REDMOND, Wash. -- A mood of cautious optimism tempered with a dash of anxiety has spread on Microsoft's (MSFT) leafy campus in the Seattle suburbs, as the world's biggest software maker embarks on one of the most tumultuous periods in its 38-year history.
Since mid-July, three interlocking events -- all of which would have been considered highly unlikely six months ago -- have unfolded in quick succession, unsettling Microsoft managers and employees and roiling its share price.
First, CEO Steve Ballmer rejiggered top management as part of an ambitious plan to remodel the company around devices and services rather than software. Six weeks later, he announced his retirement within a year, sending shares soaring. Ten days after that, he unveiled a $7.2 billion purchase of Nokia's (NOK) phone business, a move that ate up the stock's recent gains.
Within the company's Redmond, Wash., headquarters at least, the casually dressed workers seem much more worried about the far-reaching reorganization announced by Ballmer than the multibillion-dollar Nokia acquisition, which has incensed many investors who view it as a waste of money.
"The funniest thing I read on LinkedIn was, 'Two black holes converge,'" said one Microsoft employee, who asked not to be named, soon after the Nokia acquisition was announced. "But I think there's some real potential here."
"... A Recognition That Microsoft Has Lost Its Way"
The topic of Ballmer's retirement elicited a more complex reaction from some Microsoft employees interviewed this week.
"Like Wall Street, there was initial euphoria with the announcement for employees," said one 15-year veteran who has worked in a number of units at the company, in response to Ballmer's retirement and a change at the helm of a company that no longer sets the pace for technological innovation.
"But he is as much a symptom as the actual problem. This whole crazy re-org will still happen. And nothing will really change." he said. "Among many of my fellow employees -- both new hires and long-timers -- there is a recognition that Microsoft has lost its way."
Microsoft declined comment on the mood of its employees.
One of the ways the company aims to regain its stride is the addition of Nokia's phone business, but that will likely complicate an already complex reorganization that is just getting under way.
"The re-org is more unsettling for some people than Ballmer's departure. Exactly how that shakes out is more interesting," said another employee who asked not to be identified.
"There is always a small percentage of people who do lose their job, or get put into an awkward new role. For those people, morale is very bad, of course. But whoever you talk to, they all noticed that the stock went up on the Ballmer [retirement] news. If sustained, that will make morale improve broadly."
Four New Groups
Under Ballmer's 'One Microsoft' vision -- which will take until the end of the year, at least, to complete -- Microsoft's five operating units, including the massive Windows and Office businesses, are being realigned under four new functional engineering groups, broadly covering operating systems, devices, applications and the cloud.
In practice, that means tearing up some existing units and shifting thousands of staff around campus. The old Windows business will largely go into the new operating systems unit, but the Surface tablet unit will go into the new devices organization, to be joined by Nokia's phones next year. Office will be split between the applications and cloud units.
Most advertising and marketing staff are being taken out of their traditional business units and grouped together under a unified team. The software parts of Xbox will go to operating systems while the hardware will go to the devices unit, but not until after the Nov. 22 launch of the Xbox One console.
Given the complexity, the full effects of the reorganization may not be felt for several more months.
"I guess the re-org hasn't yet settled down in a big way," said Raman Shrama, 34, who works at Microsoft as a program manager in the developer division, which helps outside firms make apps to run on Microsoft's Windows 8.
"I am personally not very impacted, because the division that I am working in is largely unchanged," said Shrama at the Overlake Transit Center used by thousands of Microsoft commuters.
Unsettled but Optimistic
Generally, he said, the mood at the company was good. "CEOs don't change every day. It's a big event, for sure. But I haven't noticed a drop in morale, or anything like that."
Microsoft's Redmond campus has maintained its laid-back air for the last few weeks. Crowds occasionally gather for morale-building events on one of the artificial-turf soccer fields. And in The Commons -- the campus social hub -- a few hundred employees congregate upstairs for the rowdy 'Trivia Tuesday' quiz.
One 31-year-old contractor who works on the Office user interface team said he was "very optimistic" about the changes.
