The Washington Post

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

Microsoft CEO Steve Ballmer announced Friday that he is stepping down within the next 12 months. Ballmer took over as chief executive from founder Bill Gates in 2000. And Microsoft's stock price suggests that Ballmer's tenure hasn't exactly been a smashing success:

Microsoft's stock price during Steve Ballmer's tenure as CEO. (Yahoo)

Ballmer wasn't a bad manager. He just had terrible timing. Most obviously, Ballmer took the reins at the peak of the dotcom boom. Virtually every stock in the technology industry took a big plunge between 2000 and 2002.

But Ballmer's larger problem is that throughout his 13-year tenure, he was swimming against some very powerful economic currents. His company's fate was inextricably tied to the success of the PC, and the PC's fortune peaked with the Nasdaq around 2000. The emergence of interactive Web applications around 2004 began to turn PCs into interchangeable commodities. Then Apple introduced the iPhone in 2007, and the iPad three years later, kicking off a tablet computing boom that left the PC in the dust.

These developments were a classic example of what Clay Christensen called disruptive innovation: cheap, simple innovations that gradually displace a more complex and expensive incumbent technology. History suggests that firms rarely survive when their core product is undermined by a disruptive technology.

Ballmer was hardly oblivious to the threat posed by Web and mobile apps. To the contrary, he has spent the last decade working feverishly to position Microsoft to respond effectively. Microsoft has poured hundreds of millions of dollars into its search, map, e-mail and other Web apps. And Microsoft had already been touting mobile and tablet computing ideas for years when Apple introduced the iPhone.

But disruptive innovations are hard for incumbents to deal with because the new technology is initially much less profitable than the technology it replaces. It's almost impossible for a CEO to get subordinates to take low margin-products like Bing or Windows Phone seriously when the company is making such lavish profits from Windows and Office.

Even worse, the fear of undermining demand for those lucrative products effectively tied Microsoft's hands. A company used to charging for every copy of desktop Windows could never stomach giving its OS away for free like Google did with Android. And Microsoft couldn't compete effectively with Google Docs without undercutting demand for the desktop version of Office. So Microsoft's efforts in the Web and mobile markets were always a day late and a dollar short.

Of course, Microsoft's inability to compete effectively in these emerging markets doomed the company in the long run. But that doesn't necessarily mean that it should have marketed its Web and mobile products more aggressively. If Microsoft had done so — say, by giving away a mobile version of Windows and a full-featured Web-based version of Office — it might have undermined its Windows and Office businesses and still lost out on the Web and mobile app markets to Google or Apple. Microsoft's shareholders were likely well-served by the firm's reluctance to undermine demand for its most profitable products.

In short, Ballmer was dealt a bad hand in 2000, and he played it about as well could have been expected. He shouldn't be remembered as one of the technology industry's great CEOs. But neither does he deserve much of the blame for Microsoft's declining fortunes.



Success! Check your inbox for details. You might also like:

Please enter a valid email address

See all newsletters

Show Comments
Most Read



Success! Check your inbox for details.

See all newsletters

Your Three. Videos curated for you.
Play Videos
From clubfoot to climbing: Double amputee lives life of adventure
Learn to make traditional soup dumplings
In defense of dads
Play Videos
How to make head cheese
Perks of private flying
The rise and fall of baseball cards
Play Videos
Husband finds love, loss in baseball
New hurdles for a Maryland tradition
How to survive a shark attack
Play Videos
Portland's most important meal of the day
What you need to know about Legionnaires' disease
How to save and spend money at college
Next Story
Andrea Peterson · August 23, 2013

To keep reading, please enter your email address.

You’ll also receive from The Washington Post:
  • A free 6-week digital subscription
  • Our daily newsletter in your inbox

Please enter a valid email address

I have read and agree to the Terms of Service and Privacy Policy.

Please indicate agreement.

Thank you.

Check your inbox. We’ve sent an email explaining how to set up an account and activate your free digital subscription.