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.

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