Eric Lai

How will Stephen Elop fare at Microsoft?

By Eric Lai
January 11, 2008 4:53 PM EST

Incoming Microsoft Business Division president Stephen Elop has never run a business anywhere near as large (by headcount and by revenue) nor as profitable as MBD. Having been a big fish in a small pond most of his career, how will the 44-year-old deal with suddenly swimming in the Microsoft seas?

Elop has mostly worked at midsized tech firms, not behemoths such as Microsoft Corp. with its 79,000 employees. Macromedia, where he was CEO, had 1,500 employees at the time of its merger with Adobe Systems. And at Juniper Networks, where he was most recently COO, has 5,600 employees.

Through its PR firm, Microsoft declined to release the number of employees Elop will oversee in MBD, which includes the Information Worker (Office), Business Solutions (Dynamics CRM) and Unified Communications businesses.

Stephen Elop

Stephen "The General" Elop

But let's say that the number of employees in MBD is proportional to how much money it generates for Microsoft. Some might even speculate that IW has more than its fair share of employees, being such an old division and one that has been such a cash cow for Redmond. Or that Unified Communications, being such a high priority for Microsoft, would also boast a proportionately-higher engineering and marketing headcount.

In fiscal 2007, MBD reported $16.4 billion in revenue. That excludes Server & Tools, which reported results separately and, as a result of Elop's appointment, is being spun back out of MBD after less than a year inside of it.

MBD's sales comprised one-third of Microsoft's $51.1 billion in revenue in 2007. Based on that, MBD would have about 26,300 employees (though for reasons mentioned above, I'd guess even higher).

That's 17x the headcount at Macromedia, and almost 5x the headcount at Juniper.

It's just not the sudden bureaucracy that Elop will have to contend with. MBD, because of Office, is super-profitable. $10.9 billion in operating income in fiscal 2007, with results this year expected to be even better, due to Office 2007.

That dwarfs Macromedia, where Elop was only CEO for 3 months, before it announced plans in April 2005 to be acquired by Adobe. Macromedia's annual income and revenue was $42 million and $370 million, respectively, at the time.

One tangential note about that merger. Despite presiding over it and gaining at least $5 million from it, Elop lost out professionally when Macromedia joined Adobe. Adobe's CEO Bruce Chizen was not going anywhere at the time, nor was his right-hand guy, COO Shantanu Narayen.

"Shantanu was always going to be the next guy in line at Adobe, which is why Elop left," said Chris Swenson, software analyst for the NPD Group Inc. and a Macromedia employee during Elop's tenure.

Narayen, coincidentally, became Adobe's CEO last November.

Anyway, Elop left Adobe after seven months without another job lined up. He ended up at Juniper 6 months later. Although not necessarily a storied 1-year tenure, it did give Elop a vital entry on his resume - COO at a leading telecom vendor.

Still, you get the picture that even if Elop has been at high-profile firms before, this is still a HUGE promotion for him.

Elop's high-wire act will be to maintain Office's monopoly in the midst of the SaaS revolution, while pushing forward in Unified Communications.

Swenson thinks Elop, who earned the nickname "the General," is up to the task.

"Macromedia bore the brunt when the dot-com bubble burst, and Elop was there," he said. "He had a lot of challenges he rode through. I tell you, there were lots of CEOs who didn't make it through those tumultuous years. That tells you something about Elop's professionalism, his ability to execute."

Jeffrey Raikes, the outgoing MBD president, was considered by many to be the top dog among Microsoft's three divisional presidents (Robbie Bach of Entertainment and Devices and Kevin Johnson of Platforms and Services being the other two). He was even considered by some to ahead of COO Kevin Turner in terms of succession. Turner only joined Microsoft in 2005 from Wal-Mart, while Raikes has been at Microsoft since 1981.

Umesh Ramakrishnan, the executive recruiter with CTPartners who helped Carly Fiorina land her job at Hewlett-Packard Co. and has worked for Elop in the past, says it's hard to say where Elop immediately lands at Microsoft's executive pecking order.

Asked if Elop risks being overwhelmed by Microsoft's size or executive infighting, Ramakrishnan replied: "Stephen is not a shy individual. He will voice his opinion. He will give anyone a run for their money."

So do you think Elop is the right man to lead MBD? What should he prioritize on his to-do list?