The Ballmer Days Are Over

Disclaimer: I own Microsoft stock. Yes, this is not pro-Microsoft but I feel the need to be very open about this.

He’s employee number 30 and has been with Microsoft since mid-1980. In 2000, after nearly 20 years of service, Microsoft promoted Steve Ballmer to Chief Executive Officer. In the ten plus years that Ballmer has been at the helm of Microsoft he has done this to the company:

As you can see that’s not looking very pretty, but that data alone doesn’t tell the entire story. To be fair we have to look at what the stock market in general has done too. Here’s the same plot with the NASDAQ data along with MSFT’s (note I chose NASDAQ because the index best reflects the business of Microsoft):

It’s pretty obvious from the chart that Microsoft has been moving right along with the NASDAQ, or it has been moving the NASDAQ right along with it — however you want to look at it.

From these two charts it seems rather obvious that Microsoft is on a downward trend, but is that accurate? Let’s look at the same chart, but remove NASDAQ and add in Apple and Google:

Once you do that it seems pretty obvious that Microsoft has been slowly declining, while Google and Apple have been taking off like a rocket since 2004.

While these charts are anything but proof of bad management — in business school the first thing they teach you about CEO’s is: it is the CEO’s job to increase the shareholder value of the company. Since taking the position Ballmer has decreased shareholder value, as reflected by stock price, by -56.63%. That. Is. Not. Good.

Countdown

I think it is appropriate at this time to start the countdown of how long Ballmer has left until he “steps down”. 1 This Skype deal should be the final nail in the coffin for the Ballmer era at Microsoft, yet I fear that employee number 30 may get a reprieve. Let’s take a stroll down Ballmer memory lane:

$8.5 BILLION

Ballmer’s acquisition of Skype for $8.5 billion dollars is not only a gross overpay, but a complete waste of money for Microsoft. Ballmer has yet to lay out a clear reason why Microsoft wanted Skype. He has only stated the obvious: integration in Microsoft products — which could have been done in a partnership instead of an acquisition. In fact, the acquisition by most accounts sounded more like a move by Ballmer to buy something that others 2 may have wanted to own — just for the sake of others not owning it.

Beyond that is the fact that Microsoft has 89,000 employees — are you telling me that the company that put a computer in every home couldn’t create a Skype clone?

Not only could Skype have been made in-house, Skype should have been made in-house by Microsoft.

Even if it would have cost $1 billion dollars Microsoft would have been better off creating Skype in-house. Does anybody really think Apple spent anything close to $1 billion dollars building FaceTime?

This entire acquisition feels like a desperate move, made by a desperate man. As a shareholder I hope that the regulators stop the acquisition, but I highly doubt that will happen.

The iPhone

Ballmer is now famous for saying:

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% or 70% or 80% of them, than I would to have 2% or 3%, which is what Apple might get.

We can get into talking tough and all that, but Ballmer — as the face of Microsoft — should have never made such a short sighted comment about any product released by a serious competitor like Apple. What is less quoted is the comments he made immediately following the above:

In the case of music, Apple got out early. They were the first to really recognize that you couldn’t just think about the device and all the pieces separately. Bravo. Credit that to Steve (Jobs) and Apple. They did a nice job.

But it’s not like we’re at the end of the line of innovation that’s going to come in the way people listen to music, watch videos, etc. I’ll bet our ads will be less edgy. But my 85-year-old uncle probably will never own an iPod, and I hope we’ll get him to own a Zune.

What is so shocking about this is that Ballmer recognizes that first to market is important — yet it took until 2010 to launch Windows Phone 7, three years after the iPhone.

Where is the “innovation” that Ballmer mentions in the music space — the Zune is effectively dead now and I bet his Uncle does have an iPod at this point. 3

This is the epitome of short sighted behavior by Ballmer and should have made the board and shareholders incredibly un-easy at the time and especially now. Instead it bolstered his support as a man who was going to squash the evil Apple bug.

Short sighted behavior like this can and should be forgiven if the person later recognizes his errors and immediately moves to correct it, yet again though it took three years to get a serious iPhone competitor out of Microsoft. They never created a music/video player that gained traction after the Zune faded into Wikipedia archives. That cannot and should not be forgiven.

Windows Phone 7

As I mentioned above Windows Phone 7 was seriously late to the party. Three years late means that most consumers Microsoft was targeting were on at least their second iPhone before Microsoft started to slowly ship Windows Phone 7. Add to that the basic lack of now common place smart phone features and you begin to see that Microsoft shipped a product that was competitive with the software from three years ago.

Windows Phone 7 may stand to be a long term success for Microsoft, but I doubt it. It is a product that in every way shows why Ballmer should not be in charge any longer. It was late and short sighted about the current market needs. In 2006 Windows Phone 7 would have blown away every technophile, this one included, in 2010 it is interesting and underwhelming.

I can assure you there are no crowds forming to get one.

It is the Zune all over again — a solid offering made far too late to make a substantial difference.

Windows Mobile

Windows Mobile 6.5 was a powerhouse of a product. Pre-2007 most U.S. buyers of smart phones chose between BlackBerry and Windows Mobile 6.5 5. 4 Both were small screened devices with a hardware keyboard — with exception to the few HTC devices with stylus based touch screens. Palm was struggling at the time and Windows Mobile was the dominant player in consumer minds, BlackBerry was the beast in boardrooms.

