Today, Microsoft doomed its Entertainment and Devices division to failure, in a sudden shake-up removing key creative leaders. Timing is simply terrible. Microsoft is engaged in a pitched battle with Apple and Google in several strategic entertainment and mobile categories. It’s like Microsoft changed generals on the eve of a major and quite possibly war-outcome-defining engagement.
Out are Robbie Bach, president of the Entertainment and Devices division, and J Allard, Microsoft’s Apple Jony Ive wannabe. In expanded roles: Andrew Lees, senior veep of the Mobile Communications Business, and Don Mattrick, senior veep of E&D’s Interactive Entertainment Business. Bach will stay on through autumn in an advisory role, but the move leaves one of Microsoft’s five major business units without a president. Allard is leaving. Period. Although Microsoft claims he will remain in an advisory role to CEO Steve Ballmer.
The question to ask: Are Allard and Bach creative bozos who failed Microsoft’s consumer strategy or are they creative visionaries crushed by the Office-Windows machine? I think the answer lies somewhere between, with the latter being more reason than the other. Allard is clearly some kind of casualty. Bach is quoted in Microsoft’s press release. Allard is not.
Last week, Mary Jo Foley asked: “Where in the world is J Allard?” Foley’s sources indicated that Allard and Ballmer had a falling out over Courier, Microsoft’s long-rumored tablet. Nearly a month ago, Microsoft confirmed Courier’s existence and cancelled it in the same statement. At the time I wondered: “Why confirm something exists only to kill it?” Microsoft could have quietly pulled the plug, unless there was something else going on behind the scenes — like the alleged Allard-Ballmer scuffle.
Somebody did right by silencing Courier, which two-panel design simply made no sense. It’s not rocket science to see the usability problems and potential high manufacturing/component costs associated with a two-touchscreen design, particularly compared against Apple’s iPad, which appeal is simpler single-slate design and reasonably low purchase price. How could Microsoft conceivably offer a two-panel tablet for 9? If Allard was too attached to Courier, he has lost his creative mind.
Then there is Robbie Bach, who really can’t be blamed for many of Entertainment and Devices division’s problems. Ballmer made the decision to launch Xbox as a money-losing product designed to steal market share away from Nintendo and Sony. That strategy worked. But the division never really left the pattern of generating loads of revenue with little return profit. For example, during fiscal 2009, E&D generated 9 million operating income from .76 billion in revenue.
The division also was charged with pushing Microsoft products into the living room, a strategy that has repeatedly failed. While Xbox succeeded, other products did not. Windows Media Center stuck in a niche, which is unsurprising giving the advantages of incumbents, mainly cable and teleco providers; they built DVR and on-demand services into their set-top boxes. Last week, Google announced Google TV, which surely wasn’t received well among Microsoft’s upper echelons. Is Google TV perhaps a catalyst driving the reorg?
Microsoft’s mobile device strategy is the Britannic torpedoed. Research in Motion has consistently gained mobile market share, despite Microsoft’s push-mail and other push-service efforts. Meanwhile Apple and Google storm the smartphone markets. Windows Mobile worldwide smartphone OS market share dropped to 6.8 percent in first quarter down from 10.2 percent a year earlier. Windows Mobile ranked fifth, behind iPhone OS (third) and Android (fourth). Meanwhile the catch-up strategy isn’t looking great. Reviewers generally panned Microsoft’s two KIN phones, which debuted earlier this month. Windows Phone 7 will come to market too late. Android phone sales are tracking to be 9 million units per quarter and rising, about the same as iPhone. Windows Mobile is stuck in the 3.7 million range.
For years, Microsoft has talked up a three-screen strategy: Windows PC, TV and mobile phone. The company has real success with PCs, reasonably good success with game consoles and near failure with mobile phones. Even where there is success there’s no real synchronicity.
Given Microsoft’s meager mobile and three-screen advancements, Lees’ performance should be questioned as much as Allard’s or Bach’s. If the old blood is so bad, where’s the life-reviving transfusion? On July 1, Lees will report directly to Ballmer, who views the world in enterprise business-shaded glasses. In December, I explained how Microsoft had lost its consumer edge, as the company shifts more resources to enterprise products leveraged off Office, Windows and Windows Server. Before assuming his Mobile Communications Business role in February 2008, Lees worked on Server and Tools division sales. Entertainment and Devices needs something more consumer not something corporate.
Then there is the entertainment product horizon. Microsoft just launched KIN, Windows Phone 7 is coming in autumn, Project Natal also is due in autumn and Windows Live Wave 4 is just beginning its rollout. Microsoft mixes it up with another leadership shakeup. Microsoft made E&D organizational changes in January 2010 and February 2009 — at least those are the ones I remember. How many more will there be?
By the bean counter’s measure, Entertainment and Devices is a failure; the profits aren’t there. But from a creative and new market perspectives, E&D is a colossal success. The division opened new markets after many earlier failed attempts to push beyond Office and Windows.
Today’s reorganization announcement is the bloodletting of Microsoft key creatives, while replacing them with an incomplete organizational structure too closely tied to the old monopoly leadership. For anyone thinking things were bad, they’re about to get worse.