Allow me to set the scene. It’s January 2007. The iPhone has just been announced and the tech world is going crazy. CNBC interviews Microsoft (s msft) CEO Steve Ballmer.
CNBC: “Let me ask you about the iPhone […] What was your first reaction when you saw that?”
Ballmer (laughs): “Five hundred dollars?!! Fully subsidized?!! With a plan?!! I said if that isn’t the most expensive phone in the world… and it doesn’t appeal to business customers because it doesn’t have a keyboard, which makes it not a very good email machine. Now, it may sell very well…”
And sell very well it did — the estimated total is now 37 million and counting. OK, so Ballmer was never going to clap his hands and rave about the iPhone, but while laughing dismissively might have irked Apple (s aapl) enthusiasts, it likely reassured Microsoft’s shareholders. Ballmer, after all, must answer to them.
In another interview, this time with USA Today in April 2007, Ballmer said, of becoming CEO of Microsoft:
“…the CEO in a lot of ways becomes the icon for many things in the business. The CEO establishes culture.”
This from the man who heaved himself, sweating and scarlet-faced, across a stage screaming with unbridled joy over Microsoft. Well, you can’t fault him for being passionate. Sadly, it’s a passion he doesn’t seem to want to celebrate or promote amongst Microsoft’s customers.
“USA Today: People get passionate when Apple comes out with something new[…]. Is that something that you’d want them to feel about Microsoft?
Ballmer: It’s sort of a funny question. Would I trade 96 percent of the market for 4 percent of the market? (Laughter.) […] There’s no chance that the iPhone is going to get any significant market share. No chance. It’s a $500 subsidized item. They may make a lot of money. But if you actually take a look at the 1.3 billion phones that get sold, I’d prefer to have our software in 60 percent or 70 percent or 80 percent of them, than I would to have 2 percent or 3 percent, which is what Apple might get.”
Let me take off my Apple Hat for a moment and consider his answer more carefully.
“It’s sort of a funny question.” Steve, how is it a funny question? It’s a very simple question. Would you like your customers to be as passionate, loyal and fanatical about your products as Apple’s customer base is to its?
If I were a Microsoft shareholder, sure, I want to hear you reinforce the fact that 80 percent market share is more attractive than 3 percent. But I also want to hear you acknowledge that customer enthusiasm — particularly of the Apple Fanboy variety — is at least desirable. I want to know that you’re pushing the boundaries everywhere, not just in the corporate world. You don’t seem to mind whooping and skipping when you want to share your passion for Microsoft. So why is it a “funny” question to ask if you want to engender that same passion in your customers?
Furthermore, according to Gartner, this is how worldwide Smartphone Sales by Operating System looked, first in 2007, the same year Ballmer dismissed the iPhone, and then again 12 months later.
When a Bad Economy is a Good Thing
In March, at the McGraw-Hill Companies’ 2009 Media Summit, Ballmer said of a slight downturn in Apple sales:
“The economy is helpful. Paying an extra $500 for a computer in this environment — same piece of hardware — paying $500 more to get a logo on it? I think that’s a more challenging proposition for the average person than it used to be.”
Superficially, this sounds like common sense. I mean, a laptop is a laptop, right? Whether it’s wrapped in plastic or aluminum, you’re talking a chip (probably Intel), a few gigs of RAM, a keyboard and a screen. To the blissfully unaware, to the Lauren’s of this world…the difference is little more than a glowing fruit on the lid.
What Ballmer is really saying here is distasteful, not just in what it implies but also because he didn’t even try to make the point subtly. He’s suggesting Apple’s sales dipped because customers are struggling financially, not due to any special marketing strategy or other efforts on Microsoft’s part. To hang a lantern on it and tacitly state “The economy is helpful” is crass and insensitive. I wonder how the marketing team in Redmond felt when they heard their boss say that?
