My last column was all about the culture of Microsoft and how it makes real change difficult for the company. It’s not just at Microsoft that these things happen, by the way: nearly all mature organizations get into similar ruts. And if, like Microsoft, they are spectacularly profitable ruts, well then it isn’t surprising that things stay more or less permanently dysfunctional.

I said last time that a second column would follow with my specific suggestions for restructuring Microsoft, but now that I am really into it I think we might be looking at a total of three columns, not two. But then I’ll be finished with Microsoft for a few months.

Setting out to rebuild Microsoft for the next 30 years it is tempting simply to throw away the parts of the company that don’t make money, which is to say almost everything except Windows, Office, and MAYBE the xBox. Most parts of Microsoft lose money. But those parts that are profitable are SO profitable that they more than make up for all the losers, as I have explained ad nauseum before.

The part of Microsoft that it would initially make sense to dump is easy — everything related to MSN, including MSNBC, the MSN home page, and the many MSN websites. Even though some MSN sites are relatively successful, such as MSN Money, Microsoft should never have gone into the content business and stayed there so long. It’s not Microsoft’s core business, and MSN has cost the company billions of dollars over the years.

But I said it would INITIALLY make sense to dump MSN, not that I still believe that completely. After all, wasn’t it MSN that Microsoft intended to augment by attempting to buy Yahoo for $44 billion? How could Microsoft be so stupid to throw another $44 billion into a toilet that already contained close to $10 billion in cumulative MSN losses over the years? Yet CEO Steve Ballmer seemed very intent on doing just that.

The arguments for dumping MSN are that it never made money and never felt like the rest of Microsoft. The arguments for keeping MSN are that in many ways it is the future of PC technology and Yahoo has shown it is possible to make a pretty good living in the content business. Just because MSN hasn’t made money doesn’t mean MSN COULDN’T have made money if that was an important goal.

One could argue, in fact, that someday the Windows and Office franchises will start to fade so Microsoft needs to learn how to build new and successful lines of business. Yes MSN, so far, has been a failure. It is a management failure and to be successful well into the future, Microsoft needs to fix this problem.

Yet there is big money still to be made online as Google and Yahoo have shown and it is something Microsoft should somehow do. Microsoft needs several new lines of business that can each generate billions in profits. “Online” has the potential to do that. There are big bucks to be made there and Microsoft needs to be in the game.

The problem, though, is that the folks in Redmond don’t know how to build an online business, which is a big reason why they wanted to buy Yahoo. Ballmer suggested, remember, that Yahoo’s DNA, not MSN’s would be perpetuated in the combined online business. This is a nice argument, but who can believe that Microsoft would spend $44 billion and then not take an active and probably destructive role in managing that business? I can’t. Worse still, it can be argued Yahoo has forgotten how to manage an online business, too, for reasons I have written about in the past. But Microsoft was willing to take that risk, or so they said. There was a good foundation for an online business at Yahoo and it could be obtained at a bargain basement price.

Only it wouldn’t work. Microsoft would meddle and screw it up while Yahoo might just as easily self-destruct.

The only answer to optimizing the online operations of both companies, then, would be for YAHOO TO BUY MSN.

This actually makes some sense in a weird way. The only way to keep Microsoft from screwing-up Yahoo is by making Microsoft a minority partner in the operation. The only way to push Yahoo management into being less boneheaded in its own way is by having a demanding minority owner. And you can be sure Ballmer would be demanding.

Let’s put a value of MSN at $10 billion giving the combined companies a worth of $29 billion and Microsoft a 34 percent ownership of Yahoo, perhaps with warrants to buy the rest at some later date under certain conditions.

Yahoo, for all its problems, knows how to make money on the Internet. It could use Hotmail and other parts of MSN to increase economies of scale and become even more successful. Yahoo still wouldn’t defeat Google but it would be a much stronger number two and even number one in certain areas. Because Microsoft couldn’t control Yahoo it couldn’t impose Microsoft culture on it. Because Microsoft was a big enough minority owner, it COULD push Yahoo into being more logical, less emotional, and probably more profitable – something Microsoft could never force MSN to do itself.

And Microsoft, suddenly unburdened by MSN losses would look better to Wall Street, which would appreciate, too, any option to recapture Yahoo at a later date, but only if it made sense then to do so.

Unlike Microsoft buying Yahoo or even Yahoo remaining completely independent as it is now, this plan actually makes some sense, at least to me. But then you know me…

Next column we’ll deal with the rest of Microsoft, chopping those 20,000 to 50,000 heads.

New Kindle?

A few hours from when I’m writing this Amazon will reportedly introduce the second-generation Kindle ebook reader. A lot of money has been lost on ebooks over the years and I have my doubts that the Kindle is yet profitable. Still, if any company can make a go of eBooks it is probably Amazon. As for what’s in the new Kindle I’ll take a chance and guess right here.

It will be thinner, have a better user interface and probably a touch screen of sorts. Also I shot some interviews last year at E-Ink near Boston and got some idea of where that technology, which is used in the Kindle, is headed. Last spring I saw full color video running on an E-Ink display, so I’m guessing that will be a part of the next Kindle, too. But that’s as far as my guessing goes.

Update –The Kindle 2 has now been announced. As predicted it is lighter, thinner, and faster, but it doesn’t have a color screen — 16-level grayscale instead. That color model must be the Kindle 3. –Bob

All Bob All the Time!

Now some news about me. Sometime this spring I will start a weekly online video show in cooperation with the Computer History Museum in Mountain View, California. Think of this as a follow on and an improvement to NerdTV. It will be 52 weeks per year and unlike anything you’ve seen to date on the Internet, even from me.

This spring I will also start writing a blog about the global financial crisis with my friend of 25 years Adam Smith, author of The Money Game, Super Money, Paper Money, etc. and for 14 years the managing editor of Adam Smith’s Money World on PBS. I’m definitely the junior partner in this operation, which will be done as a co-production with a major New York publisher.

My reasons for mentioning these two projects are entirely self-serving: we need sponsors. If we can bring in a launch advertiser for the blog, especially, we can grandfather that arrangement at a lower CPM before the New York guys get a chance to mess with it. So give me a call if you or your company are seriously interested.