Former Clinton campaign aid, Mark Penn, lost his control over Microsoft's advertising budget. His new title puts him in charge of strategy.
While he lacks the skills needed for that job, his advertising campaign to attack Google invoked controversy, and his new position could be a logical departure point for his return to Washington to wage a battle for the 2016 presidential campaign.
Microsoft declined to comment on the record. A source close to the company said, "Mark Penn is NOT departing Microsoft."
Unfortunately, the reshuffling of Microsoft's executive deck chairs does not provide much insight into whether its stock price is cheap at current levels.
Who is Mark Penn? He was a political operative and pollster in Washington, D.C. before joining Microsoft. While there, he drove Scroogled -- a negative advertising campaign aimed at Google --designed to make consumers nervous about Google's privacy, according to the New York Times. While the campaign was criticized, the Times reported that Penn’s supporters at Microsoft "say they have data showing it has been effective."
But Re/code reports that Penn has been stripped of his control over Microsoft's advertising budget. While Steve Ballmer was CEO, Penn was EVP of advertising and strategy. Now that Satya Nadella has taken over, Penn's new title is EVP of strategy -- with Chris Capossela becoming EVP of marketing. Control of Microsoft's advertising budget shifts from Penn -- whose domain will be limited to "new product areas and strategic investments" -- to Capossela.
To be sure, strategy is essential to Microsoft. But what does strategy mean? There are two kinds -- business unit and corporate. Business unit strategy is about what a manager should do to make her line of business -- like operating systems or cloud services -- to be the dominant player in its industry.
Corporate strategy is deciding where a company should invest and what businesses it should sell. For example, should Microsoft sell its gaming business unit? Can Microsoft invest to build a dominant position in mobile advertising? It's also about figuring out how to use corporate skills -- like engineering and marketing -- to help such business units to grow faster and more profitably.
There is little doubt that Microsoft needs a better strategy. While it has done well in cloud services -- that business has grown at 10% and enjoys 82% gross margins, it has poured resources into gaming which has yielded limited profit -- the Xbox One has an estimated 6% gross margin.
And it has largely failed to build a compelling market position in smart phones (3.6% market share), tablets (2.1%), mobile advertising (scratch), search engine marketing (18%), or social media (scratch).
To figure out Microsoft's corporate and business unit strategies requires technology industry vision, the ability to assess competitors' capabilities and whether Microsoft can prevail against the likes of Apple, Google and Facebook, and product and marketing insight.
I would bet that Mark Penn is much better at developing political attack advertisements than doing those things. At one time, Bill Gates would have been the perfect person for that job. But his strategy skill set will be tested during the third of his time that he spends advising Nadella.
It seems to me that Penn's job now is to find himself another one because there is not a good fit between his skill set and what the EVP of strategy job requires.
I believe that with the right focus -- perhaps putting most of its chips on cloud services -- where it has a 13% market share -- in a bid to take share from rivals like Amazon, IBM, Google, and Salesforce.com and spinning off the rest -- Microsoft could become a growth stock again.
Unfortunately, Penn lacks the skills needed to figure out the right strategy.