The Numbers Don’t Lie
Fast forward to this week. Apple announced its latest quarterly earnings. In Apple’s own words, its “best non-holiday quarter ever.” So much for Ballmer’s ‘helpful’ recession. Also, the Wall Street Journal reported that despite accounting for less than 3 percent of the global smartphone market, Apple’s iPhone has taken 20 percent of that market’s operating profits. Predictions from Deutsche Bank for year’s end point to Apple and RIM (s rimm) sharing 5 percent of the smartphone market and taking almost 60 percent of its profit.
Ballmer’s assertion that it’s better to have massive market share suddenly deserves scrutiny. Apple and RIM don’t command 60 percent of the market (yet) but they’re soon going to command 60 percent of its profits.
The iTunes store continues to perform superbly (8 billion songs downloaded as of June 2009), while the App Store is a smash hit. Mac sales have remained strong despite the crippling economy Ballmer relies upon to keep the competition in check.
I’m Not Taking Shots
This article isn’t about taking an easy shot at Microsoft, or gloating about Apple’s recent successes. I know, so far it reads that way, and I won’t deny there’s a certain satisfaction to be had basking in Apple’s glow. I’ve brought you on this journey to make a serious point that’s more about leadership and vision than smartphones, laptops or market share. (But those facts are crucial to placing these final thoughts in the right context.)
At the Media Summit Ballmer was asked if he used any Apple products. “No, none. I don’t, my sons don’t, my wife doesn’t.”
Imagine you are a Microsoft shareholder with a vested financial interest in Microsoft’s success. Certainly you don’t want the CEO to promote the competition, but you do want him to demonstrate he’s in touch with the real world.
Surely the right answer should have been, “Yes, I have an iPod. I also have a Zune, of course, and a Zen. I have them all. It’s important to see how they work — see what choices our customers have. I want to experience first-hand where these products succeed, and where they fail. So, sure, I have an iPod. I have all the other music players, too!”
But, no. Instead we got Ballmer’s typical, speaks-before-he-thinks derision.
Ballmer said a CEO “establishes culture.” If Microsoft is looking to him for its creative and business leadership, no wonder Windows Mobile 7 is practically vaporware and the company’s next operating system is referred to by many not as an incredible new OS but instead as Vista “done right.”
Ballmer appears less relevant with each passing year. He’s not a man to respect or fear, despite chair-tossing antics. Rather, he’s becoming a sad and lonely figure, out of touch with the tech industry outside of Microsoft’s dusty old-boy network.
But why should it matter if Microsoft has crummy leadership? We don’t care, right? Good riddance to ‘em?
It matters because, if Microsoft does a lousy job it will ship lousy products. Apple will therefore face less vigorous competition. In any market, when competition is weak or lackluster, the dominant player becomes complacent. It’s hard to justify the R&D costs of constant, breathtaking innovation when the competition isn’t doing the same.
We need a creative, innovative Microsoft that today behaves with the same hunger for success it had in the 70’s. As long as we have that, we’ll have an Apple that stays one step ahead, delivering products Microsoft can only aspire to produce. We can’t get there with Ballmer in the driving seat. He’s out of his depth, and it doesn’t matter how much he sweats as he screams “Developers! Developers! Developers!”; he simply fails to inspire creativity or confidence — just as he fails to recognize opportunities in new/developing markets, such as mobile media or the rapidly-changing smartphone space.
We need a Microsoft as imaginative and exciting as Apple. If that could happen, just imagine what Apple would do to raise the bar ever-higher. I’ll leave you with one more excerpt from that 2007 USA Today interview.
“USA Today: You don’t find you’ve got a problem with people saying, “Sorry, but I really think you’re wrong here”?
Ballmer: That happens all the time. From 10 this morning until I came over here, I got more “Steve, that’s wrongs” than I got “Steve, that’s rights” today. It was two to one, “Steve, that’s wrongs.”
He’s just not getting it, is he? Maybe someone’s trying to tell him something…