Bob Muglia's impending departure is another indicator that Microsoft is changing. Steve Ballmer appears to be asking his working groups to significantly increase their cooperation with each other. This is due to increasing threats from IBM, Oracle, Google, Apple and HP. The environment that Microsoft exists in is becoming far more hostile and gone are the days when the company could afford to have lots of mini-fiefdoms.
In addition, Dirk Meyer's departure right after NVIDIA's relative success at the Consumer Electronics Show, even though he saved AMD, reflects a changing environment at AMD, which is also related to the emergence of new ARM-based competitors.
Let's talk about the environment that is driving the changes at Microsoft and AMD.
Outsourced Software at Risk: Insourced Trending
Microsoft is tied to a post-IBM model that was partially driven by the IBM consent decree, which forced IBM to put a wall between hardware and software. This forced the company to look at outsourcing the operating system for PCs and DOS, the predecessor from which Windows was born. Other hardware makers, using IBM as an example, copied this model and increasingly depended upon Microsoft for their operating system and applications.
The downside to this model was an increasing lack of differentiation that led to commoditized prices and a dramatic drop in profit margins where Microsoft exorcised the most control. PCs were the first to slide and eventually server profitability began to suffer, which helped drive Linux fragmentation with vendors like Oracle. It also created somewhat of a UNIX resurgence as vendors tried to rebuild on the old UNIX model and build back-up account control and profit margins.
Google's entry on the client side-first with Android and then with the Chrome OS-seemed to revisit this model, allowing the hardware OEMs on the desktop to differentiate on user experience while keeping the code base and core hardware relatively consistent. In addition, it monetized after the fact, which had the advantage of no licensing fees to Microsoft, but the disadvantage of no co-marketing dollars. On top of this, Google is driving the public cloud approach to computing and has had a number of critical wins while being seen as particularly strong in the mid-market. While there hasn't been material damage to Microsoft, the trend is evident and the company needs to be restructured to address it.
PCs at Risk: Tablets Trending
The recent Consumer Electronics Show was awash with tablets, smart TVs and smartphones. The tablet news alone overwhelmed any PC news even though both AMD and Intel had announced new offerings. NVIDIA rose above the noise by announcing it was going to do with ARM what AMD and Intel had done with x86, which was to create a hybrid GPU/CPU system on a chip. This is all goes back to the change being driven by Google and the massive success Apple has had with tablets and smartphones.
Chasing Intel no longer looks like a successful strategy because the action is happening with vendors like NVIDIA, Qualcomm and Freescale, which are being much more aggressive with these new form factors. In addition, at CES, Microsoft in an unexpected move embraced ARM for Windows, once again putting pressure on x86. AMD seemed behind where the big market growth appears to be, which is kind of a shame given that Dirk Meyer arguably saved AMD. But saving a company and making it rise above the noise are two different things. In short: AMD's board is indicating that the firm needs a significant change in leadership to take advantage of these new tablet opportunities.
Wrapping Up: 2011 Will Be the Year for Executive Changes
There are massive new trends being driven into the market by disruptive players like Apple, Google and Oracle that all are aggressively looking to change the existing status quo dramatically. These changes will undoubtedly cause a number of boards and executives to rethink their employee landscape and replace those that are not seen as moving fast enough on these new opportunities. This is only the beginning of what will likely be a decade of major change.