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Ballmer Tap-Dancing On A Wire As World Moves On Without Microsoft

It’s been almost 20 years since IBM’s Lou Gerstner got an elephant to dance. Now Microsoft (NSDQ: MSFT), one of the companies that forced IBM to confront its problems, finds itself in need of a new dance partner who understands the realities of 21st-century computing. Steve Ballmer is not that person.

Microsoft is at a crossroads, not the first one it has stared down in its 36-year-history, but perhaps the most important. It is both enormously successful and astonishingly off-course at the same time, generating billions in profits off of Windows and Office but ill-prepared and out-gunned in making the transition to a new style of computing that old rivals like Apple (NSDQ: AAPL) and Google (NSDQ: GOOG) are appearing to lock up for themselves. As a result, its stock has been stagnant for quite some time, prompting no small amount of grumbling among its investors.

That frustration boiled over this week. David Einhorn, a hedge-fund manager famous for betting against Lehman Brothers just before it collapsed and infamous for investing $200 million in the lackluster New York Mets (a baseball team with which, in the interest of full disclosure, I have carried on an irrational love affair since the mid-1980s), called Ballmer and Microsoft’s board on the carpet.

“(Ballmer’s) continued presence is the biggest overhang on Microsoft stock,” Einhorn said at the prestigious Ira Sohn Investment Conference, a gathering of some of the best minds in finance to discuss investment opportunities. “Ballmer’s problem is he’s stuck in the past,” he said, as reported by the Wall Street Journal.

Microsoft’s board quickly rallied to Ballmer’s defense. But after witnessing the last six months of Microsoft’s mobile strategy, one has to wonder how much rope the charismatic CEO has been given. Windows Phone 7 is the best mobile software the company has released to date, but it’s languishing amid developer fatigue. Microsoft is counting on a groundbreaking partnership with Nokia (NYSE: NOK) to jump-start demand, a gambit that will require both companies to quickly roll out innovative products that can give consumers and developers a reason to think twice about the iPhone or Android. And we still aren’t quite sure what they have in mind for tablets.

For all the angst, the overall situation is not catastrophic. Despite all the clamor over slowing demand for PCs, that type of computer isn’t going anywhere for a very long time, and Microsoft enjoys a dominant position in both the operating system for that type of computer as well as one of its most useful applications. But it finds itself in the same position in that IBM finally hit in the early 90s: long on history, flush with cash and short on vision.

It took a new CEO from a completely different industry who was willing to question every single part of IBM’s business and culture in order to prime the company for a new era, and IBM remains one of the strongest tech companies on the planet as a result. Perhaps not as top-of-mind as it once was, but secure in its own identity and now once again more valuable than Microsoft.

Microsoft needs such a leader. Microsoft has made but two commendable forward-thinking product and strategic decisions since the dot-com bubble: the commercialization of the Xbox and a shrewd investment in Facebook that will one day pay huge dividends. Everything else has been a wash, from the Zune to the Kin, from a willingness to let Intel’s short-term concerns impact a huge product launch to its bizarre courtship of Yahoo.

The last five years marked the beginning of a sea change in the technology industry, one in which money, talent, gumption, and buzz have encircled a new type of computer. And at the same time, those using traditional personal computers are spending more and more of their time in the browser as opposed to running native applications, a trend that does not benefit Microsoft.

Ryan Block of gdgt suggested that only Bill Gates could right Microsoft’s ship by coming back to helm the company he founded, but truth be told, even Gates isn’t right for Microsoft at the moment. After all, Gates remains the chairman and single-largest shareholder of Microsoft: if he wanted Steve Ballmer to be gone, Steve Ballmer would be gone.

“Transformation of an enterprise begins with a sense of crisis or urgency,” Gerstner told Harvard Business School students in 2002, recalling his first days at IBM. “No institution will go through fundamental change unless it believes it is in deep trouble and needs to do something different to survive.”

Perhaps the only way that Microsoft board members and shareholders can create that sense of urgency is by making a huge statement in removing the man perhaps most responsible for forcing their hand, and by selecting a replacement completely disengaged from Microsoft’s current state of mind to reinvigorate the company. Sometimes, if the party turns sour, it’s better to dance with someone other than the one that brung ya.

19 Responses to “Ballmer Tap-Dancing On A Wire As World Moves On Without Microsoft”

  1. Correction: To this date, the Xbox product line has not yet recouped its development costs. While it is profitable now, for many years it was a major drain of Microsoft’s cash. 

  2. The Werewolf

    You know – Microsoft still commands around 90% of the computer market for OSes. They make the most widely used office software suite – even when there’s a free one competing with it. Most servers are still running Windows and most browsers are still made by Microsoft.

    It never fails to amuse me when yet another pundit comes along to explain why Microsoft is doomed or Ballmer should go based solely on MSFT’s stock pricing. The stock price is really not very important to anyone but investors. Microsoft doesn’t get anything when issued shares are traded and with a company with this much money in the bank, even the loan potentials of a high value stock isn’t that important.

    Apple’s shares are high because right now, they’re everyone’s darling. You can’t read any tech blog or watch any tech show (or even non-tech show) without seeing them and disturbingly uncritical ‘reviews’ of their products. Apple has done one thing very, very right – they know how to get their products in everyone’s faces.

    THAT one thing is where Microsoft and Ballmer has consistently failed. But in every other way that actually counts for anything, Microsoft is doing just fine, thank you.

    • synthmeister

      Apple is everyone’s darling because they have created at least four new, hugely profitable, strategic divisions in the company in the last 10 years: 

      1. The iPod
      2. The Apple Retail network
      3. The iPhone
      4. The iPad.

      Gross margins have reached over $10.3 billion in the quarter, increasing 543% from five years ago. Name one other company that has accomplished that in the last decade.

