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Steve Ballmer at 11: A Microsoft power play too far?

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Steve Ballmer's anniversary as Microsoft CEO has arrived with a paradox.

In the history of Microsoft, no chief executive has wielded so much power. Ballmer is essentially responsible for $40bn in sales, running three of Microsoft's five business units: the Office business applications unit, Entertainment and Devices, and – as of last week, with the announced departure of division president Bob Muglia – Server and Tools.

Ballmer is running the Office group after group president Stephen Elop left to captain Nokia. Ballmer broke up Elop's empire, handing management of Office to Kurt DelBene and reserving Microsoft's CRM and ERP business for himself. Inside E&D, senior vice president Andy Lees and president Don Mattrick are running Windows Phone 7 and Xbox respectively and reporting into Ballmer, following the retirement of E&D group president Robbie Bach last year.

The only independents are the Windows and Online units. The Windows and Windows Live division under president Steven Sinofsky is exploding, with 43 per cent and 23 per cent quarterly and annual revenue growth thanks to Windows 7. Online is home to Bing, still the baby of the company, with sales in the half-billion range.

And with the Online unit, it's questionable how much of the business side is really being run by group president Qi Lu. As a corporate outsider poached from Yahoo! two years back to build Microsoft's answer to Google, his focus is on engineering. Microsoft doesn't give full group power to people with "just" a technology pedigree. You need more experience in product, sales, marketing, and - well - Microsoft.

The paradox? Well, despite collecting all these business units, Ballmer's authority is weakening.

Microsoft's board is starting to appreciate that there's a problem with Microsoft under Ballmer. The FT reports of "some expressions of misgiving about Mr Ballmer's leadership and [suggestions] that he is coming under greater pressure [from the board] to raise the company's game."

The FT's source isn't solid: just two people who've talked to Microsoft's directors. The paper may merely be citing hearsay, but something is in the air. Last year, the board limited Ballmer's bonus for screwing up on mobile phones and tablets, and we understand from sources inside the company that Ballmer is facing some "aggressive" targets for 2011.

Those targets might account for the decisions to, shall we say, accept the resignation of Bach and to let Elop go, as well. One man lost market share to Apple, while the other didn't exactly leave a distinguishing mark on the face of the Office franchise.

To outsiders and insiders, these were not great losses. And let's give Ballmer the salesman a break. He clearly feels he can reinvigorate sales by taking direct control.

But the board should be worried about Muglia's departure from Server and Tools.

According to sources close to senior Microsoft management inside the S&T division, Muglia was told to step down by Ballmer for "not moving Azure faster".

Battle of words

Both Ballmer's email announcing Muglia's exit and Muglia's own good-bye missive indicated there was a strong difference of opinions. According to Ballmer, he had decided a change of leadership was needed following conversations with Muglia. In what must surely win an award for one of the most beautifully written and heartfelt departure notes to the troops in corporate history, Muglia said he had to follow his convictions.

Azure is making no meaningful money for Microsoft, and the vast majority of Microsoft's cloud push is concentrated on convincing people to use hosted versions of Exchange instead of Google's Gmail or Lotus Notes. Microsoft moved Azure into Muglia's division in an effort to productize the thing and prevent Azure from cannibalizing the licensing business of products like SQL and Windows Server. The company even re-orged the division in early 2010 to make that happen. Few understood product or sales execution better than Muglia, and few could match his ability to talk technology or "the Microsoft way".

Ballmer discarded a 23-year Microsoft veteran who ran a solid $14bn business based on sales of SQL Server, Windows Server, and Visual-Studio licenses and subscriptions. The business was Microsoft's third-largest engine of growth. And what has Ballmer traded him for?

Who knows?

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