Microsoft: It makes no sense to break our company into smaller pieces

At the annual Microsoft meeting of shareholders both Bill Gates and Steve Ballmer had strong words against breaking up the Redmond giant into smaller pieces, something that has been brought up by external pundits in recent months.

The question was raised by an investor: “[as] another frustrated shareholder for more years than I care to admit… Maybe we have the model wrong. … Is it time to consider breaking this company up,” he asked.

He pointed out that Microsoft’s share price has been somewhat stagnant compared to some of their famous competition, and he wondered if that indicated that change was needed. It should be noted that Goldman Sachs had strong words in a similar direction just this October.

Ballmer was having none of it. Our friends at TechFlash transcribed his and Bill’s responses, and we are using their transcriptions, for which we are thankful:

“I obviously don’t think it is time. I don’t think it would be useful. I think it creates economic dis-synergies, in fact…All of the people we compete with in devices will be in phone, PC and TV, which in our case means Xbox, windows and Windows Phones. It’s Apple, it’s Google, it’s us. Divesting something only means creating a harder time competing for all relevant parties.”

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He went on to point out that while projects like Bing are expensive, and are consumer facing, they can yield important knowledge and other information that can be applied in other areas around the company.

Bill Gates supported Ballmer’s comments, saying that:

“I agree with what Steve’s saying there, in that the Microsoft brand, the scale of Microsoft Research on a worldwide basis, the intellectual property we build up, the way we hire and train people, there’s a lot of synergy across the company, and it’s been a real strength…. I don’t think there’s a line where you’ll find net simplicity by trying to create a new company.”

What do we think about all of this? We agree that right now breaking up Microsoft into smaller pieces may unlock some hidden value in the short-term. But when you look across Microsoft’s vast line of products, and how they link together, in the long run splitting the company would add friction into the company’s product flow that would over time hurt their bottom line, period.

Microsoft needs to be able to take shots like Kin and Zune to yield Xbox and Bing. You don’t win big without losing big sometimes, and a smaller, broken up Microsoft would not be able to afford to take real chances.