Microsoft cutting jobs, but not products
Although Microsoft is cutting jobs, the software maker apparently isn't axing any major products as part of its cost-cutting moves.
On a conference call with analysts Thursday, though, CEO Steve Ballmer defended the company's decision to stick by all of its businesses, even as it looks to cut up to 5,000 jobs.
"I like our portfolio," Ballmer said on the conference call. "The board likes our portfolio," he said, before moving on to the next question.
Microsoft CEO Steve Ballmer
But should they be so pleased?
Microsoft itself acknowledged on the call that it does not have the leading position in several of its emerging businesses. The company makes the bulk of its money from Windows and Office. It also has a server software business that is profitable and fast-growing.
However, the software maker has struggled to attain profitability in its entertainment unit, its cell phone software unit remains small, and its online efforts continue to lose significant money.
Thus far, Microsoft has announced plans to cut only one product, its Windows Live OneCare security service. Even that one will be replaced by a new, free product code-named Morro.
The company apparently isn't cutting any entire products as part of the new cost cuts either, though it did say it would try to better prioritize its investments.
Microsoft's decision not to pare its efforts more significantly--and cut more jobs--clearly disappointed some analysts who were anticipating the software maker to make deeper cuts.
However, Directions on Microsoft analyst Matt Rosoff said he wasn't at all surprised that Microsoft didn't take an ax to more products. The longtime Microsoft watcher said that, as long as Ballmer is CEO, Microsoft is unlikely to pull back from any of its investments in areas such as search, mobile phones, or entertainment.
"That's their modus operandi and it looks like they are going to keep expanding," Rosoff said.
Technology Business Research analyst Allan Krans said that it's just not in Microsoft's nature to give up on a big bet.
Up to this point, Microosft experienced large success in nearly all of its endeavors, Krans said in an e-mail interview. That has provided Microsoft with both the cash it has needed for new businesses, as well as incentive to keep trying.
"Search and Zune are two examples of Microsoft going against extremely well-entrenched leaders in Google and Apple, failing to make any significant headway, and still refusing to give up," Krans said. "IBM is on the opposite end of the spectrum, deciding to exit both the PC and printing business once it became clear that HP would be the market leader. "
Ballmer who often cites the server unit as an example of what can come from such investment, though that effort was closer to Microsoft's core business than some of its more recent pushes.
One of the biggest bets that shows no sign of slowing down is Microsoft's online effort, particularly in search.
"They look at that as a huge opportunity that they missed and they don't want to leave it to one company--Google," Rosoff said.
Rosoff said that even accepting that premise, he sees some areas to cut. One example he cited was all of the Web content Microsoft creates for MSN.
"I think some of their MSN assets, though profitable today, are not a good fit, long term," Rosoff said. "To have a network of content sites just doesn't seem like a core Microsoft businesses today."
Krans said he doesn't expect any big product changes, even online where Microsoft loses money.
"Losses represent less than 10 percent of operating profit for 2008, which Microsoft sees as the price of admission to what could become a substantial market," he said.
As for the scale of the job cuts, it was less than some analysts had been projecting and far less than those seen at other big-name firms. The Seattle Times' Brier Dudley summed it up well.
"Today's cuts aren't a radical transformation of Microsoft," he wrote. "It's a little inpatient liposuction, so the company will fit into the smaller pants it has to wear for a while."
Note: Rosoff is a contributor to the CNET blog network.
During her years at CNET News, Ina Fried has changed beats several times, changed genders once, and covered both of the Pirates of Silicon Valley. These days, most of her attention is focused on Microsoft. E-mail Ina. 
Love to see uninformed comments like this - makes me wonder why people love the heard mentality so much.
Fact is, Windows 7 is a beta product. Vista was a bad product. When a company produces a bad product, and hangs a lot on its success, it will hurt their business.
If Windows 7 is that good, they should be racing it to market.
Agreed. Uniformed comments like yours are alwasy interesting. If the people want XP an already developed OS that works. Sell it to them. If MS wants folks to upgrade give them a reason. Vista wasn't that reason. 7 is nothing more than what Vista should be....IF and only IF it lives up to the hype same as Vista should have done.
@real_bgiel
7 is making the same promises Vista made. Which loses you more credability. Not fixing your bad product or making a new product that "should" fix everthing nobody liked about the last one?
As for Win7. I have a wait and see attitude. I might check it out after service pack 1.
Like it or not, Vista also pushed the hardware envelope. We get more RAM, faster processors, and bigger hard drives largley due to the requirements Vista entailed. Had we suck with XP and the 256mb ram requirement I doubt we would have seen the gains we now have because they wouldn't have been necessary for the general public.
Sounds more like a defeatist attitude to me than wanting to be "more creative."
Are they sure, their customers still do?
