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Microsoft is fully acknowledging that the traditional software business model is dead with the rise of subscription-based cloud services; “The board is committed to the effective transformation of Microsoft to a successful devices and services company”

And Microsoft Is Giving Up On The Software Business!

HENRY BLODGET AUG. 23, 2013, 9:36 AM 2,357 7

Mario Tama/Getty

Yes, the headline news at Microsoft is that CEO Steve Ballmer is out. But a line lower down in the press release is also startling: “The board is committed to the effective transformation of Microsoft to a successful devices and services company,” one of the company’s board members said.

The effective transformation of Microsoft to a devices and services company.

In other words, Microsoft is fully acknowledging that the model that powered the company for more than 3 decades and made it one of the most powerful and richest companies in the world–sales of software–is effectively dead. That’s big news. Microsoft has used the “devices and services” language before–Steve Ballmer wrote about it in this year’s shareholder letter–but the challenge and magnitude of this transformation is much more profound than most people appreciate. And the idea of Microsoft as a “devices and services company,” especially one led by “devices,” would have been unthinkable only a few years ago. The traditional software model is, in fact, dead–or at least dying–but it’s only recently that Microsoft has acknowledged this so forthrightly. For more than a decade, Microsoft has been transitioning away from one-time sales of packaged software (Windows disks, for example) to multi-year services contracts. This has reduced the company’s dependence on one-time unit sales of personal computers and software licenses and allowed it to build a business in which more of its revenue is recurring. But the transformation of the tech industry from packaged software to services is now moving far beyond mere payment models. Cloud-based services are now supplanting local software installations and licenses across the industry, not just for consumers who use services like Google and Facebook but for massive corporations. And this is forcing Microsoft and other major IT vendors to retool their product architectures, as well as the way they plan, develop, and roll out new product features. Meanwhile, the trend recently re-established by Apple of selling integrated hardware and software devices has forced Microsoft to start building and selling its own integrated gadgets. This is a major transition, too. Continuing to “transform” Microsoft from being a company driven by massive releases of packaged software every few years to a “devices and services” company will not be easy. The company’s struggles in recent years will likely continue for many more years, regardless of who is CEO. But it’s encouraging to see that Microsoft now fully recognizes the challenge it faces. And it’s probably wise for the company to address this challenge with a change right at the top.

Here’s The Letter Steve Ballmer Wrote To Microsoft Employees Explaining Why He’s About To Retire

STEVE KOVACH 49 MINUTES AGO 0

Microsoft announced today that its CEO Steve Ballmer will retire within 12 months.

In the meantime, the company’s board will be on the hunt for a new CEO.

Here’s Ballmer’s open memo to Microsoft employees about why he’s retiring:

I am writing to let you know that I will retire as CEO of Microsoft within the next 12 months, after a successor is chosen. There is never a perfect time for this type of transition, but now is the right time. My original thoughts on timing would have had my retirement happen in the middle of our transformation to a devices and services company focused on empowering customers in the activities they value most. We need a CEO who will be here longer term for this new direction. You can read the press release on Microsoft News Center.

This is a time of important transformation for Microsoft. Our new Senior Leadership team is amazing. The strategy we have generated is first class. Our new organization, which is centered on functions and engineering areas, is right for the opportunities and challenges ahead.

Microsoft is an amazing place. I love this company. I love the way we helped invent and popularize computing and the PC. I love the bigness and boldness of our bets. I love our people and their talent and our willingness to accept and embrace their range of capabilities, including their quirks. I love the way we embrace and work with other companies to change the world and succeed together. I love the breadth and diversity of our customers, from consumer to enterprise, across industries, countries, and people of all backgrounds and age groups.

I am proud of what we have achieved. We have grown from $7.5 million to nearly $78 billion since I joined Microsoft, and we have grown from employing just over 30 people to almost 100,000. I feel good about playing a role in that success and having committed 100 percent emotionally all the way. We have more than 1 billion users and earn a great profit for our shareholders. We have delivered more profit and cash return to shareholders than virtually any other company in history.

I am excited by our mission of empowering the world and believe in our future success. I cherish my Microsoft ownership, and look forward to continuing as one of Microsoft’s largest owners.

This is an emotional and difficult thing for me to do. I take this step in the best interests of the company I love; it is the thing outside of my family and closest friends that matters to me most.

Microsoft has all its best days ahead. Know you are part of the best team in the industry and have the right technology assets. We cannot and will not miss a beat in these transitions. I am focused and driving hard and know I can count on all of you to do the same. Let’s do ourselves proud.

Steve

Here’s Microsoft’s Stock Chart Under The Ballmer Era

STEVEN PERLBERG 36 MINUTES AGO 1,404 4

screen shot 2013-08-23 at 9.55.53 am

Former Microsoft CEO Bill Gates handed the reigns to Steve Ballmer in January 2000. Today, the company announced Ballmer will retire within 12 months, and Microsoft stock has surged on the news. That can’t feel good if you’re Ballmer. Under his 13-year leadership, Microsoft stock has fallen over 40%. Though, Ballmer came in at the peak of the market bubble. He really had nowhere to go but down (the NASDAQ composite is down around 10% over the same time period). And in the last 10 years, the company has also returned billions of dollars to shareholders in buybacks and dividends. Here’s the chart of Microsoft stock during the Ballmer era.

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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