Stephen Elop, a candidate to replace Steve Ballmer as Microsoft Corp.'s chief executive officer, would consider breaking with decades of tradition by focusing the company's strategy around making the popular Office software programs like Word, Excel and PowerPoint available on a broad variety of smartphones and tablets, including those made by Apple Inc. (AAPL:US) and Google Inc., said three people with knowledge of his thinking.
Elop would probably move away from Microsoft (MSFT:US)'s strategy of using these programs to drive demand for its flagship Windows operating system on personal computers and mobile devices, said the people, who asked not to be identified because the 49-year-old executive hasn't finalized or publicly discussed his analysis of the business. Most of Microsoft's software has been tied to running on Windows.
Microsoft became the world's largest software provider under Ballmer and co-founder Bill Gates by making Windows-based PCs running Office applications an industry standard. When the Redmond, Washington-based company failed to come up with hit Windows-based phones and tablets, that left it with little role in the mobile market. Its refusal to adapt Office for Apple and devices based on Google's Android operating system hasn't helped its software usage.
Microsoft Experience
As he formulates some broad strategic outlines for Microsoft, Elop is drawing on his years as CEO of Nokia Oyj, where he showed he wasn't wedded to homegrown software by canceling the company's then-dominant Symbian phone software in 2010, said the people. He is also leaning on his previous experience as a Microsoft executive, where as head of the Office division he pushed the company to enhance and find new ways to sell the software, said the people.
Microsoft, which is shifting from software to focus on hardware and services, is searching for a new CEO after Ballmer said in August that he would retire within a year. Elop and Ford Motor Co. CEO Alan Mulally are among the external candidates in the interview process, as are three insiders -- strategy chief Tony Bates, enterprise software chief Satya Nadella and chief operating officer Kevin Turner -- people with knowledge of the process have said.
Joining Microsoft
Elop is set to join Microsoft after agreeing to sell Nokia's handset business to the software maker for $7.2 billion in September. He resigned as Nokia's CEO when the sale was announced, and said he would become head of a new Microsoft devices unit responsible for hardware such as the Surface tablet and Xbox game console.
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Elop's assumption is that Microsoft could create more value by maximizing sales of Office rather than by using it to prop up sales of Windows-based devices, said two of the people with knowledge of his thinking. Market-research firm Gartner Inc. projects PC shipments will fall 11 percent this year.
Doug Dawson, a spokesman for Nokia, declined to comment or to grant an interview with Elop.
"We appreciate Bloomberg's foray into fiction and look forward to future episodes," said Frank Shaw, a spokesman for Microsoft.
Microsoft's Windows division reported that revenue (MSFT:US) rose 4.6 percent to $19.2 billion in the latest fiscal year, which ended June 30. The unit that includes Office and other corporate software products saw sales rise 2.5 percent to $24.7 billion. Microsoft scrapped that reporting structure for the current fiscal year and now reports earnings based on devices and software for consumers as well as enterprises.
More Focus
Besides emphasizing Office, Elop would be prepared to sell or shut down major businesses to sharpen the company's focus, the people said. He would consider ending Microsoft's costly effort to take on Google with its Bing search engine, and would also consider selling healthy businesses such as the Xbox game console if he determined they weren't critical to the company's strategy, the people said.
Earlier this week, investors drove Microsoft shares to their highest price since mid-2000, after Nomura Holdings Inc. analyst Rick Sherlund said the sale of Bing and Xbox, along with other moves, could lift fiscal 2015 earnings by 40 percent.
"Microsoft is trying to do too much, and these assets add no clear value to the overall business," wrote Sherlund, who added that he thought Mulally was most likely to get the nod to replace Ballmer.
During his earlier tenure as a senior Microsoft executive, Elop cut a deal to offer Office on Nokia's Symbian phone software. In 2010, Microsoft added free, scaled-down versions of programs such as Word and PowerPoint that anyone could access via the Web -- a controversial move given that Office is Microsoft's largest and among its most profitable business.
He also oversaw the development of Office 365, a hosted version of the suite for customers who prefer to pay an annual subscription for Web access rather than buying the software outright.
Nokia Pointers
At Nokia, Elop cut 40,000 jobs and reduced operating expenses by 50 percent. While Microsoft doesn't face the same cost constraints, Elop would probably impose job cuts and belt-tightening to create smaller teams, said the people.
Elop's Nokia efforts also point to his focus on what a customer can do with a product rather than on its underlying operating system, said the people with knowledge of Elop's thinking. In 2011, Elop discontinued Symbian, which was pervasive, yet was fast losing share to Apple's iOS and Google's Android. Instead, he forged a partnership with Microsoft to develop phones based on Windows Phone software as he said it offered the best chance for Nokia to make unique devices.
Another clue to Elop's thinking comes from his handling of Nokia's mapping and location-tracking software, which is considered a valuable asset, said the people. Rather than use the software to differentiate Nokia's phones with features such as reliable turn-by-turn driving instructions, he made it into a standalone software business called Here. The product now powers the location services in some Amazon.com Inc. (AMZN:US) devices.
To contact the reporters on this story: Peter Burrows in San Francisco at pburrows@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net
To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net
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