Original URL: http://www.theregister.co.uk/2011/01/13/ballmer_10_years/

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

One man, so many jobs

By Gavin Clarke

Posted in Business, 13th January 2011 21:41 GMT

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?

From Red Dog to top dog?

There is no clear heir apparent to Muglia, a fact that should alarm both the troops and the board. If Ballmer wants a "cloud person", then there's server and cloud division senior vice president Amitabh Srivastavam, the guy who built the Red Dog compute fabric that became Azure. He's now responsible for the Windows Azure Platform Appliance that's being developed along with Dell, Fujistsu, and HP.

But Srivastava is an engineer, and he's not that experienced when in comes to running the rest of S&T: Windows Server, SQL Server, or Visual Studio. If it's a server person you want, then there's server and cloud vice president Bill Laing – but Laing reports to Srivastava.

Redmond, we have a problem.

As one ex-Microsoft employee from S&T told us this week: "People [at Microsoft] are shocked because Bob was part of the foundation of that organization. When your foundation shakes, the whole house shakes. The bench looks really weak unless they bring in somebody from outside, and it's unclear who will step into Bob's shoes... there will be a crisis of confidence in the next few months as they try to figure out who it is will replace Bob."

The loss of S&T leadership comes at a critical time in Microsoft's business cycle.

Between now and early February, Microsoft conducts its mid-year review, where it does a reality check on the goals set out at the start of the current financial year and then make changes accordingly. This is a vast, company-wide process of huge strategic and fiscal importance that spans business units and subsidiaries and that sees people working up to 20 hour days, seven days a week. This review influences Microsoft's planning for the next three years.

It's hard to see who will drive the plan for the $14bn S&T division.

Over the last 10 years, we've seen other mistakes from Ballmer. There was the decision to stop developing Internet Explorer in the early 2000s, a move that created a vacuum eventually filled by Firefox and later Chrome. There was the botched Windows Vista roll-out that cemented Windows XP and gave Mac room to spread.

Ballmer laughed off the iPhone. He said you could buy perfectly good Windows phones, but people flocked to Apple instead, and Apple grabbed a quarter of the US smartphone market in less than three years. Then there was the KIN misfire.

He also overlooked the iPad, and shareholders cried foul at last year's financial analyst meeting. He promised that Microsoft people were losing sleep as they worked to make up lost ground.

Microsoft is now in a state of triage. The company has answered the iPhone with Windows Phone 7. It promises Windows 8 for slates running ARM. And a final version of IE 9 is on the way.

Break-out or bust?

Make no mistake: the loss of Muglia is not the end of Ballmer. Microsoft remains a $62bn company that's been reporting record levels of growth. It's a good bet that Ballmer will remain CEO.

But Microsoft's board is facing a Sliding-Doors question: where would Microsoft be now if not for all those mistakes? And as the man responsible for making those mistakes prepares to assume even greater control through S&T, just how much damage will be do?

If Ballmer's decision hurts S&T, that could finally turn the tide against him. ®