      Yes, they got their products in “everyone’s faces” but that’s only half the battle–people actually liked their products and bought them. The same cannot be said for MS’s new initiatives in the last decade. Plays-fer Sure, Zune, WinMo, online music, app stores, tablets have all flopped. Even their lone “success”, the X-Box has been a money pit for most of it’s life.

      Yes, Office and Windows will make obscene profits for years but MS is simply lost in the mobile space which is where the future growth will be.

    • Steve

      The thing is…people defended Nokia for years with the same arguments about how successful they are.  No one is arguing their successful past.  The issue is the long-term future.  As an exec at a mobile app startup, I can tell you that MSFT has a long way to go before it wins back the hearts and minds of developers.  The platform war for mobile computing is happening now, and MSFT isn’t really on the battlefield.

  3. AlanL

    The number of errors in logic and basic research in this ‘article’ and the comments for that matter are staggering. Google is not an old rival of Microsoft, nor is Apple. Google isn’t even old and Apple has only recently become a rival. They are rivals in very limited areas. IBM and Oracle are both much BIGGER rivals of Microsoft than either Apple or Google. Just not in places that this very limited article even recognizes as existing.

    Microsoft does have a lot of successful rivals – it always has had them – because it is involved in more sectors of the tech market than any other company.

    Take the cloud for example. The real facts are that both Google and Apple are barely even in the cloud – they both make precisely NO money at it and to consider them in any way leading the way there is laughable. In fact Microsoft is the biggest company in the cloud and the company with the greatest breadth of offerings against a range of real competitors – which are companies like Amazon, IBM, Oracle, VMware and Salesforce.

    Apple is a hardware company – their real competitors are HP and Dell and Samsung, etc.

    Google is an advertising company – competitors are Yahoo, AOL, and a host of small competitors – where Microsoft can also be considered a small competitor.

    If you think they compete in operating systems think again. Apple provides operating systems to power its hardware but makes no money from them. Google provides operating systems to power other people’s hardware – and makes no money from them. Microsoft may actually be making more money off Android than Google is.

    Linux is a success as on operating system but not as a business.

    You might ask why Microsoft’s stock is stagnant then if the company is doing so well? Good question. But a much better one would be why anyone thinks Wall Street has a clue after the last five years?

    • Apple is selling hardware & software together, but make no mistake: people are buying Apple products for the software (whether it be IOS, OSX, iLife, or simply the software features of an iPod classic. It’s what differentiates Apple products most from the competition.


    WP7 on it’s own look far better than Android, but Android has baked utilities like G-mail, Maps, Google Voice, You Tube and so on. WP7 looks great but is still so far behind. Windows and Office will soon be irrelevant as must-haves.

  5. Where would Microsoft be today if it had lost its lawsuit with Apple to use GUI back in the 80s instead of DOS on its original Windows release? Ballmer & Gates might actually be retired engineers living on Social Security checks. Ballmer is there by default, Microsoft stock is stagnant because of Ballmer. Stockholders need to vote.

    • Ira Thurby-Wright

      “Steve Jobs is not and has never been an engineer”

      You are correct, he’s an architect. Imagine without Steve Jobs, the architect, you’d never have heard of “Apple”!

      • The Werewolf

        Sure – if you ignore that almost 15 year period when Jobs had nothing to do with Apple and they had similar market shares to what Apple has now in the computer market…

        But hey – every company needs a P. T. Barnum because as the original noted; There’s a sucker born every minute.

  6. INTEL, CISCO, MSFT all three need new leaders with engineering or scientific backgrounds at various levels, instead what we are getting is CFOs & Sales people heading, that is the fundamental problem.

    Imagine if Steve Jobs was not an Engineer, would you have heard of “apple”?

  7. Andrew

    It would be nice to see an article stating what Microsoft should do from a product or strategy perspective (that they are not already doing) to be properly positioned for this next wave of mobile and cloud computing vs just reading yet another article calling for the CEO’s head.

    • Agreed, but that’s just the thing: no real change at Microsoft can take place until Ballmer is gone. Until then, they’ll just continue to protect the old interests while tiptoeing into the new world.

  8. arcana

    The “developer fatigue” mentioned in the article refers to a study done by Appcelerator (a maker of iOS and Android development tools ONLY) on their users (iOS and Android developers ONLY)… So no argument can be made out of it (of course they will not focus on WP7 development…). 

    That is if you are *not* trying to stretch a point to favor your argument no matter what…. Post the actual numbers (not some biased study) and let your readers be the judge: 

    • Developer fatigue is something that we have established beyond that particular survey, through conversations with those responsible for mobile strategies at both major corporations and startups:

    • Sure an argument can be made out of it. The vast majority of successful iOS/Android apps is available for both platforms. If these developers are not interested in WP7, then WP7 is missing the developers who obviously “get” mobile applications. MS is marketing “tablet PCs” since 2001 and the established desktop developers were not developing nothing for it; MS’s own “OneNote” is still the only decent “tablet PC” app after an entire decade (and almost the only one in total). MS needs to find a way to attract these mobile developers, otherwise WP7 will go nowhere. How MS intends to get developers who ignored the “tablet edition” for a decade to fare better for Windows 8 on tablets is the other big question.

  9. C_3PO

    Microsoft held on to the fact that the “PC” was all that mattered in home computing!  Google came along, blew that wide open, now with the integration of the “Cloud” Microsoft had to move with the times.  They have a tendency to be one step behind, regarding the mobile world, search engines whatever.  I use Office apps a lot but they really new a new CEO at the helm.  Balmer simply is “stale” and refuses to acknowledge that Microsoft missed the boat on many occasions.  Only time will tell who will win the “mobile phone wars”?