Microsoft (Nasdaq: MSFT ) is used to being the biggest, baddest dude in technology.
But that role is being threatened by Apple (Nasdaq: AAPL ) with its shiny new gadgets and its bigger, badder market cap. By Google (Nasdaq: GOOG ) with its huge moat. And by Amazon.com (Nasdaq: AMZN ) with its dominant e-tailer and, more ominously for Microsoft, cloud computing dreams.
Apple, Google, and Amazon.com all can boast large growth prospects despite their size. Not so much for Microsoft. It's closer to a blue chip -- a plodding cash cow, relying on time-tested franchises.
The question is, does Microsoft need to go nuclear -- shake up management, split itself up, buy a new dress, something -- to grow or at least sustain its cash cow?
I posed this question to some of our top analysts. Here are their answers.
Tim Beyers, Fool contributor and Rule Breakers analyst
Microsoft doesn't need a massive shift in direction, but it does need a new leader. CEO Steve Ballmer should step down.
Ballmer's no dummy, but he has been wrong time and again, mostly in underestimating Apple. Who could forget his comments about the iPhone? Mr. Softy needs a leader with the vision to express, and then bring to life, very big ideas. Chief Software Architect Ray Ozzie could be that guy.
And he'd have plenty to work with. Windows is still an important franchise, so is Office, and Windows Live is progressing via the Azure cloud computing platform. Meanwhile, Microsoft's new retail stores could help articulate the value of all these services and more to a captive consumer audience.
But that's also just half the story. Microsoft hasn't created a cloud computing alternative good enough to make users forget about Google. Ozzie has the smarts to change that; history suggests that Ballmer doesn't.
Eric Jhonsa, Fool contributor
Yes, Ballmer should definitely go -- but that's only the first step toward turning Microsoft around.
As a guy whose rise was closely tied to the PC boom, I guess it's not surprising that Ballmer failed to deliver in one consumer-oriented 21st-century growth market after another. It's more troubling, though, that in many areas, Ballmer still apparently doesn't get it. The proprietary approach that Microsoft is taking with its Windows Phone 7 smartphone platform, done out of a misguided attempt to imitate Apple, guarantees that it will be dead in the water faster than you can say Froyo. And as far as I can tell, there's no pending attempt on Microsoft's part to unveil a tablet platform that even qualifies as a pretender to the iPad's throne. Pretty astonishing, considering that Microsoft announced its Tablet PC software all the way back in 2001 -- right around the time that Steve Jobs was unveiling the original iPod.
But even if Ballmer is axed, a wholesale cultural shift needs to take place in Redmond before Microsoft can dream of becoming a growth stock again. As former VP Dick Brass explained in an insightful New York Times op-ed, petty infighting and a lack of coordination between different Microsoft divisions has repeatedly thwarted the efforts of its talented engineers. The contrast with the success of Apple and Research In Motion (Nasdaq: RIMM ) in delivering integrated user experiences via an array of hardware, software, and services that closely target what their customers want is like night and day. For Microsoft to start providing the same to its customers, it will need to do more than get rid of one short-sighted executive.
Alex Dumortier, CFA, Fool contributor
Faced with changes in software and hardware formats, Microsoft now risks going from a dominant giant to a lumbering dinosaur.
Coddled by the strength of its operating system franchise, it has let other companies lead the way in terms of innovation -- a risky tack in a disruptive industry. For example, Microsoft's launch of a free online version of its Office suite of productivity software is an admission that it can no longer ignore the transition to Web-based software, which has been led by companies like Google and salesforce.com (NYSE: CRM ) .
Last October, in an interview with Forbes, Motley Fool co-founder Tom Gardner called for Microsoft to break itself up. I agree: At a critical juncture in the company's history, radical solutions are required. The security blanket of the operating system franchise is masking what is ultimately a life-or-death struggle at Microsoft's other divisions and even the blanket may not be as secure as it appears.
Rick Munarriz, Fool contributor and Rule Breakers analyst
I am a pretty vocal Microsoft bear, but I don't think Ballmer needs to go. It's not his fault that the gravy days of costly operating systems and application software are toast. There is nothing that he could have done to prevent the open source and cloud computing revolutions from happening.
He's simply playing the decaying cards that he has been dealt.
Along the way, Microsoft has made a bold push over the past year in fortifying its currently unprofitable position in online services. Last year's Bing launch and a genius deal to expand its search footprint through Yahoo! will help cyberspace growth offset the inevitably cascading prices of Windows and Office products in the coming years.
Ballmer isn't perfect, but that hotheaded yet passionate leader is a keeper.
Matt Koppenheffer, Fool contributor
I'm actually a fan of Microsoft as an investment, primarily thanks to the hold it has on the operating system and productivity software markets. And any tech stock that gives you a decent dividend will always get my attention.
However, it does seem clear that Microsoft needs a new something. It's tough to stand still in pretty much any industry and continue to succeed, but some industries are more forgiving than others. Information technology is most definitely not one of those industries. Google is getting all rebel warrior on Microsoft and attacking its core businesses while it absolutely stomps Mr. Softy in search.
On the entertainment side of the picture, Microsoft's Zune is a joke compared with Apple's dominant position with its suite of "i" products. And though the Xbox is more successful than the Zune, it hasn't exactly made the entertainment division a standout from a profit perspective.
A new CEO could do the trick -- it certainly worked for Apple a decade or so ago. Perhaps a crazier idea would be to take a page out of Motorola's (NYSE: MOT ) book and split the company up, creating one business focused on operating systems, server products, and productivity software, and another with the online and entertainment businesses.
That's what we think Microsoft should do. Share your thoughts in the comments section below. Or check out who we think is more essential: Warren Buffett or Steve Jobs?
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