According to TechCrunch, Microsoft “is laying off ‘thousands’ of staff in a major global sales reorganization” that will announced later this week. I’ve requested confirmation of the rumor from Microsoft, but they haven’t gotten back to me yet.
If the rumors are true, it suggests that Microsoft becoming increasingly desperate to remain relevant in a world where PCs are no longer all that important.
Since the mid-1980s, Microsoft’s dominance in PC software has remained unassailable. While PC hardware manufacturers fought a price war, Windows and Office commanded and still commands premiums prices and high margins.
Since the mid 1990s, Microsoft has also dominated the market for server operating systems that are kept on-premises inside corporate data centers. It’s closest competitor, Linux, commanded a measly 10% share in 2016.
Since then, however, Microsoft has ended up as an “also ran” in every other major market. And that’s bad news long term for the brontosaurus of Redmond.
Even though Microsoft has repeatedly tried to capture presence on the Internet, its Internet Explorer browser commands only a 13% share versus 32.4% for Chrome. Same thing with Bing, whose 10% share is swamped by Google’s whopping 80%.
Microsoft has utterly (and expensively) failed to break into the low end of mobile computing. It’s Zune media player is literally a cultural joke, providing big laughs (spoiler alert) in the recent hit movie Guardians of the Galaxy 2.
Similarly, Windows Phone is, if anything, a bigger failure, dropping from a 1.1% market share in the fourth quarter of 2015 to a near microscopic .3% in the same quarter of 2016.
To make matters worse, Microsoft’s phone-related failures included the acquisition of Nokia, a mistake that cost the company upwards of $8 billion, which isn’t chump change even for Microsoft.
Game consoles, once a bright spot in the company’s attempt to expand their brand, appears stalled, with arch-rival Sony selling almost twice as many PS4 consoles as Microsoft’s Xbox One in 2016.
Microsoft has lost big in tablets, too. The Surface RT never took off, and while the non-RT Surface has sold well, it’s just a small form-factor PC with a touch screen. Its “success” is just an echo of the PC vs Mac battle that Microsoft won 30 years ago.
Even that market success may be at risk, now that Apple is finally (and belatedly) updating iOS to support multiple windows, transfer of data between windows and moving from app to app without going to the home screen.
Microsoft has also struggled mightily to capture a piece of the enterprise software market. In 2003, for instance, it purchased the Dynamics CRM package only to be crushed in that market by Salesforce.com, whose IPO was one year later.
A large part of Microsoft’s challenges in enterprise software has been its traditional dependence upon partners to provide IT services, which creates channel conflict when Microsoft tries to provide more than just the software.
Most recently Microsoft has been actively promoting Azure, a cloud computing platform where companies can rent computer power rather than using in-house data centers.
And here, surprisingly, Microsoft has been growing faster (from 26% to 43% share in 2017) than its main competitor Amazon Web Services, which current holds a 59% share. On the other hand, as TechCrunch recently pointed out:
“While AWS might not have the eye-popping growth percentages of its rivals, it still grew at a decent 47 percent, with earnings of $3.53 billion on an astonishing $14.2 billion run rate.”
According to Microsoft’s VP for worldwide commercial business, Judson Althoff, the company’s sales efforts have been hampered by its sales approach, which was to take orders rather than build solutions. As he recently told the Seattle Times:
“It was a flawed strategy to try to sell Azure like, ‘Do you want fries with that?'”
Seen from that perspective, this huge reorganization of the global sales team, with layoffs of thousands, represents an attempt to change Microsoft’s enterprise sales culture so that it can sell Azure more effectively.
Microsoft clearly felt the need to do something. In the wake of so many failures to expand into new markets, this is a battle that Microsoft simply cannot afford to lose. According to top Microsoft analyst Rob Enderle:
“If they’re going to roll against AWS and Oracle (whom they often run into on the enterprise sales), they need guys who can close business: hunters rather than farmers, in sales lingo.”
From my perspective, it’s hard not to suspect that such a massive restructuring with layoffs might falls into the category of flawed logic that’s all too common in the upper echelons of the business world:
- We must do something about this.
- Here is something.
- Therefore we must do it.
Time will tell, but my sense is that Microsoft will flub this, just like it’s flubbed in so many growth markets in the past.