Microsoft's eliminations of a number of experimental and legacy programs and services throughout 2009 suggest that the company is seeking to consolidate around core products such as the upcoming Windows 7 operating system and Office 2010 during a time in which its revenues have dipped due to the recession. An analyst suggests that Microsoft's eliminated products were unsuccessful attempts to penetrate new markets.
recent cuts of applications and services suggest not only that the recession is
having an effect on the company's bottom line, but also that Microsoft has a
larger corporate strategy of retrenching and focusing on core products such as
the upcoming Windows 7 operating system and Office 2010.
Many of the programs and services in question found themselves eliminated in
the first few months of 2009, as the recession deepened; among those cut were
Soapbox-Microsoft's YouTube competitor-and a few long-running legacy programs.
Given how many of the programs were more experimental and niche-oriented, the
cuts suggest that Microsoft is culling unsuccessful attempts to penetrate new
areas in order to focus on its traditional strengths.
On Aug. 9, Microsoft announced that it had closed a deal with French
advertising agency Publicis Groupe to sell Razorfish, its digital marketing
agency, for $530 million in cash and stock. Microsoft had originally acquired
Razorfish as part of its $6 billion acquisition of aQuantive in 2007, back when
Microsoft was looking to build a substantive online advertising platform. The
advertising and publishing tools bundled with aQuantive included DrivePM, which
matched ad campaigns to publisher inventory.
"We are grateful for the contributions that Razorfish has made to our
online advertising business since joining the company," Microsoft CEO
Steve Ballmer said in a statement announcing the deal. "We look forward to
continuing to work with Razorfish as one of our agencies."
The deal gives Microsoft access to Publicis Groupe clients, offering them
display and search advertising "on favorable terms" for a five-year
period. More to the point, Razorfish may have found itself a misfit in the
Microsoft stable after the latter's deal with Yahoo, which resulted in Yahoo
operating the worldwide sales force for both companies' search advertisers.
The Microsoft-Yahoo deal came together as both companies found themselves in
a desperate battle with Google for U.S.
search engine market share. According to one research report, Microsoft's Bing
and Yahoo found themselves with 8.4 and 19.6 percent of that market,
respectively, versus Google at around 65 percent. That, combined with the revenue-dampening
effects of a global recession, likely drove Microsoft to the bargaining table
with Yahoo-and to cut Razorfish.
But Razorfish was also a radically different animal than many of the
programs and initiatives that Microsoft has been cutting lately. Over the past
few months, many of the reductions have taken place among Microsoft's legacy
Plus was 17 years old when Microsoft announced it would be cut on June 11; Encarta,
an encyclopedia program, had existed 16 years at the time of its demise.
Microsoft blamed the evolving nature of the IT industry and the Web in its
decision to terminate both applications.
Other applications were newer, but failed to take hold of the market.
Originally launched in December 2006, YouTube competitor Soapbox proved unable
to help Microsoft gain more than 2 percent of the online video market, and was
subsequently slated to be killed in August 2009. PerformancePoint Server 2007
was discontinued in April, after Microsoft decided that its enterprise strategy
needed to shift, and its monitoring and analytics capabilities were combined
into Microsoft Office SharePoint Server Enterprise.
Still other eliminated applications appealed more to niche markets. Popfly,
Microsoft's 2-year-old programming tool for nonprogrammers, was cut in July;
Microsoft claimed that the "economic situation" had caused it to
"refocus and reevaluate our priorities." Popfly did not turn out to
be one of those priorities.
These eliminations suggest that Microsoft's strategic repositioning extends
further than merely pushing its upcoming Windows 7 and Office 2010; the
elimination of underperforming and legacy programs hints that Microsoft has
recognized the need to reorient its priorities around the core businesses, such
as operating systems and productivity suites, which have increasingly been
under attack by Google, Apple and other competitors.
The recession has likely added zeal to Microsoft's cutting; for the fourth
quarter of 2009, the company reported a 17 percent decline in year-over-year
revenue, with earnings of $13.10 billion. Chris Liddell, Microsoft's chief
financial officer, said during a July 23 earnings call that average PC sale
declines of 16 to 18 percent were largely to blame, as it also led to a
reduction in the demand for new Microsoft products.
"I think that highly strategically focused companies can use a downturn
like this to reconsider what they're doing, and decide what's working and not
working," Charles King, an analyst with Pund-IT Research, said in an
interview with eWEEK. "At the end of the day, Steve Ballmer and other
executives have been looking at strategic groups and asking, 'How well is this
working?' And if it's not working well, 'How long will it take to get this
working right?' And if the time frame doesn't work, 'Let's cut it now.'"
The extended period of program-cutting, according to King, reveals a good
deal about Microsoft's strategy for expanding into new markets.
"They're a company that recognizes that the marketplace is changing
very rapidly, and it's important for them to get into businesses beyond their
expertise and comfort zone, and compete in new areas," King said.
"Sometimes that works, and sometimes that doesn't."
In the late 1990s, for example, Microsoft invested billions in cable
television companies with the intention of integrating software and
applications into digital programming. That effort stalled, but others-such as the
push into gaming with the Xbox-have paid off more substantially.
Currently, Microsoft seems to believe that its traditional
products-including Windows 7 and Office 2010-have the best chance of paying
off, while its smaller and riskier endeavors are better cut. Microsoft's push
for Windows 7 includes price reductions and a massive ad campaign, while Office
2010 is being partially offered as a free Web-based service, the better to
compete against Google Apps and other cloud-based services.
Nicholas Kolakowski is a staff editor at eWEEK, covering Microsoft and other companies in the enterprise space, as well as evolving technology such as tablet PCs. His work has appeared in The Washington Post, Playboy, WebMD, AARP the Magazine, AutoWeek, Washington City Paper, Trader Monthly, and Private Air. He lives in Brooklyn, New York.