Microsoft Breakup Won't HappenMicrosoft Breakup Won't Happen

An article at Forbes.com argues that Microsoft might be able to compete better if it broke into smaller companies. It's an interesting thought experiment, but it's not going to happen.It seems crazy that Microsoft would ever entertain the idea of taking a knife to cut apart its own divisions. A little over a decade ago, even the government couldn't work up the courage to implement that solution as a remedy to Microsoft using Windows market share in anti-competitive ways. Although a lot has changed since then, Microsoft is still an important force in the tech world.

One of the article's arguments for breaking up Microsoft is that the company has become too risk-averse and unable to compete effectively. Anyone who has watched Microsoft for the past decade and a half would have trouble arguing with the diagnosis; you just have to compare Microsoft to the success of companies like Google and Apple to see the difference. Yet I don't see a breakup as an effective cure.

Let's think about how Microsoft might be partitioned. One reasonable thought would be to split it based on the current business units: Windows, Server and Tools, Online Services, Business, and Entertainment and Devices. Of those, the best two for standing alone are Business (which includes Azure and Office) and Server and Tools. Even if set free from the mother ship, it's not clear to me that those groups will take more risks. They are by nature rather conservative, just like the large business customers they serve. Most importantly, they have been rather successful and probably don't need radical change.

Entertainment and Devices is focused primarily on consumers, given that it's home for XBox and all the peripherals like mice and keyboards. It also has all of Microsoft's consumer games software titles. The biggest problem I see with this group as a standalone business is that it includes the Windows Phone operating system. If Windows Phone finds favor with any group it seems like it would be large businesses. A mobile device that was focused on business needs might be able to grab market share better than one trying to belatedly compete with Apple and Android for consumer attention.

The two remaining groups, Windows and Online Services, are problematic whether taken together or split apart. The Windows division includes Windows Live and all the web services that are primarily consumer-focused. But let's face it, Windows OS licenses will dominate revenue and distort business plans. In a world where online access through mobile devices is becoming essential, the Windows division will be viewing the world through a lens where most revenue comes from their desktop OS. Compare that to Google, where Android is simply a means to drive people to their online services from all directions. That's a perspective that I can't see this duo adopting, breakup or not.

But again, this is all just idle speculation. The prime reason why a Microsoft breakup won't happen is that Microsoft isn't ready to let it happen. With Steve Ballmer at the helm, the company seems like it hasn't even started step one of a 12-step program to deal with its internal issues.