Generalizations: Is Microsoft the new GM? No, and yes
It's impossible not to draw a few Microsoft parallels with GM. Not least is that Microsoft is a victim of hundreds of small cuts. Whether they realize it or not, both companies are primarily in the business of hiring top talent and letting its innovative brilliance make the business grow.
Special to The Seattle Times
People who wonder if Microsoft is the next General Motors don't know much about the auto industry. Which is not to say their snarky intuition is completely off.
Instead, Microsoft enjoys its own special hell: A one-time growth darling becomes a mature company. An outfit once so feared that it was the subject of one of the few recent federal antitrust actions becomes a seemingly feeble has-been. A stock that has lost almost 30 percent of its value over the decade and consistently underperforms the S&P 500.
It's not sexy, but it makes money.
Microsoft's revenue in the most recent quarter increased 13 percent to $16.4 billion to deliver $5.2 billion in profit. Its products span the breadth of consumer and business technology.
But once-lowly Apple gets all the media love and has surpassed the Colossus of Redmond in market capitalization. The future of Windows is uncertain in a world of Google, cloud computing and other competitors.
Investors and their tribunes reserve a special hatred for CEO Steve Ballmer. This was on display with last week's acquisition of Skype. Share prices sagged further.
Evan Newmark wrote in The Wall Street Journal: "It's one thing for a CEO to convince himself that a deal is 'strategic' — even if he's buying a money loser with no proprietary technology and no viable business model. But it's another for him to bid against himself and end up forking over $8.4 billion in cold cash to buy said money-loser — three times what it fetched a year and a half ago. That's unforgivable."
Deserved or not, I don't recall pundits heaping such scorn on Roger Smith, the chief executive of GM, when he bought Ross Perot's Electronic Data Systems for $2.6 billion in 1984 (some $5.6 billion in today's money). The deal was hailed as part of the automaker's intentions to leapfrog rivals with that newfangled word, "high technology."
Although a giant, GM never faced a serious antitrust investigation, much less enforcement action, despite years of threats.
On the other hand, GM by 1984 was already in trouble, a victim of management mistakes, intransigent unions and, especially, Japanese competition. Significantly, its leadership had become disconnected from the innovators, designers, engineers and people on the plant floor who had made GM great. It was run by the bean-counters.
GM fought all the way down, with repeated restructurings that cost hundreds of thousands of jobs. Yet management couldn't greenlight many sexy cars or stick with promising experiments, such as Saturn. It also faced Japanese competitors who weren't, at least at home, saddled with health-insurance costs. Especially in the 1990s, GM chief executives faced serious oversight by an independent-minded board of directors.
In fact, the edifice of General Motors began cracking in the late 1960s with quality problems, but this was after decades as the world's largest automaker and it still had decades left in that commanding position.
If Microsoft really became the next GM, today's hyper capital markets wouldn't allow it to remain a crippled ship. Its rivals would take its crowns in years, or months.
If you want an auto comparison, Microsoft might risk being more like Ford in the 1920s, before GM emerged as the dominant purveyor of a different automobile for every stage of a person's life.
Still, it's impossible not to draw a few parallels with GM. Not least is that Microsoft is a victim of hundreds of small cuts, many self-inflicted. But the blood loss mounts up over time.
Whether they realize it or not, both companies are primarily in the business of hiring top talent and letting its innovative brilliance make the business grow. Both became criticized because some of the best ideas were smothered in the bureaucracy.
They also gained a reputation for screwing up good products, although in GM's case they were homegrown and not acquired.
Roger Smith never talked, as Ballmer did, about "Our ambitious, forward-looking, irrepressible nature." The conservative Smith didn't even know how to use a PC. But he wanted GM to have just those values and failed, to his eternal infamy among car enthusiasts, former workers and communities.
Microsoft has done a poor job at seeing the road ahead, irony intended. Smartphones, search engines, cloud computing, tablet computers — for whatever reason, and not because of lack of resources, Microsoft is playing catch-up.
GM was in the same position with small, quality cars. Then it stuck with a steady moneymaker (SUVs and trucks) too long and the market collapsed due to an unforeseen shift (high gas prices). Sound familiar?
Both companies held commanding positions, were highly profitable and had huge financial reserves. Yet both reached business and societal turning points where all that cash couldn't help them. Indeed, it arguably led to bad decisions.
History doesn't repeat itself. However, as Mark Twain said, sometimes it rhymes. The stakes couldn't be higher for the Puget Sound region, where Microsoft employs more than 40,000 people (on the scale of "GM Towns" such as Flint, Mich., and Dayton, Ohio, in their heyday).
One difference we can count on: If Microsoft severely falters in the future, the federal government won't download a rescue app.
You may reach Jon Talton at email@example.com
About Jon Talton
Jon Talton comments on economic trends and turning points, putting them into context with people, place and the environment in the Pacific Northwest