Microsoft, don't give up on Steve Ballmer just yet

Ten years ago last week -- Jan. 14, 2000 -- Steve Ballmer took over the chief executive's position as Bill Gates stepped back to be Microsoft chairman and chief software architect. Ballmer has officially entered his second decade as Microsoft's CEO. There are fairly constant complaints about Microsoft's performance under his leadership.

NBC is sending Conan O'Brien packing; today ends his seven-month career as "The Tonight Show" host. Should Microsoft do something similar -- remove Ballmer and replace him with someone else, even Gates in a move like Jay Leno coming back and replacing O'Brien? I expect that many commenters to this post will answer "YES!" to that question. But I wouldn't give up on Ballmer just yet.

"Dump Ballmer" has been an ongoing theme among commenters to my blog posts -- going back a good five years. The fire Ballmer whiners often point to Microsoft's share price, which isn't much different today than when he took over the company. Microsoft shares have consistently struggled to stay above $30. The stock opened today at $29.84. In December, with 2010 prediction "Microsoft pushes out Steve Ballmer," Newsweek observed: "Microsoft stock has dropped by nearly 50 percent on his watch, lagging not just other tech companies but even the Dow Jones industrial average."

Ballmer's performance is sure to be scrutinized during the next week. Yesterday, Google reported strong earnings. Analysts predict that Apple will report record fourth calendar quarter Mac sales when it announces earnings on Monday. Two days later, on January 27, Apple will launch a new product, presumably the over-rumored tablet. One day later, Microsoft will announce fourth calendar quarter earnings. Analyst consensus is $17.79 billion revenue, up 7 percent year over year. But the year-ago comparison is relatively weak. Q4 2008 sales disappointed, compelling Microsoft to announce in January 2009 layoffs of 5,000 employees over 18 months (The number already is higher).

Apple's and Google's good performance will likely shine a light on Microsoft's quarterly earnings and 2010 business strategy. Apple comparisons will be about Mac and iPhone sales and expectations the company's "latest creation" sets. At least in mindshare, Apple is a winner. Meanwhile, Google continues to dominate search, has put principles before profit in China and woos more developers and handset buyers to Android. All the while, analysts and pundits will ask about Ballmer and whether he is the right man to run Microsoft.

What strange timing -- if it is -- that Gates launched a new Website this week and started regular tweets. As of this afternoon, Gates had amassed over 300,000 Twitter followers in just a few days. Where is Ballmer's Twitter feed or personal blog? Microsoft's CEO needs both, something to make him more personal and approachable. He has a huge PR problem.

Ballmer as the Millennial Leader

There is no question Ballmer was the right man to take over Microsoft in 2000, and it's right to ask whether he is best choice for the 2010s. Microsoft entered the new millenium as a mature rather than a growth company. Gates' aggressive competitive style suited growth Microsoft, but not really the more mature company. Growth companies look for new customers, while mature companies seek to keep them. The marketing approach is different. Ballmer is at heart a sales guy. Among the most important customer retention business strategies enacted during his leadership:

  • Tying Microsoft employee evaluations to customer satisfaction. If customers aren't happy, Microsoft employees don't get good reviews or pay raises.
  • Software Assurance, which initially infuriated customers but locked them into two- or three-year upgrade contracts that smoothed out Microsoft's revenue stream.
  • "Get the Facts" campaign, which effectively dismissed Linux as a competitive threat -- at least on the desktop, although the open-source OS has traction on Intel-based servers.
  • "Integrated Innovation," which starting with the 2003 product release cycle tied more Office features with server software, driving upgrades of the productivity suite and pulling new server software sales.

But the list of missteps is a long one, too -- so long I'll offer just a handful of them. In fairness, most of the worst mistakes came when Gates was at least somewhat hands on at Microsoft:

  • Obsessing about Google in search, when the real threat was in platforms, where Microsoft failed to protect its  operating system franchise.
  • After winning the browser wars with Netscape, abandoning the territory. Internet Explorer stayed at v6 until Mozilla released Firefox in 2004.
  • Chasing Research in Motion in enterprise handsets instead of innovating around features useful to everyone. Apple and Google did just that, with focus on usability.

