Monday, August 26, 2013

Steve Ballmer's Retiring - 14 Years Late

Bill Gates turned over management of Microsoft to Steve Ballmer in January 2000, naming him Chief Operating officer of Microsoft. Steve Ballmer announced last Friday that he will be retiring as CEO of Microsoft sometime in the next 12 months. Neither a successor nor interim CEO has been named. Ballmer’s performance as CEO is outstanding – on paper. The company had sales of profits of $9.421 billion when he became CEO and now profits of $21.503 billion, quite an impressive increase. Yet the stock price of Microsoft dropped from $53.91 to $34.71 during his reign, but jumped 7% when his resignation was announced. Full time employment increased from 39,000 to 99,000 during this period, with little to show for it. His reign has been termed Microsoft’s ”Lost Decade;” a 14 year lost decade. Perhaps his performance in office can be analogized to Arafat and the Palestinians. They never missed an opportunity to miss an opportunity. Microsoft’s sales and profits come its near monopoly in Windows and the Office Suite, a shrinking market. Apple rose from the dead with the IMac becoming a major seller as PC sales dropped. Apple gave us ITunes, Apps and the IPod. Steve Jobs at Apple revolutionized music distribution with the ITunes Store becoming the largest music retailer in the world. Ballmer countered with the Zune, which was terminated in 2011. Apple brought the IPad to the market. Ballmer responded years later with the Surface Tablet, which led to a $900 million write off last year. Steve Jobs unveiled the IPhone in 2007. Steve Ballmer is famously reported to have bad-mouthed the IPhone: “I see no chance that the IPhone is going to get any significant market share.” Google with its Android operating system is outselling Apple’s IPhone. Ballmer has entered into a deal with Nokia for the once dominant manufacturer of dumb phones to use the Windows Phone OS in its new smart phones. Nokia is sadly fading into the sunset, following Blackberry. Microsoft has never been known for the quality, reliability and cleanness of its operating systems, but it lows with Vista and now Windows 8. Google dominates the search market. Ballmer belated responded with Bing, which is only marginally successful eventhough it comes pre-installed in every Microsoft PC. Microsoft finally opened its retail stores in 2009, years after Apple’s highest grossing retail stores. You can often hear the sounds of silence as you walk past the Microsoft stores. Steve Ballmer’s problem was two-fold. First, he didn’t understand technology. Bill Gates and Paul Allen, Steve Jobs and Paul Wozniak, Larry Page and Sergei Brin, were all technology geeks. They saw things in Hi-Tech. Ballmer is smart, but he’s a “numbers guy.” His undergrad degree from Harvard was in applied mathematics and economics. He worked for Proctor & Gamble for two years and then dropped out of Stanford Business School to join his college friend, Bill Gates, at the fledging Microsoft. His second problem was that, like many monopolists or quasi-monopolists, he attempted to preserve the company’s existing markets, which meant stifling internal innovation. Microsoft, like past market dominators, is a follower- not a leader in technology. It buys technology, such as Hotmail and Skype. The one major success, albeit not very profitable, in the past 14 years is the X-Box, but that was designed by a small team outside the purview of his office. Steve Jobs famously removed Computers from Apple’s name. He recognized technology was the market – not the PC. Thus, Apple could adjust to the ITouch, the smart phone and the tablet, while Microsoft fumbled. Technology moves fast. IBM ultimately failed in PC’s. The future is not the PC. Steve Ballmer could not see outside the small box. He was the wrong leader for the then technology leader.

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