnings report - something that had already gotten my spidey senses tingling and waiting for the inevitable "bad news" shoe to drop. No way anyone knew something was up in advance, right? Like say, YHOO's and MSFT's M&A advisors from Wall Street? But if you want to explain that away as just market related, compare and contrast how HPQ fared in an equally bad environment following their strong report (I'll come back to them later). Then you have the market meltdown itself, which is responsible for a good chunk of the loss. And finally you have the massive fallout from the YHOO deal. A few billion here, another few billion there, $40B+ on top of that, and pretty soon you're talking serious money.
Consider the implications, for a moment, that if I left you with just two clues: "MSFT" and "$27.68" (it actually hit $27.20 intraday), I could be talking about 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, or now 2008. That's right, the stock has hit that level at some point during each of those years. How can anyone still be a CEO with a track record like that? Ballmer is like a small child who, having been told not to put their hand on a hot element, continues to do so anyway. Only in this case, it's our hand that repeatedly gets burned. Or - at the risk of belaboring the point and overextending the child analogy - maybe he's like the teenager who wants money for a home recording studio because he decided on a whim that he's the next Ray, or for a boxing ring in the back yard because he's convinced he's the next Rocky, or for a big-ticket plane to park in the driveway because he watched Top Gun and figures he could be the next Maverick. All of which end up going to waste, due to the subsequent half-assed dedication and limited attention span.
Funnily, this post was originally going to be about how maybe, just maybe, Microsoft was finally getting past the denial stage it has been in for most of this decade, and starting to acknowledge - and even get serious about attempting to fix - its many obvious problems. Now admittedly, you had to make like Andy Dufresne in The Shawshank Redemption and swim through a river of [MSFT executive and pr] crap to get there - truth still being anathema to current management. But there had been a series of moves recently that struck me as atypical: the YHOO bid - no matter how ill-advised (confirming that MSFT's Online efforts have failed miserably), the Danger acquisition - no matter how costly (acknowledging that Windows Mobile is being clobbered by the iPhone in the consumer space and is now at risk to even stay an also-ran in the business market, despite nearly a decade of investment), Ballmer admitting to having had "fits and starts" in the Xbox business (translation: it has been one ginourmous clusterf$k, which looks to be getting worse not better), several executive departures in areas that are all clearly struggling - dare I say some long overdue executive accountability? (I would even have entertained right-sizing the exec ranks, if it wasn't for the fact that they promptly turned around and minted even more VPs via promotions. Gotta keep that agility-sucking "top
500", er... "top 800", er... "top 1000", 1200?, in tact), and finally - gasp! - Ballmer acknowledging that AAPL is kicking MSFT's butt and that they need to do "more to market Windows" (wow, and that only took a few years of AAPL bombarding the public with Windows-bashing ads and increasing their marketshare at MSFT's expense).
FWIW, I attributed all of this to either fear (i.e. MSFT has seen the future and doesn't like the view) or MSFT management finally getting sick of being a punch line for most of this decade - the edge going to the former (not that it much matters if the end result was achieved). But somewhere along the way I started to doubt my entire premise. Maybe I just saw what I wanted to? Which is why you're getting this post instead. After all, what right-thinking management team with problems like those below, would turn around and make a huge offer to buy someone even more screwed up?:
- Vista SP1: The hits just keep coming
- Windows Vista SP1 To Break Apps Just Like Vista Did!
- Wave goodbye to Microsoft’s Windows Anytime Upgrade
- 50 Reasons to Switch from Microsoft Windows to Apple’s Mac OS X
- Microsoft class action suit over Vista approved
- Document format battle takes shape ahead of meeting
- Microsoft: IBM masterminded OOXML failure
- The Smartest Unknown Indian Entrepreneur
- Sony's PS3 overtakes Xbox 360 in US sales
- Microsoft Offers 'Mea Culpa' For XBox Market Share Loss(copping to incompetence in forecasting, apparently being preferable to admitting lack of competitiveness)
- PS3 Outsold Xbox 360 In First 14 Months
- EA predicts 2008 hardware sales, expects PS3 to be on top
- Gaming Consoles: Wii To Dominate Sales This Year, PS3 Next Year
- Xbox failure rate is around 16 per cent and rising
- Lessons from the Death of HD-DVD
- Apple beats Microsoft, Motorola in Q4 phone sales
- Screw Windows Mobile, I'm Getting an iPhone
- For Microsoft: Danger, indeed
- The Spectacular Failure of WinCE and Windows Mobile
- Microsoft rebrands healthcare software as Amalga (Amazing that they didn't go with "Phlegm" instead)
- Microsoft move doesn't solve product-tying issue - EU
- U.K. will investigate Microsoft for consumer rights violations
And that - believe it or not - is just a quick sampling. Wouldn't it be an idea to maybe get your own clearly dysfunctional and threatened house in order first, before embarking on trying to clean up someone else's? Is there any doubt that management's credibility would be higher, and the market would be responding more favorably to the proposed deal currently, if that had been true?
Ballmer, imo, has one opportunity to get things back on track. Given the hostility of the YHOO Board to the offer, the list of good people jumping ship or being pushed, the severance programs being put in place that would add billions more to the cost of this already insanely valued deal, its declining share in search, recession risk in this space broadly, and the clear message being sent by MSFT shareholders, Ballmer should revoke the proposal. Just sail away. Chalk it up as a somewhat successful ramming of an enemy cruiser (even if you had to disable, at least temporarily, a few of your aircraft carriers to do it), and leave them to sink via additional shareholders lawsuits and customer/employee defections. Maybe buy just the parts you really wanted at some future date - for ten cents on the dollar versus a 60% premium - when they're on the block and being sold as scrap. And yes, give up your dreams of blowing up the GOOG battleship anytime soon. Like the Bismark, you let that one get built and sail out of port right under your nose. But instead of chasing it recklessly now, maybe see if you can manage to successfully maneuver your own little destroyer-minesweeper for a change, without taking on water continuously and using shareholder cash to fuel the bilge pumps. Perhaps - and I'm just spit-balling here, like Jack Nicholson in A Few Good Men - use some of those $10B's in R&D every year to actually innovate and say, eventually make battleships obsolete? Oh, and do a mea culpa to all shareholders and set about making the current MSFT the best fighting vessel it can be. 'Cause it sure ain't there currently.
Meanwhile, accepting the Oscar for best CEO is... envelope please - HPQ's Mark Hurd:
It's just that the CEO who may be the best big-company operator in the country is all about making uncomfortable observations that so far have ended up being the right call for his company: Market share isn't the best goal to shoot for; even good businesses need to be examined carefully (especially their cost structures); and strategy and execution trump vision any day of the week.
(Take special note of the "cost structures" and "strategy and execution" parts)
Hurd doesn't talk about the competition.
He boils down the CEO's responsibilities to three tasks: setting strategy (not offering a vision); aligning operations and modeling ways to execute on the strategy; get the best team to help the CEO. "There are a thousand distractions that keep you from doing that," he says. But that's where the focus needs to be.
Pretty clearly, Ballmer has too many "distractions" as it is. The last thing he needs is another super-sized one. That said, will he be smart enough to recognize that and disengage? Sadly, I doubt it. Egos are now involved. So the silver lining is that this decision is big enough and reckless enough that if/when it goes forward, he'll either rule the ocean if it succeeds or be scuttled when it fails. And since we've seen this movie before, odds heavily favor the latter. Let's hope there's enough of the ship left by then to resurrect. Maybe Captain Hurd will be looking for a new berth by then...