"We are so far behind on the mobile end of things. This is the only hope we have for connecting to the younger generation," he said. "The PC market is declining so much. This might give us a chance to find a new approach and a new corporate identity to get behind. I don't think Ballmer was really that inspirational, someone people believed in."
Another 25-year-old software engineer in the Bing search engine unit said she was "excited" about what was to come.
"I don't expect a big change after his [Ballmer's] retirement. Microsoft is a big company. A new CEO won't change much," she said. "In the last company meeting, Steve talked about the 'One Microsoft' spirit. People liked that idea. Probably, the new CEO will continue that."
The 20 Most Valuable Brands In The World
How Microsoft's Employees Really Feel About All the Big Changes
Brand Value: $27.8 billion
Percent Change v. 2012: 34%
What Happened: MasterCard's rank flew up nine spots this year to the 20th most valuable brand in the world, and Millward Brown VP Oscar Yuan attributes that ascent to "the growth of mobile technology." As consumers up their online shopping habits, brands like Mastercard and Visa reap the rewards for offering noncash payment methods.
Brand Value: $34.36 billion
Percent Change v. 2012: 34%
What Happened: "They're really into the big data," Yuan explained of the German tech brand, "So [the increase in value] is reflective of a consistent storyline: The growth of mobile shopping." SAP has the big data solutions enterprise companies need.
Brand Value: $36.2 billion
Percent Change v. 2012: 5%
What Happened: Walmart, however, has mastered the art of brick and mortar shopping. "You can't buy milk online," Yuan said. The retail giant has a large and loyal consumer base that is constantly growing - even internationally.
Brand Value: $39.7
Percent Change v. 2012: -8%
What Happened: Vodafone's 8% drop in value can be attributed to O2 and Orange's recent success. But at almost $40 billion, it is still one of the largest mobile carriers in the UK.
Brand Value: $41.1 billion
Percent Change v. 2012: -1%
What Happened: While Americans might have never heard of the Industrial & Commercial Bank of China, Yuan explains that in its home country, "the logo is ubiquitous." ICBC is the first of two Chinese brands in the top 20, a number which is largely due to the countries growing middle class.
Brand Value: $42.7 billion
Percent Change v. 2012: 15%
What Happened: "I think a lot of the growth is really tied to several consumer trends - and I'm talking about the need for consumers to shop online mobile devices," Yuan told BI. Consumers need to get the products they bought on the internet somehow, and that's where UPS comes in.
Brand Value: $45.7 billion
Percent Change v. 2012: 34%
What Happened: It's almost impossible for brick and mortar shops to compete with Amazon's wide selection, low prices, and mastery of the mobile marketplace - easily allowing consumers to buy anything from anywhere on their phone or tablet. Recent acquisitions of Audible.com and Goodreads also show the company's determination to dominate all aspects of mobile book consumption and sharing.
"There's no stopping amazon as they go international," Yuan said."
Brand Value: $47.7 billion
Percent Change v. 2012: 20%
What Happened: After acquiring Wachovia in 2008, Wells Fargo successfully expanded from a California-based bank to a national name. Coming from California also helped Well's Fargo's image with consumers considering that it was one of the few banks to remain unscathed during the financial crisis. "It also started a major rebranding strategy expansion," Yuan said.
Brand Value: $53 billion
Percent Change v. 2012: 8%
What Happened: Verizon got a boost after Apple opened its services to carriers other than just AT&T. While Verizon and AT&T's rivalry heats up, Yuan predicts that the competition will up both brands' game. "As data devices continues to proliferate, we will continue to see Verizon do well," he said.
Brand Value: $55.3 billion
Percent Change v. 2012: 21%
What Happened: "GE ... continued to be one of the most well respected consumer and industrial brands in the world," Yuan said. And the public is starting to see that it makes more than just light bulbs. General Electric has dedicated major marketing dollars to making sure that consumers know it produces everything from airplane engines to wind turbines to medical equipment. Hammering in its dedication to innovation, a recent ad campaign even enlisted the help of famous robots.
"In terms of B2B, GE is one of the most well respected brands," Yuan continued, citing that it was often used in business school case studies.
Brand Value: $55.4 billion
Percent Change v. 2012: 18%
What Happened: China Mobile is the largest mobile carrier and brand in China, so it's a no-brainer that it's one of the most valuable brands in the world. "There are more mobile phone subscribers in China than in the U.S.," Yuan said.
