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Enterprise Software

Do Microsoft Earnings Call for Co-CEOs?

Do Microsoft Earnings Call for Co-CEOs?
October 25, 2013 10:25AM

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Redmond should probably consider bringing in heavy-hitters on the enterprise IT side and the consumer side in an effort to drive sustained growth on both sides of the corporate fence. Although Microsoft probably isn't considering co-CEOs to replace retiring chief Steve Ballmer, it’s almost certainly a prudent route.

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Call it the Tale of Two Companies. Microsoft announced revenue of $18.53 billion for the quarter ended September 30, 2013. Net income was $5.24 billion. But how Microsoft drove those numbers gives the appearance of two companies operating inside one brand, with one far outshining the other.

Specifically, commercial revenue grew 10 percent to $11.2 billion while devices and consumer revenue grew 4 percent to $7.46 billion. Windows OEM revenue declined 7 percent on the consumer side while Surface revenue growth was a paltry $400 million. Microsoft is still painting a pretty picture, but is it time to change the paradigm of the C suite to balance the company’s growth?

“Our devices and services transformation is progressing and we are launching a wide range of compelling products and experiences this fall for both business and consumers,” said Steve Ballmer, chief executive officer at Microsoft. “Our new commercial services will help us continue to outgrow the enterprise market, and we are seeing lots of consumer excitement for Xbox One, Surface 2 and Surface Pro 2, and the full spectrum of Windows 8.1 and Windows Phone devices.”

The Nature of the Beast

We caught up with Rob Enderle, principal analyst at The Enderle Group, to get his take on the bifurcation of Microsoft and what the company should consider as it seeks a new CEO. He told us with a blended company like Microsoft there are going to be units that perform and units that don’t.

“Microsoft is one of the few companies that tries to do both enterprise and consumer business and virtually nobody is doing both well. It’s a black and white choice,” Enderle said. “You pick one and focus on it and whichever one you aren’t focusing on performs poorly.”

As Enderle sees it, fixing that problem isn’t just a Microsoft issue -- it's an issue for any company that tries to operate with Redmond’s breadth. He reminds us that Apple’s venture into the enterprise was one of Steve Jobs’ few failures during his last decade running the company. He called it the nature of the beast: it’s difficult to address both audiences successfully because they are just so different.

Breaking Up Is Hard to Do

With that in mind, should Microsoft consider the co-CEO model and bring in heavy-hitters on the enterprise and consumer side in an effort to drive sustained growth on both sides of the corporate fence? Enderle said he doesn’t think that’s the plan but it’s probably a prudent route.

“Both markets are unique enough and the companies that do well in both -- with Apple doing well in consumer and IBM doing well in the enterprise -- are focused on those specific markets. IBM didn’t do well in consumer and Apple never did well in IT,” Enderle said.

“So it showcases that if you are going to try to do both you need executive management that’s focused on the particular market and have the agencies underneath them to make that work. Given that example, Microsoft almost needs to turn into two companies,” he added.

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