Why Teflon Ballmer had to go: He couldn't shift crud from Windows 8, Surface
Revolting shareholders poised to glom on to Microsoft's non-stick CEO
Analysis Microsoft chief exec Steve Ballmer has gone sooner than anyone, even he himself, had expected.
On Friday he announced he will give up the reins following a 12-month transition.
A one-year exit is proper given Ballmer’s position: the CEO of a major listed company. What’s strange, however, is the timing - that Ballmer should be going now.
The shy and retiring boss announced his exit just weeks after signing off on Microsoft's biggest reorganisation in its history, ripping up product groups for a structure to foster engineering collaboration and innovation and to turn Microsoft into a successful internet and devices company.
Further, the software giant is on the home straight to releasing the second instalment of Windows 8, the operating system that was supposed to have turned PCs into touch-driven machines. The party line from Redmond is that Windows 8.1 “continues the vision we began with Windows 8”.
Forget what you might read about the CEO transition plan starting years ago: Ballmer had no immediate plans to step down. In June 2008, the grand fromage told a technology conference he was planning on staying for another 10 years.
And Ballmer’s announcement to employees last week revealed that – had he had his own way – he’d have stuck to that timetable:
My original thoughts on timing would have had my retirement happen in the middle of our transformation to a devices and services company focused on empowering customers in the activities they value most.
So why, as a CEO with a startling force of will and unmitigated determination, has he decided to leave sooner than planned and at a critical juncture? One report suggests Microsoft’s board helped advance the timetable. (That panel of directors includes Ballmer’s longtime friend Bill Gates - a Microsoft co-founder and the board chairman.)
Based on his past performance, Ballmer would not have allowed something as trivial as a reorganisation or new product cycle to loosen his grip on Microsoft’s wheel.
And that’s probably why Ballmer’s gone now.
Since the start of his reign in 2000, he has increased revenue and profit, and showered billions of dollars on shareholders; but at the same time Microsoft has failed to anticipate crucial emerging technologies and tackle its next wave of competitors.
As a result, his company has blown tens of billions of dollars on R&D and marketing just to catch up in the worlds of online search and ads, and smartphones and tablets – always racing to close the gap on Google, Apple and Samsung. Below is a video of Ballmer dismissing the Apple iPhone and defending the Windows Phone operating system in 2007:
Ballmer also spent billions of dollars for no gain: $6.3bn on online ads publishing house aQuantive, written down by $6.2bn; $8.5bn on a loss-making VoIP biz called Skype; and nearly $1bn on parts for unsold Surface RT tablets, which are powered by an ARM port of Windows that can't run the gigantic library of x86 Windows apps.
Twice under Ballmer Microsoft has messed up on what was supposed to be its core competency, Windows, with the disasters of Vista and the touchscreen-driven Windows 8. It's a period of time less charitable members of Wall St are now calling Microsoft's lost decade.
The preemptive strike before the shareholders went ape
Ballmer was not only complacent about Apple's iPad and iPhone, but his promises to catch up proved arrogant and empty. Grilled by analysts in July 2010 on Microsoft’s answer to the fast-selling iOS mobile and fondleslab from Apple, Ballmer was bombastic: he called Microsoft’s response “job-number-one urgency” adding “nobody’s sleeping at this point”.
There were no technical details, but Ballmer promised Microsoft’s answers “as soon as they are ready”. That answer came with Window Phone 8, a platform with single-digit market share.
But the catalyst for Friday’s news would have been the fourth-quarter results. That $1bn Surface RT write-off caused Microsoft to miss analysts' estimates for the year.
Wall St was furious: it dumped MSFT stock and slashed $34bn off the company's value. Shareholders lobbed a class-action lawsuit at Ballmer personally, as well as other top executives plus the Microsoft corporation, for allegedly hiding the scale of losses.
The moneymen already held the chief exec accountable for a decade’s worth of poor stock performance, but missing estimates thanks to the Surface RT folly was too much. Tellingly, Microsoft’s share price went up on news of Ballmer’s exit – something the software giant failed to achieve even on the launch of Windows 8 and Surface RT in October 2012.
Shareholders had already started to turn on Ballmer. ValueAct, was pushing for a seat on the Microsoft board to get its way. Company investor David Eindhorn of Greenlight Capital, meanwhile, had said it was time for Ballmer to go.
The revolt, though, was more chatter given ValueAct and Eindhorn held less than one per cent each in the Redmond goliath. To effect change, you needed a 10 to 22 per cent stake.
Back in May, The Register called Ballmer the Teflon CEO. There may have been mutterings but there was no major reason to suspect a change, given investors had swallowed their leader’s blunders on internet search, smartphones and tablets, and had shown no real backbone by not standing up to their chief - a man who, admittedly, helped Gates build one of the world's most successful companies.
At Microsoft's Worldwide Partner Conference in July, a nervous Ballmer said he and his company had done "a heck of a good job" on Windows 8, calling it "remarkable":
So, why has Ballmer gone now, given his ability to dodge bullets, spaff billions of dollars, and offer empty promises in the aftermath?
The lacklustre take-up of Windows 8 and the Surface RT write-down.
It seems the board decide to act before mutterings among small stockholders escalated into a full-scale, damaging and diverting Dell-Icahn-style war involving either the top shareholders or small shareholders combining forces to snatch the company out from under the board.
For Gates & Co, the reorganisation would also have seemed the right juncture to remove Ballmer in order to avert a second lost decade and protect their company from a supremo seemingly unable to change his ways. ®