Steve Ballmer’s Big-Time Error: Not Resigning Sooner

Screenshot from a Windows Phone advertisement that’s unintentionally relevant to this conversation.

First things first: even though Microsoft CEO Steve Ballmer is stepping down, chances that Bill Gates will return to helm the company he co-founded are somewhere between ‘zero’ and ‘nil.’ Every statement from Gates over the past few years suggests he’s far more intent on saving the world from deadly diseases than coming back to work on the next versions of Windows and Office.

Any number of executives could take Ballmer’s place, including a few he unceremoniously kicked to the curb over the years. Whoever steps into that CEO role, however, faces a much greater challenge than if Ballmer had quietly resigned several years ago. (for those interested, Microsoft posted the text of Ballmer’s resignation online.)

Ballmer famously missed the boat with regard to tablets and smartphones. When the iPhone made its debut in 2007, he famously told USA Today that Apple’s device had “no chance” on the market. Instead of tossing engineers and resources into building a smartphone competitor, Microsoft doubled down on Windows Mobile, a phone operating system that looked increasingly antiquated as iOS evolved; by the time Windows Mobile was chucked in favor of Windows Phone 7, it was in many ways too late: the smartphone market had essentially become a duopoly between Apple and the various manufacturers producing Google Android devices.

If that wasn’t bad enough, Ballmer also failed to capitalize early on the burgeoning interest in tablets. Windows 8 made its debut more than two years after Apple’s iPad hit store shelves, and promptly faced the same challenge in the tablet category as Windows Phone did in smartphones: a saturated market well-stocked with fierce competitors. Now Windows 8 tablets are struggling for adoption, with Microsoft taking a $900 million charge against its flagship Surface RT touch-screens; Ballmer also reportedly admitted during an internal company gathering that Windows 8 devices were failing to sell up to expectations.

With more people embracing tablets and smartphones as the center of their computing lives, PC sales have become anemic. That’s another jolt of bad news for Microsoft, which still depends on sales of Office and Windows on laptops and desktops to bolster its bottom line.

Despite floundering in the consumer sphere (with the exception of its Xbox initiative, which is finally seeing some profit after years of running in the red), Microsoft has managed to not only maintain its enterprise presence, but also pivot rather deftly to the cloud: Azure, Office 365, and other initiatives have made it a player in the Software-as-a-Service (SaaS), Infrastructure-as-a-Service (IaaS), and Platform-as-a-Service (PaaS) arenas. Yet Microsoft’s cloud projects haven’t managed to eclipse its traditional lines of business, from a revenue perspective, and its online-services division continues to bleed torrents of cash.

In perhaps the biggest indicator that Ballmer realized things couldn’t continue in their present state, Microsoft recently announced a massive reorganization intended to make its giant divisions play better with one another. In a jargon-filled memo to employees, Ballmer suggested that the changes would result in “One Microsoft all the time.”

It’s an open question whether that reorganization can burn off some of Microsoft’s fat. In 2012, Vanity Fair published a much-publicized feature that characterized Microsoft as “bloated and bureaucracy-laden, with an internal culture that unintentionally rewards managers who strangle innovative ideas.” On Websites and blogs such as Mini-Microsoft (which had a brilliant posting about Ballmer’s departure), employees complain bitterly about the company’s much-maligned stack-ranking system, its layers of bureaucracy, and its inability to innovate.

Had Ballmer left years ago, replaced by someone with a solid feel for consumer markets and an inclination to reorganize Microsoft into a leaner and meaner entity, the company would probably be in much better shape to face its coming challenges. In its current form, Microsoft often feels like it’s struggling in the wake of Amazon, Google, Apple, and Facebook. How could the next CEO counter that?

And however Ballmer feels about leaving Microsoft, one thing’s for certain: thanks to a “Ballmer bump” in Microsoft’s stock price following news of his retirement, he’s departing the company a whole lot richer.

 

Image: Microsoft

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