Office 365 – the beginning of Microsoft’s death spiral?

Microsoft has finally launched a Cloud version of its Office (Word processing, spreadsheet) product, to less than rapturous reception:

Dennis Howlett calls Microsoft Office 365 “a dud”.

The Register points out that “Office 365 …  been designed to complement desktop Office rather than replace it“.

Mary-Jo Foley, normally a Microsoft fan, posts that “Sorry, folks. This is not Office in the cloud

Meanwhile their acquisition of Skype has been slagged off as too expensive with no synergy and the dying act of a company desperate to be seen to be still relevant, the Windows line get worse and worse press, and some investors are calling for CEO Steve Ballmer to be replaced.

Poor Microsoft! I’m not a fan of their products, although I used to be and I use many every day, but I do really sympathise with their problems.

Addressing the Office 365 issue first, it is almost impossible to move a traditional (try not to call them legacy!) application to the Cloud. Cloud applications behave differently, so trying to both be a Cloud application and retain some look and feel of the old product is impossible. Microsoft is torn between wanting a decent Cloud product, yet not killing off the revenue stream from the old product (and killing their traditional route to market, the channel). So many traditional software companies have this problem, trying to both produce modern Cloud applications yet tied by existing user base, channels and revenue streams: SAP, Sage and even Oracle to name but a few.

Meanwhile competitors like Google Apps, Zoho, Open/Libre Office eat Microsoft Office’s lunch and open source (ie, free) software products like Linux and MySQL make inroads into their server based product line. Really Simple System’s Cloud CRM product is gradually moving off Windows Server onto Linux boxes for a myriad of technical (performance) and commercial (price) reasons. Windows Mobile is being killed by Android and iPhone. The only bright spot is that as yet there is still no credible threat to desktop Windows, although Macs are doing well and a few technologists like me are moving to Linux based desktops such as Ubuntu.

And Steve Ballmer? I’m continually drawn to the parallel between the handover of the British Prime Ministership/Labour party from Tony Blair to Gordon Brown: charismatic but tarnished leader hands over to gruff company man just before the ship goes down. Something I’ve noticed over the years is that when the original software company founders leave, the product vision goes and the company becomes just another money making business, milking revenue off the locked-in user base, until the old user base gradually drifts away. The names of Sage, Infor, Oracle and good old Computer Associates come to mind. No wonder Apple investors are worried as to what happens after Steve Jobs goes. Microsoft’s user base and revenue streams are so large that it will take a decade for that to happen, but happen it will.

Meanwhile I predict we’ll see Microsoft taking the traditional software vendor death spiral: ·

  • Short term investors force Steve Ballmer out, replaced with bottom line focussed CEO.
  • New CEO cuts swathes of costs, profits recover, share price is talked up, short term investors sell at healthy profit, new CEO pockets huge bonus and leaves. Products struggle on directionless.
  • CFO takes over as CEO. User base gradually moves on, more costs are cut, products languish.
  • Rinse and repeat until nobody cares any more.
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One Response to Office 365 – the beginning of Microsoft’s death spiral?

  1. Huw Sayer says:

    Good post John, particularly your final points about the leadership handover.

    Made me think you might find this post by @bhorowitz interesting http://bhorowitz.com/2010/04/28/why-we-prefer-founding-ceos.

    Kind regards

    Huw
    @HuwSayer

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