Uncharted Waters

Sep 15 2014   8:42AM GMT

Ballmer’s Exit, Legacy, and the Future of Microsoft

Matt Heusser Matt Heusser Profile: Matt Heusser


Steve Ballmer in 2010If you’ve been on the internet in the past few weeks, then you’ve probably heard that Steve Ballmer resigned from the board of Microsoft in August, just seven months after he resigned as CEO. The commentary on the internet is about what you’d expect: Not just Top Ten Reasons Steve Ballmer Failed as Microsoft CEO, but also similar-themed articles with the exact same title “Why Steve Ballmer Failed” in The Atlantic, The New Yorker, and on BusinessWeek.

Ironically, all the folks who said Steve didn’t innovate picked the same title for their article.

Yet let’s look at reality here: From 2000 to 2014, Ballmer took Microsoft from $25 billion in sales to $70 billion. That computes out to 7.5% growth in sales per year — starting when dotComs were over-inflated and continuing through the real estate crisis of 2008. Growing at 7.5% in one year may not sound impressive, and it might not be hard if you have annual sales of a few million, but try having to add a few billion in new sales each year and doing thirteen times in a row.

How it is possible to call Steve Ballmer a failure as a CEO? In what way?

Let’s talk about it.

“Ballmer Didn’t Innovate”

This is probably the most common critique, but it fails to recognize Microsoft’s history and how the company operates. The company was born when Bill Gates and Paul Allen realized that the Altair would need a BASIC interpreter.

They didn’t bring the Altair to market, and they certainly did not invent BASIC. Instead, the nascent company used a “sense and respond” approach – not inventing products, but being the first to see emergent product categories, then either executing on the opportunities, or, sometimes, buying into the market.

After BASIC, Microsoft’s next big hit was MS-DOS, which, again, they did not invent. IBM went to Microsoft for their PC-based application suite (remember that? I don’t either) and Digital Research for their operating system, CP/M. Digital Research didn’t like IBM’s suit-like approach, and delayed, so Microsoft offered to license their operating system, MS-DOS.

Which did not exist.

Over the next few months, Microsoft contracted out the reverse-engineering of CP/M to create the new MS-DOS.

This is the history of Microsoft, their DNA. Windows was not invented by Microsoft; the Macintosh had it first. Microsoft just brought it to the market, using their ability to partner and existing near-dominance with MS-DOS to make it popular. (In a public discussion in 2007, Steve Jobs stated that one of the things he admired about Microsoft was their ability to partner; search for “historical curiosity” in the transcript.)

XBOX wasn’t the first console gaming system to use a DVD player. Very little about XBOX was new or unique; it was just a market Microsoft hoped to win with potential licensing revenue from every game.

You get the point. If we say that Ballmer failed, it was in failing to execute the strategy. Over the thirteen years he was at microsoft, the company grew through its existing dominance in office tools, operating systems, and developer tools, not through new product categories.

And the company desperately needed new product categories.

A Few Near-Product Hits

It’s not for lack of trying. XBox is certainly a near-hit, but there were more: Windows Phone, the phone priced at $99 when iPhone debuted for $400. There was the Kin, the Blackberry-like superphone, which was supposed to compete with iPhone. The company made multiple attempts at creating a tablet. The company might even have been too early to market, when processors simply weren’t up to the task. Ballmer tried a restaurant-table sized touchscreen, called the Surface, later renamed to the Pixelsense, and, with Windows8, tried to sense-and-respond to the iPad with a Surface tablet.

And that’s just the highlight reel; the full breadth of Microsoft’s attempts would not fit into one blog post.

Let’s grant that many of these products failed. That does not mean that Microsoft was failing. Instead, the company
was acting more like a Venture Capitalist, creating a portfolio of investments, with the hope that one or two might lead to dominance in a new product category.

In addition to new product development, Ballmer also made some smart acquisitions. In 2011 Microsoft bought Skype, the company we thought would reinvent phone calls, for 8.5 billion. After a few attempts at phone, Microsoft purchased Nokia for $7.2 billion earlier this year. And, yes, if Mark Zuckerberg had just accepted the offer for fifteen billion dollars, Microsoft could have had Facebook.

