Making the cut

So Microsoft has laid off some staff, has had a revenue upset and now the analysts are trying to predict what this will do to the company’s future revenue. Of course, I’ve been doing my bit by talking to Microsoft people both in the UK and in Redmond, and I can tell you that the picture is very far from clear. Looking in from the outside it’s easy to get a distorted view of what goes on inside a large corporation and how its business processes really work. And then to proclaim confidently that either the changes that have been put in place are a good thing or a bad thing is at best rash, and at worst arrogant. To be honest, I think what’s been done at Redmond has both a good and a bad side, and I’ve received that same opinion from most of the Softies I’ve talked to.

Making the cut

First, there’s no doubt that the downturn in some of the company’s key revenues has come as a real shock. We’re in the midst of a global economic tsunami, and to revive the immortal intro to Stingray: “Anything can happen in the next half hour”. The collapse of sales of Zune have to be contrasted with the solid, unflagging performance of the iPod that Apple reported at the same time. There’s been a similar downturn in revenues from Windows licences, which is being blamed on the low return obtained from the XP package that’s being bundled with netbooks in comparison with the revenue that would have been expected from Vista sales.

What does this all mean for Microsoft’s future? Well, there have already been redundancies. For example, I hear that the whole Flight Simulator team has gone, which is a disappointment for sure but then it was a product that had failed to take best advantage of recent graphics card capabilities – in fact, it looked as though it couldn’t make up its mind which of the two stools marked “affordable hardware” and “high-end” it wanted to fall between. Some of the big datacenter building work has been scaled back too, or else put on hold, and this is interesting chiefly for its potential impact on the forthcoming Azure Cloud-based system due later this year. Maybe Microsoft is now expecting a slower uptake of this Cloud-based technology, and has decided that it has enough capacity for the time being?

That would be a pretty sensible guess, as it’s certainly true that IT budgets are being scaled back in the SME sector and larger customers, so development houses that have been looking into doing this stuff need reassuring that there’s going to be a willing and supportive market for Cloud-based solutions in the near-term. On the downside, though, it’s clear that some good people, teams and technologies have been shoved under the steamroller. On the upside, Microsoft says it wants to aggressively recruit for its Search technology effort, so maybe this will absorb some of the redundancies.

Is this all being done just as a sop to Wall Street? It’s hard to say without being privy to board decisions, but the earnings downturn demanded some sort of reaction that was visible from outside. From my restricted point of view, what I’ve been told is that much of the slack in terms of costs had already been taken out of the business some months ago, so there isn’t any room for an aggressive cost-cutting exercise. This is, of course, always open to interpretation. Microsoft has an extraordinarily wide range of jobs and job titles, even in its regional offices. But that isn’t necessarily a bad thing – a huge firm that’s trying to cover every market sector from the home through SME to large enterprise, plus the public sector too, really can’t do without a lot of feet on the ground. I personally think that more damage is done internally by the constant movement of people between jobs: it seems to me that too few people stay in a position for more than 12 or 24 months before the plans are changed, which is an obstacle to the building up of experience.

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