[Street.com] Microsoft's Agenda in the Time of Cholera

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From: Linda (joelinda1@home.com)
Date: Wed Jun 07 2000 - 19:27:40 PDT

[Of the glut of articles on MSFT tonight, this one offers a different perspective.


Microsoft's Agenda in the Time of Cholera
By Jim Seymour
Special to TheStreet.com
6/7/00 9:02 PM ET

Most of the commentators are focusing on the predictable in Judge Thomas
Penfield Jackson's final ruling in U.S. v. Microsoft this afternoon:
What's going to happen to the stock price? What's the timeline ahead? When
will this really be concluded?

I want to take a different tack for a minute here: What's really on the plate
for Microsoft (MSFT:Nasdaq - news - boards) right now? What must the company pay
attention to right now? What are the key issues and steps that in the end will
probably affect the stock price more than the appellate courts' handling of
this matter?

Put another way, if you're a Microsoft holder, what are the issues you should be
watching in Microsoft's management of its affairs over the next several months,
as this process marches to a final conclusion?

Here's my little list:

1) Employee Retention: Microsoft has seen a huge exodus of talented
managers over the last couple of years. Until now, most of those departures were
not the result of employees' worries about how the litigation would turn out, but
rather the usual falling away in successful tech businesses today, of people who
really don't have to work anymore. Some are effectively retired now; many more
are out following their entrepreneurial dreams, founding start-ups or enjoying life.
Sometimes, both.

This erosion of the "manager class" at Microsoft is a long-standing and vexing
problem. Years ago, Mike Maples, an old friend of mine who moved a decade ago
from a senior job at IBM (IBM:NYSE - news - boards) to become part of the office
of the president at Microsoft -- the triumvirate that really ran the business for
much of the 1990s -- told me his great line for this: "Microsoft is tough to
manage, because everyone you want to keep is a volunteer."

Exactly. With so many millionaires among the people who built today's Microsoft,
why should they keep coming to work every day? Why not just depart and
pursue those dreams of kayaking in South America, trekking in Katmandu,
photographing in Cuba, becoming a professional bowler -- just four paths Softies I
know have followed in the past few years.

To keep 'em on the ranch, Mike and others in the executive suite had to use a lot
of New Age incentives, from big challenges, lots of authority, exciting projects ...
and, of course, even more options. And a steadily increasing stock price.

With Microsoft trading down to almost half its 52-week high, the fat stock price
part, at least near term, is history. And the number of plum assignments to hot
projects and products may be severely limited while the company keeps a low
profile during appeals.

However "un-final" Jackson's final ruling may prove to be on appeal, there is
palpable concern among many Microsoft people I know about their future at the
company, if not about the future of the company itself.

If the company is divided, almost all say, they want to go with the Office/etc.
company, not stay in the Windows operation. Or just leave.

That's a big, big threat to the continuing success of the company. How Microsoft
rallies the troops now, and keeps doing so over these next few months, is
absolutely critical to the company's future.

Steve Ballmer, Microsoft's CEO and longtime head cheerleader -- a job, I can tell
you, at which he is very, very good -- is in Europe now (bad idea), but will do a
company pep rally by video early Thursday (yes, an effort to recover, but not a
strong one). That's a start.

2) Employee Recruiting: The other side of the coin, in effect, but a very different
problem. Microsoft has always been highly successful at grabbing the best
graduates from Carnegie-Mellon, Canada's University of Waterloo, and other
top computer-science schools. But will they continue to come? With a
bewildering range of other options, including alluring start-ups all over the
technology landscape, many will waltz out to Redmond for the legendary
Microsoft interview process ... then say thanks, but no thanks.

Microsoft not only has to refresh its depleted ranks of middle-and-senior
managers, it must also keep sweeping in new talent to craft its next-generation
products, and the ones after those.

That's going to be very hard now.

3) Pump Out Products: The distraction factor at Microsoft is incredibly high right
now. As a place built around 20-hour days, on maintaining an incredibly intense
focus on finishing and moving new products out the door -- yes, sometimes too
soon and too buggy -- Microsoft relies on the absolute focus and concentration of
its workers.

Now those workers are distracted by stock-price issues and how they will impact
options value; by the threat of a stunning reorganization which may split the
company in two; and by changes in how Microsoft must run its business and its
relationships with many of its customers.

All that, at a time when the packaged-software business is slowly giving way to a
focus on "software-as-service," delivered over the Web. Tough, tough, tough to
manage through that transition while everyone's looking east to Wall Street and
Washington ... and at the empty chairs and cubicles around them.

4) Rebuild OEM Relationships: I don't think we're going to see the PC makers
abandon Microsoft, not by a long shot. Where would they go? To Linux? You're

But now that they have a stronger hand, thanks to the conduct remedies set out
by Judge Jackson -- these parts of the ruling will almost certainly survive the
appeals process because they are based on demonstrated violations of the
Sherman Antitrust Act -- those boxmakers are going to be an unruly crowd.

A real problem for Microsoft is going to be to learn to use the carrot, when the
stick has been the dominant tool.

I think Microsoft can keep it together, and I think it will continue to be a dominant

But these are tough challenges, not always visible from the outside ... and have
nothing to do with legal maneuvering.

Some like to say Microsoft's future is now out of its hands. Phooey. I think its
future is very much in its hands ... but still in some doubt.

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