Ballmer’s departure will follow years of missed opportunities for Microsoft


Microsoft CEO Steve Ballmer gestures during his keynote address at the Microsoft "Build" conference in San Francisco, California in this June file photo. He will step down in a year, Microsoft said Friday. (ROBERT GALBRAITH/REUTERS)
August 23, 2013

In the 13 years that Steve Ballmer has led Microsoft, literature has climbed out of books, songs have freed themselves from CDs and computers have leapt off their desktops — and into our hands. An exhilarating new world of technology has emerged with little help from a company that once dominated the industry.

Wall Street greeted word of Ballmer’s looming retirement with glee, bidding up the company’s stock by more than 7 percent in the hours after Friday’s announcement. But analysts say the firm’s fortunes still will face the problem that undermined Ballmer: Microsoft’s profits are tied to the popularity of personal computers, a technology declining steadily in our increasingly mobile world.

Ballmer, 57, recently had sought to pivot away from the PC, shifting strategy, instituting a corporate shake-up and releasing new products aimed at the tech-savvy consumers that long had shunned many Microsoft offerings. Yet, as often was the case under his tenure, Ballmer moved too little, too late, analysts said.

“The big shift was mobile,” said J.P. Gownder, an industry analyst with Forrester. “He will be criticized, and rightly so, for having missed a revolution that was very clearly coming from the mid-’90s on.”

Sales of smartphones rose 46 percent and those of tablet computers 78 percent in 2012 compared with the year before, according to IDC, an industry-analysis group. Meanwhile, sales of desktop and portable computers sagged, as have the fortunes of companies that make related products, such as software.

Ballmer is a brash, exuberant, natural-born salesman — especially compared with the cerebral Microsoft founder Bill Gates, a former Harvard classmate who hired Ballmer in 1980, near the dawn of the PC industry.

The company portrayed the departure as voluntary, but it comes amid rising complaints among investors and a month after a disappointing earnings report sent the company’s share price down by 11 percent.

Among the problems was a $900 million write-off related to poor sales of the Surface tablet computer, praised by reviewers but largely ignored by consumers. Microsoft has struggled as well with the rollout of the Windows Phone and its latest PC operating system, Windows 8.

“There is never a perfect time for this type of transition, but now is the right time,” Ballmer said in a company statement. “We have embarked on a new strategy with a new organization and we have an amazing Senior Leadership Team. My original thoughts on timing would have had my retirement happen in the middle of our company’s transformation to a devices and services company. We need a CEO who will be here longer term for this new direction.”

The product misfires, analysts say, fell into a familiar pattern, with Microsoft moving into markets after other companies already had established loyalty among customers. Its Zune music player lost out to Apple’s iPod. The Windows line of phones has made little dent in a market dominated by the iPhone and several Android devices. Microsoft’s Bing search engine lags far behind Google.

Perhaps the most telling failure has been in tablet computers. Microsoft developed its own tablet, called the Courier, only to kill it in 2010, ahead of the launch date. That same year, Apple released its first iPad, which became one of the most successful consumer products in electronics history.

By the time Microsoft released its Surface tablet last year, Amazon, Google and other companies had established popular alternatives to the iPad. (Amazon founder and chief executive Jeffrey P. Bezos has agreed to purchase The Washington Post in a deal expected to close this year.)

“What Ballmer’s departure tells us is that perception is important in this market — especially Microsoft’s not being perceived as an innovator, not being perceived as sexy,” said David Cearley, a Gartner analyst.

Refining the innovations of others was an effective strategy for Microsoft in earlier eras. Under Gates, Microsoft created the Windows operating system by mimicking the graphical interface first popularized by Apple’s Macintosh computers. Microsoft’s Web browser, Internet Explorer, was inspired by earlier competitor Netscape Navigator.

Those successes were so total that Microsoft’s market dominance — and its ruthless tactics against competitors — eventually provoked a historic showdown with the Justice Department’s antitrust division. That led to a federal judge ruling in 2000 that the company was “an abusive monopoly.”

Ballmer, although long in Microsoft’s top ranks, brought a different approach when he took over the company from Gates that year, leading efforts to repair relations with the U.S. government and other technology companies. By some accounts, Microsoft became less ruthless but also less opportunistic in spotting and exploiting markets.

His era — which is to end officially when Microsoft finds a replacement, expected in the next 12 months — has had several notable successes, not the least of which has been the continued profitability of the company’s core Windows and Office software products. The company has developed a massive stockpile of cash, giving it leverage to move into any business it targets.

Ballmer also oversaw the development of Microsoft’s Azure, a major player in the growing cloud-computing industry, and the development of the popular Xbox gaming system. Xbox developed with relatively little oversight from Microsoft’s top executives, allowing its designers to challenge Sony’s popular PlayStation 2 and to embrace the idea of making a gaming console a wider entertainment device, as Xbox did through its partnership with Netflix.

Under Ballmer, Microsoft also acquired Skype, giving the company a foothold in the fast-
changing telecommunications industry.

Microsoft’s successes have been notable for avoiding direct challenges to the main sources of the company’s profits, the Windows operating system and Office software suite. Product ideas that threatened to disrupt those businesses were quashed over the years by executives determined to protect their lucrative turf.

One idea developed in 2000, about the time Ballmer took over the company, would have offered users Web-based programs for handling documents — a part of the market long cornered by Microsoft Office. As the launch date approached, senior executives quietly killed it, said James Grimmelmann, a former Microsoft developer who worked on the project. He is now a law professor at the University of Maryland.

“Every piece of the turf was owned by some powerful business group that made it really hard to launch something profoundly innovative,” said Grimmelmann, who left Microsoft in 2001.

A similar product was launched in 2005 — by Google.

Grimmelmann said the ongoing tension within Microsoft is exemplified by the company’s latest computer operating system, Windows 8. It offers users both a traditional interface and a newer one that is inspired by the touch-screen technology that has powered the growth of smartphones and other mobile devices. Many consumers, however, have balked at Windows 8, finding the operating system confusing. A simplified update is due soon.

“By not removing the old interface,” Grimmelmann said, “they guaranteed the failure of the new one.”

craig.timberg@washpost.com

Hayley Tsukayama contributed to this report.

Related stories:

The Xbox: A successfull anomaly for Microsoft, Ballmer

Microsoft’s decline wasn’t Steve Ballmer’s fault

Follow The Post’s new tech blog, The Switch, where technology and policy connect.

Craig Timberg is a national technology reporter for The Post.
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