The only problem is that new killer product category never emerged. At least, it isn’t emerged yet. Windows Cloud Computing Offering, Azure, has potential, and the new CEO, Satya Nadella, recently suggested the Microsoft’s Future was “Cloud First, Mobile First.”

Tomorrow’s Microsoft

What Steve Ballmer failed to create was new markets. Ballmer produced no hits on the scale of iPad, iPod, or iPhone. He did not unveil a new revenue category, like Lou Gerstner did when he converted IBM from big iron to services – but it wasn’t for lack of trying.

Despite all the calls that Ballmer was a failure, I have to wonder if any of the armchair CEO’s could have done better.

In the mean time, one thing Steve did provide Mr. Nadella with was a sustainable business model, some cash in the bank, and some breathing room. What Mr. Nadella does with it will be up him – and the 50,000 or so Microsoft employees he has to lead.

I wish him the best of luck in his job. It will not be an easy one.

4  Comments on this Post

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  • Seekingtester
    Matt - I've managed to stay out of your way for a while, but a friend forwarded me this link, and I want to see if I can make a point without it coming across as confrontational (this time).

    I think a discussion of innovation depends a lot on how people view innovation. Is it the idea? Or is it the market success of the idea? I guess it can be both as well - or something else. I guess it depends.

    So let's take the example of an operating system with a graphical user interface. Did MS steal from Macintosh innovation, or did they bring the idea of a gui to market better (and to be fair, as I'm sure you know, the PARC user interface was around way before both of them). Anyway, for the sake of argument, let's say that MS stole the innovation from Macintosh and brought it to market.

    So let's look at the iPhone (full disclosure, I'm an avid iPhone user and I love it). But, I had a phone with a full screen tough screen with wifi in 2001 or 2002 (pocket pc phone from Microsoft). I won't list the reason it failed, although I could argue that it was ahead of it's time. Since the first iPhone came out in 2007 or so, we could use the same logic above to say that Apple copied Microsoft, but just did a better job bringing the device to market. It's not fair - or logical from my point of view to see opposite sides of the argument for those two stories.

    My opinion: Microsoft absolutely innovated with Windows. They made a platform that fed an ecosystem of growth. It's silly to say they copied when there was so much more depth to what they created compared to Mac.

    Also my opinion: Apple were huge innovators with iPhone. They made a platform that fed an ecosystem of growth. It's silly to say they copied when there was so much more depth to what they created compared to Microsoft.

    Just some food for thought.

    I hope you take this comment the right way (this time).

    40 pointsBadges:
  • Matt Heusser
    Thanks Jake. I can respect your position -- even if i have a disagreement in some nuances -- and I'm glad to hear from you.
    4,955 pointsBadges:
  • Welcome

    Everybody knows Microsoft products, almost all the world is using them, for good and for worse, there are a lot of unbelievable bugs
    in the daily working with the OS ... many of them probably because even not Microsoft has an answer for them ...

    Many people continue to say that other OS-s and other products
    are much better in many aspects, I cannot witness because I am not experiences with them, except for a single one, namely
    the old good Digital VMS OS, by far much better than any Microsoft version ... however, abandoned by almost the whole world without any serious reason ...

    But, regardless of any technical aspects, it is weird to call one single person "a failure", in a company with thousands and thousands of employees across the world ...
    regardless of who is that person.

    If Microsoft was/is a dictatorship ruled by one single person,
    then yes ... maybe that person is the one to blame for everything ...

    But, if it is not, and I dare suppose that it probably is not,
    then any objections against *ANY* leader, let him be Steve Balmer
    or anybody else, could have been raised by the so many people
    working in that company, and also by others from outside of it ...
    so why were they "so silent" up to now ?!?

    No single person in this world may ever be considered
    "equal to ANY kind of "God"", so that to make him/her the only responsible for any kind of failure ... be it a company, a state,
    a government or any other kind of "human enterprise".

    No single person should *ever* be allowed to cumulate such power as to make him the *only* one to blame !!!

    The future of *everything* in this world should rely on collaboration
    and not on blaming "a single guilty" for everything ...
    Unfortunatly this DOES NOT happen, every organism is "de facto"
    an autocracy, and this is how our world looks ...


    10 pointsBadges:
  • Genderhayes
    I am thinking mobile with Nokia producing the OS I will be looking at the prices and features
    10,730 pointsBadges:

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