Micro$oft seems to put a lot of their eggs into the new 'Windows 7' basket, yet after some research it seems, their new parade horse is just a new cook-up of Vista, the functionality in a nutshell:
Windows7 = winxp + more eye candy + touch screen capability
That's it? You boys in Redmond, got another thing comin' ...
Vista had stability issues for some, driver issues for others, and was just plain slower on the same hardware compared to XP. Right now I am testing Windows 7- it is much more responsive than Vista and offers a few interface and under-the-hood tweaks that make the experience much better.
Windows 7 never promised to be a radical product (I actually think it is what Vista should have been), but to have an OS that is stable, works well, looks decent, and gives us what we need without putting our world upside down is all we really need. Given the favorable reviews I think "7" will get, and how consumers seem to be herded by reviewers and gossip, Windows 7 looks on track to do well.
I believe that this refers to Windows Mobile, is it really a small market?
The lottery forces companies to load up with as many applications as they can, and then claim there is a shortage. End the lottery, and pay to play. See http://www.programmersguild.org/
5000 people laid off... 100,000 employees total. Do the math.
I think your comment is meant to downplay the lay offs based on the 5000 full-time employees, but the announcement and Balmer's eMemo did not address the tens of thousands of vendors, contractors, and job-share part-timers that have been and will be affected. Many of my friends have had their own contracts pre-maturely terminated and/or witnessed co-workers let go around them. The actual manpower impact is far greater than the 'net 3%' number being tossed out. Especially in the Pacific NorthWest this reduction is a huge blow to the economy and disturbing to see major corporations taking advantage of the economy by freezing wages, cutting work force, indenturing it's servants into a life of quiet servitude while thanking their masters for a job in this down time. Meanwhile, none of these companies have touched executive perks and bonuses.
http://i.gizmodo.com/5137795/tragic-casualty-of-microsoft-layoffs-flight-simulator-grounded-forever#viewcomments
They let go just about the entire ACES development team responsible for Flight Simulator, a well known and well followed program. This will bite MS is the proverbial backside if they really intend to allow that franchise to die.
Their Xbox brand going strong. It's still a so much better value than the PS3 and I had both consoles.
As for the Zune, I don't hate it, I don't love it, I just don't need it, I have an iPod for my music.
Yeah, I've heard great things about Windows 7's speed, however, I hope they offer it at a discount to Windows Vista Users, because it really still seems like it's just Vista if they hadn't rushed it out. I also hope they don't offer a whole bunch of different versions of it. I'd pay $140 max for Windows 7 just as I'd pay $140 for the next version of MacOS. If I can't get the Ultimate version or whatever they have as the top tier version for WIndows 7 for that price, then I'm perfectly happy with my Macbook Pro, or maybe I'll just be an OEM version off of one of those pricewatcher websites.
As far as their portfolio, I think the arrogance of Microsoft could lead to larger losses. I need new laptops and just helped a friend buy a new pc. It cost him $99 to downgrade to XP. $99 to DOWNGRADE? I have held off on my own purcases because I HAVE to accept Vista if I buy the units I prefer.
Come on MS (I know you monitor these comments), help your own business and satisfy the needs of your customers. Allow us XP for no more than Vista while we wait for the anticipated Windows 7.
If you do not, Apple could gain the market shares you will lose.
What needs to be cut?
1) Remember the infomercials about a decade ago, "Browse the web from your TV, right on your couch! With Web TV you can". When Microsoft acquired the Web TV IP, they rebranded it MSN TV.
Ten years later, with the rise of Netbooks, and nearly all consumers having on-the-fly access to content and info they are close to, why then is MSN TV still being offered by Microsoft? Cut MSN TV.
2) UMPC, Origami, Tablet PC- Bill Gates very much wanted touch capability to be today's modern marvel. Unfortunately, these acronym laden devices never really caught on. Instead, we have Netbooks, and cheap notebooks. While we can admire Microsoft being a persistent company, it is time for the axe to fall on Origami.
3) Why cut areas when you can easily change them to create long-term income? Microsoft Works, and Office Home and Student Edition are two prime examples. Most value computers include Microsoft Works for a nominal fee. Microsoft a while ago noted that it was in the process of addressing an ad-based Works; If Microsoft could speed up the development for this product, they could easily turn a meager $20~ profit into a perennial. The same can be said with Office Student Edition. In some countries and markets, Microsoft has had critical acclaim and outstanding success with "timed" Office keys. These keys expire after a set amount of time. This is an excellent method to keep users locked-in to a recurring payment, instead of a deflated price on one of the most widely used suites on Earth (Seriously- Office may not be as glamorous as an Apple product, but it is a defining piece of software, charge more for it- even for students.) Offering a hybrid or subscription based Office will help to grow those two areas, while avoiding major cuts.
4) Windows Home Server- the little engine that could. The average household has two computers in their home; Add in to that figure the connected devices (Cellular phones, PDA's, Game Consoles, etc.) and you can understand the need for a home server. Microsoft's XBOX 360 already demonstrates a small sampling of what people from home want. Streaming of media and online content, access to devices that aren't running Windows Mobile, ease of use, and extending the access to partners.