In the U.S. it was a two platform market for the most part — the iPhone changed that. BlackBerry immediately started to make clones with the Storm launching in 2008. Microsoft could have started shipping compelling devices — instead they squandered what little market they had until it was an insignificant market share. So much for that 60% Ballmer wanted.

Copycats

In 2005 Apple held its World Wide Developer Conference with banners hanging that read: “Redmond, start your photocopiers.” Microsoft used to have a knack for taking any technology that was upcoming, copying it and launching it under their moniker(s) and squashing that small company. Apple made a joke about it, but Ballmer should have taken it as a directive. Instead it wasn’t until a year later when Microsoft released the heavily troubled and much criticized Windows Vista.

Copying your competition is not necessarily a poor business move — Microsoft itself has proven time and time again that you can be very successful by doing so. Ballmer has continued this tradition, but with a glaring difference: tardiness. Where Microsoft used to be fast to copy and shut down these companies — before traction was gained — they have now been slow — and comically bad — at copying others. What happened?

Hell, Microsoft used to innovate too, but even that seems to have disappeared (unless you count the Office Ribbon interface).

Danger, Danger

In 2008 Microsoft paid $500 million for Danger. This was Ballmer’s response to the iPhone: an acquisition that went (almost) no where. I could say more, but Michal Lev-Ram of Fortune does a better job:

Microsoft says most of the team working on Danger has already been absorbed in to the Windows Phone 7 group (Microsoft’s home-brewed mobile operating system). But the Redmond-based software giant had much bigger plans for Danger back in 2008, when it announced it was buying the small Palo Alto, Calif. company. The plan was to tap into the Sidekick-maker’s “deep understanding of consumers” and its “young and enthusiastic, internet-savvy and socially inclined” customer base (according to a company release from 2008). Obviously, that never quite happened.

The Infamous iPhone Funeral

About a month before the launch of Windows Phone 7, Microsoft held an iPhone funeral procession in Redmond. This is not something a confident business does, this is something an arrogant business does — regardless of what company does something like this it is both childish and stupid. Not to mention that the people in the parade look like evil servants, complete with a Darth Vader on a motorcycle.

It’s silly — and it was done in good fun to boost employee morale. None of that matters though because a good CEO would have never let that happen and that fact that Ballmer let it happen says a lot about him as CEO: arrogant to a fault.

Next Steps

The above are all recaps of the things that Ballmer has had a hand in over the last ten years that should be enough to give the board a reason to remove him. The scariest thought isn’t Ballmer remaining in power — it’s who his successor may be. My guess is that it is another long time employee (calling #40), but that would be a worse decision than letting Ballmer blow money on hookers and Skype.

There are two things Microsoft needs to do now before it is really time to fret.

New CEO

Microsoft should be searching for a new CEO right now. The Skype acquisition damage can still be mitigated if the proper people are put in place to immediately leverage the Skype brand. A new CEO should be:

  1. Passionate about technology: don’t you get the feeling that Ballmer doesn’t really care about the products that Microsoft makes, in the same way that Steve Jobs cares about how employee shuttle buses look and how and where color is applied? Any new CEO should love technology and that will begin to show at Microsoft like it did when Gates was still at the helm if the right person is hired. Ballmer seems to care more about being the biggest thing on the market instead of the products his company creates.
  2. Forward thinking: Ballmer has shown his short sightedness time and time again, let’s get an executive with some vision. It is time that Microsoft starts creating new markets instead of trying to understand markets that their competitors are creating.
  3. An outsider: this is going to be the hardest thing for Microsoft to realize, but they need to get some fresh eyes on the problem. At the very least it should be someone who has not spent more than the last five years with the company. Microsoft needs a fresh outside perspective. An insider will just keep following the GPS coordinates that have been set forth by Ballmer.

Talent

The second thing Microsoft needs to focus on is acquiring talent and not product names. They should be making acquisitions that bring in top notch talent. Microsoft used to be the top pick for young budding tech stars, today that is hardly the case. 5

If Microsoft wants a chance and long term survivorship they need to make themselves appealing to young stars. You can’t appeal to this young crop of talent unless you offer compelling products. More and more job selection for the elite talent is less about money and more about job satisfaction. Microsoft’s best bet here is to start acquiring fresh young companies and keeping the talent that comes with it.

The End?

Microsoft isn’t dead yet, nor will it be soon. It is however in the early stages of death and Ballmer isn’t going to the hospital — he’s running to go party some more.

Microsoft needs a swift kick in the ass.

UPDATE: Let’s not forget about the failed Kin.

  1. Because high profile CEOs rarely get fired, typically they choose to resign instead.
  2. Read: Google, Facebook.
  3. I’m going to go with a shuffle that a family member bought for him to listen to Otis Redding on. Because who doesn’t like “Sitting on the dock of the bay”.
  4. 6.5 came out later, likely it was 5 at this time.
  5. With no disrespect to the many talented people that are currently working at Microsoft, or desire to work there. I know many Microsoft employees that are exceptional, they are just not being allowed to shine.
Originally posted for members on: May 12, 2011
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