Brand Value: $56 billion
Percent Change v. 2012: 46%
What Happened: A key way to bolster global presence is to sponsor the Olympics. But that's not the only thing that upped Visa's brand value so drastically. As one of the most trusted names in non-cash payments, Visa has gained clout in the world of online shopping and mobile payments.
Brand Value: $69.4 billion
Percent Change v. 2012: -6%
What Happened: Marlboro is a top 10 regular, which goes to show that even though smoking is restricted in the U.S. doesn't mean that the rest of the world has laid off the habit. "Marlboro has consistently invested in the brand ever since its inception," Yuan said. "The rugged cowboy is very strong and consistent globally."
To put it another way, "about 25% of world's population are smokers, and they use it 5 to 10 times a day. I don't drink 10 bottles of water a day." That's getting your brand out there.
Brand Value: $69.8 billion
Percent Change v. 2012: -9%
What Happened: As a $70 billion brand, Microsoft is in great shape even in spite of a 9% value decrease. Microsoft is a powerhouse and has a reputation as one of the strongest tech brands in the business. But, Yuan notes, "with consumers, there's confusion as to where Microsoft fits." The company's fortune is largely tied with the PC business, but it has emerged on the mobile scene with the Surface and other devices. The company went through a major rebranding in the summer of 2012 to stay relevant.
Brand Value: $75.5 billion
Percent Change v. 2012: 10%
What Happened: AT&T is another company to gain value due to the increasing U.S. consumption of mobile products. For a long time, the service provider had an exclusive deal with the iPhone, so it became synonymous with the new technology. What's really interesting, however, is that even when Apple opened the iPhone up to Samsung and T-Mobile, AT&T's value didn't go down.
Brand Value: $78.4
Percent Change v. 2012: 6%
What Happened: "What's consistently impressive about Coca-Cola is its ability to innovate," Yuan said. "People think that soda consumption is declining, but Coke is turning the business on its head." For example, this year Coca-Cola released a series of freestyle machines which allows consumers and retailers to mix their own flavors of the soda syrup to make their own individual Coca-Cola. The company is constantly innovating and staying fresh.
Brand Value: $90.3 billion
Percent Change v. 2012: -5%
What Happened: Yuan noted that one of McDonald's gifts was the ability to listen to consumers' sentiments and adapt, particularly to growing health concerns. "It has come out with a much healthier menu with apple slices, oatmeal, and a Chicken McWrap which has done well," he said.
McDonald's is also gaining a stronghold in the coffee space, which should be an interesting new endeavor to follow.
Brand Value: $112.5 billion
Percent Change v. 2012: -3%
What Happened: At $112.5 billion, IBM's three percent value decrease is not a substantial figure. IBM is known as a company that consistently delivers year after year, Yuan told BI. And it is particularly hailed in the B2B sphere.
Yuan also noted that its Ogilvy-made "Smarter Planet" campaign, in which the company explained its plans to help clients innovate and make the world a better place, inspired consumers to believe in the brand.
Brand Value: $113.7 billion
Percent Change v. 2012: 5%
What Happened: Google has effectively taught consumers that it is more than just a search-based company. With maps, mail, shopping, and more, Google is integrated into everyone's lives. The company also made recent headlines about its new contribution to the hardware world in the form of Google Glass. "It will be interesting to see how Google Glass will contribute to the brand value, but now it's too soon to tell," Yuan said.
Brand Value: $185 billion
Percent Change v. 2012: 1%
What Happened: In spite of harsh Wall Street analysis and media speculation regarding Tim Cook's leadership capabilities, Apple continues to be a strong brand in the eyes of consumers - a major value measurement for Millward Brown. "Despite what the press says and stock market says," Yuan noted, "Apple in the eyes of the consumers is the gold standard."
In the last eight years, Apple's value has increased 1,045% - only topped by Subway's meteoric 5,145% rise. (Although Subway still hasn't broken the top 20.)
Those companies are constantly innovating to stay on the top.[Those companies are constantly innovating to stay on the top.]The gay pride Oreo, from Kraft's Facebook page.