While now may not be the best time to pitch an added appliance in the home, home servers- or similar devices, will gain in popularity sooner rather than later.
Windows Home Server is being pitched as a central hard-drive, back-up terminal, and a way to organize "home media". Microsoft could stop production and promotion of Windows Home Server for now, and push it again when Windows 7 launches. Introduce new ways to connect (Netflix, Blockbuster streaming; Ability to push data to phones and handheld devices; Integration with Windows Live Skydrive and Search- even cache search results on the server for parental control and oversight). These ideas for WHS are just the tip of the ice-berg. If given enough room to grow, and given the right pitch to consumers, Windows Home Server could be a hit.
(SEE PART TWO)
5) Zune. Love it or hate it, many people cant stop talking about it once you bring it up. Is it a drag on earnings? No one but the entertainment division head really knows. But for the lackluster sales Zune has been yielding for Microsoft, it is time to cut the cord. Focus energies on a better alternative to wage war on iPod. Microsoft's "Either with me or against me" mentality has shunned many once long-time partners, especially with the launch of Zune, Microsoft effectively burned bridges for partner support of Janus encrypted WMA media.
How "DO" you kill the leader of music hardware? Join with them. Stop pushing WMA songs, offer MP3 instead, gain the image of a "consumer advocate" company and tout the song integration with iPod. Microsoft cannot "kill" the iPod, rather it is best to ride the wave of success that Apple is paying for.
Tout exclusive content, iPod to WMP functionality and you'll be able to disarm part of the iTunes Store equation. You already have a partnership with Universal Media, one of the largest media conglomerates, use that to your advantage Ballmer. In forcing your way into the iPod/iTunes camp directly, you'll be much more able to wage war- and stop the stagnant drain that is Zune.
6) Online is this decades' battleground. Google has put it's flag on the search mountain, Yahoo! has laid claim to mail and display ads. Microsoft, with Live is doing a "well enough" job at trying to connect the desktop with the web. Windows 7, and it's application-less nature will drive traffic to Windows Live for applications such as photo editing and messenger products. This will be a great time to drive Windows Live and search. Cut back your aggressive spending in search and promotions- you CAN NOT buy loyalty. This is a waste of money and has been a void for your online spending. While you have lost market share year-over-year, Google is growing. Perfect your product. Google is not paying people to search, nor is it bribing people. Google built it's reputation on openness, and reliability.
Continually challenge them with a product worthy of the Microsoft logo, instead of some pathetic "Me too!" effort. We expect better from the software king. Spend less, innovate more, and dare I say it- take cues from Yahoo! and Google. Live is going to be great, and potentially will pave the way for exponential profit- if well managed.
While many of my ideas are future-forward, they also help Microsoft to make cuts sensibly, while preserving areas that have the potential to yield great profits down the road. Much like Ballmer noted, this is an industry "reset". You don't get many of them, but when you do- you are given the chance to change your business to better adapt to trends and needs of those that you serve.
- by Goff256 February 10, 2009 9:03 PM PST
- I'm shocked at how many people are quick to say Vista sucks. I'll agree... it sucked before SP1, it sucked on my Dell from 2001, but when I got the new computer? EXCELLENT. Hell, it wasn't even new, it was a cheapo from Wal-Mart. I have no driver issues, no compatibility issues for my programs, no issues with my specs. I could go on, but I think I'll just respond to what some of you said.
- Like this Reply to this comment
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(30 Comments)by jtjt145:
Blah blah blah, Windows 7 is X + stuff. YAY I R CLEVER
No, and let me repeat what somebody else said. It is Vista + even more stability + more efficient + redone tools + better taskbar. Aside from that, what would you call Mac 10.4-10.5? Tiger+some stuff?
by AppleRocks1963:
I love Macs, watch me make out with one
Alright, this isn't about Vista... it's just funny. Windows is the new IBM? Are you talking about their huge OS share making them irrelevant? Their browser share maybe? I dunno, I'm seein those numbers as "relevant"
by yacahuma January 22, 2009 6:42 PM PST
Vista was just the realization of what everyone knew, and that is how much MS lost touch with its users. MS mess everything up. I, like many others, refused to buy a new machine loaded with Vista. I like many others bought a Mac.
Everyone knows that? Is that why people buy Vista, and given a choice most of them stick with it? I remember reading about a 30% "downgrade". Maybe you're just more hip than they are. As for you buying a Mac? Have fun with that, I hope you really enjoy it. The rest of us, the people who don't spend 3k on their computers, will have to deal with Vista... something that works. Not to say OSX doesn't, just not on my 500$ machine. Worst case scenario? I have to buy more ram, a new graphics card, or possibly a new Hard Drive. I'm sure I'll spend 2500 on those though, right?