Only three examples are necessary, because there is consistency to Microsoft's mistakes under Ballmer's leadership: Making too many decisions based on what competitors were or were not doing. Gates was equally guilty, but the approach worked better for a growth company. Ballmer leads Microsoft well when focusing on existing customers rather than chasing competitors. His misplaced Google obsession on search, rather than platforms, is example.

Who should lead Microsoft into the 2010s?

However, is customer first the best strategy for Microsoft in the 2010s? Wall Street analysts and investors clearly don't see Microsoft as a growth company, as an innovator. Apple innovation is exhausting. I agree with Darby Lines (aka "The Angry Drunk") regarding the needless noise about Apple's January 27 product announcement(s): "At this point the incessant coverage of the Apple tablet is science fiction at best." Apple has dominated tech coverage through most of January without ever announcing one damn thing. As I've asserted so many times in the past, in business perception is everything. Positive perceptions fuel speculation about rumored Apple products. Apple is perceived as an innovator -- and the company's stock is soaring as a result -- while Microsoft is seen as something like the new IBM.

Microsoft's success in the 1980s and 1990s shifted computing and informational relevance from the mainframe to the PC. IBM struggled, even as its mainframe monopoly remained solid. The company had to call in outsider Lou Gerstner to aright the listing business. IBM reinvented itself under Gerstner's leadership around services. The question: Does Microsoft need an outsider to come in to shake it up? During 2008 and 2009, Microsoft retreated to the enterprise, where its Office-Windows-Windows Server applications stack dominates. Problem: There's a new applications stack -- mobile device-to-cloud service -- that is rapidly shifting computing and informational relevance away from the PC, much as the mainframe was displaced starting three decades ago. Microsoft isn't ready to compete.

Unquestionably, Microsoft's senior leadership needs some new outside blood. A new blood transfusion could be as effective as brain transplant. I'm not ready to give up on Microsoft's CEO, who only really is coming into his own after Gates stepped into semi-retirement in June 2008. Except for Ballmer's Google search obsession, he managed Microsoft quite well over the last 18 months -- and during tough times.

The September 2008 stock market crash still rocks world economies, even as public company shares rally (buoyed by government bailouts across the globe). Ballmer has rightly called the econolypse a "fundamental economic reset." The credit-driven, debt-creating bubble economy is gone. Businesses and consumers across mature markets are seeing recovery to a lower level than before the bubble burst. I consider Ballmer's post-economic collapse leadership to be exceptional for astutely understanding the new world order, holding onto existing customers and making Microsoft a leaner company.

Ballmer deserves more credit than he often is given by critics and frustrated investors. In July 2009, he told financial analysts: "For the last 12 months, I've actually been running our Windows business." Well, hell, Windows 7 is pretty good, right? Perhaps Ballmer should next run Windows Mobile, before iPhones are as common on city streets as classic and nano iPods.

Microsoft needs to take More Risks

I don't believe that Microsoft should oust Ballmer during 2010. But I expect to hear more calls to do just that after next week's quarterly results are announced. Ballmer should stay. Microsoft needs his commitment. Microsoft needs Ballmer's charisma.

But Microsoft needs something more from Ballmer, or else he will eventually fail as chief executive: More willingness to take risks. The focus on keeping existing customers creates risk aversion. Likewise, Microsoft fails to take risks for fear of disrupting existing revenue streams, particularly Office and Windows. It's long past time when Microsoft should be more the risk taker, as it was when launching Xbox in 2001 and committing to losing billions of dollars over several years. Microsoft also should better communicate to everyone the risks being taken with Azure and other cloud services.

Risk-taking must replace Microsoft's culture of risk aversion. Gates' 1995 Internet Tidal Wave and 2002 security and privacy memos set Microsoft down new paths that dramatically changed its fortunes. It's long past time for Ballmer to write a memo that sets Microsoft's future agenda for employees. Mobility, cloud services and truly risk-taking innovation must be the priorities; risk-taking innovation should be Microsoft's top priority for the new decade. Ballmer should show Microsoft employees, customers, developers and investors why he is in charge. If he lays out the vision, he also should be given time to succeed executing it. A company as large as Microsoft takes time to change course.

Microsoft is where IBM was in the late 1980s -- watching its dominant computing platform and applications stack decline. During his Consumer Electronics Show 2009 keynote, Ballmer spoke of the importance of taking risks, of making seemingly risky investments, during economic hard times. It's time for Ballmer to put up or shut up.

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