Steve Ballmer has one more chance to save his job

July 29, 2010 may be remembered as the most important day in Steve Ballmer's career at Microsoft. Tomorrow, the company hosts its annual Financial Analyst Meeting, or FAM. How much Ballmer and his core leadership team spend concretely talking about the future, rather than the past, will foreshadow how long the chief executive can remain the big boss. Nearly as important: Which executives will make presentations.

Microsoft closed fiscal 2010 on June 30 and last week announced record fourth quarter and yearly results. (I skipped covering Microsoft earnings for the first time in nearly a decade, to attend San Diego Comic-Con. I will likely post a belated "by the numbers" analysis after FAM.) Microsoft uses the event to offer financial analysts a long look back at the old fiscal year and to give a sneak peak at the FY ahead.

Much is different this FAM. There has been increasing public outcry for Microsoft to replace Ballmer. In June, I sadly wrote "I have lost confidence in Steve Ballmer's leadership," about six months after asserting "Microsoft don't give up on Steve Ballmer just yet." More than any other FAM, Ballmer must convey confidence -- that he can steer the good ship Microsoft through the stormy seas ahead.

The CEO must command the FAM stage like never before. He must present tangible, practical vision about what Microsoft will accomplish in three months, six months and by June 30, 2011. The task is so mountainous that reaching the summit would be reason enough to give Ballmer another 12 months as CEO. But the climb will be arduous because of obstacles corporate cultural and logistical.

Historically Microsoft takes the long view to product development -- often planning five years out. This long view worldview is a core strength and one of the fundamental reasons for Microsoft's business success. But with the computing winds shifting in favor of cloud-connected mobile platforms, Microsoft's long view has become near-sightedness. Related: Microsoft's corporate structure, size and money-minting monopolies result in slow-moving directional changes. Ballmer won't easily present achievable short-term goals to financial analysts.

Still, Ballmer has some short-term deliverables to present, such as Windows Live Wave 4, Windows Phone, Xbox Kinect and Yahoo search. To reiterate: FAM attendees need to hear concretely about what Microsoft will deliver within three months and by end of calendar 2010. Everyone knows that Office, Windows and Windows Server are doing well as the economy makes modest recovery, particularly in many strategic international markets. It's what financial analysts don't know -- or only can surmise -- about the future that is the more important information.

Signs of Microsoft Weakness Going into FAM

1. Apple and Google are wooing customers and developers to their mobile platforms. The wait list for new iPhone 4s is two to four weeks, and more than 160,000 Android phones are activated every day.

2. Windows Mobile has fallen to fifth place in smartphone OS market share, according to Gartner.

3. Windows Phone 7 is still months from shipping and its future remains hugely uncertain given its oh-so 2007 feature set and late-to-market release.

4. While improved, valuable volume-licensing renewals aren't reaching pre-recession levels, mainly because of smaller corporate customer workforces.

5. Early Office 2010 retail sales are disappointing, according to NPD, which foreshadows slower consumer demand. Among consumers, the productivity suite category has peaked in appeal.

6. For full fiscal 2010, Microsoft Business Division revenue fell by 1 percent, while income increased by 1 percent -- against favorable year-over-year comparisons. "Operating income increased due mainly to decreased operating expenses, offset in part by decreased revenue," according to Microsoft.

7. Microsoft's Online Services Division continues to lose money, with Yahoo reimbursement offsetting fiscal fourth quarter's 19-percent year-over-year advertising sales gains.

8. Apple sold 3.2 million iPads during the launch quarter, succeeding in a category Microsoft promised to jumpstart a decade ago.

9. HP, Microsoft's most important Windows tablet partner, abandoned ship by buying Palm and announcing products running WebOS.

10. Since the September 2009 financial collapse, Microsoft has refused to give Wall Street forward guidance. The tactic conveys weakness -- that Microsoft is so uncertain of sales it dares not estimate revenue or earnings per share for coming quarters.

Potential Microsoft Strengths for Fiscal 2011

1. Windows 7 is a huge success -- however, Microsoft benefits from strong PC sales. For fiscal fourth quarter, Windows & Windows Live revenue rose by 44 percent and income increased by 59 percent year over year. Microsoft has sold 175 million Windows 7 licenses.

2. SharePoint is the new Office. The product continues to make sales gains even as Office 2010 sells modestly well.

3. Businesses are buying technology again, and version 7 upgrades are a given, since so much of the Windows install base runs XP.

4. International markets, particularly many emerging ones, are recovering faster. These are the markets with greatest growth potential for Microsoft. Related: Economic recovery means more businesses are likely to buy than pirate.

5. Microsoft marketing campaigns for Bing, Internet Explorer 8 and Windows 7 are winners. Microsoft has rediscovered the value of good marketing and is building and rebuilding brands, particularly by aggressive television advertising.

6. Windows Phone 7 will release during first half of fiscal 2011, finally giving Microsoft something to sell against Apple, BlackBerry and Google smartphone operating systems.

7. Bing continues to gain search share (unfortunately more from partner Yahoo than competitor Google). Branding and marketing are as much reasons for gains as technology. Cobranding with "American Idol" host Ryan Seacrest tips off where Bing marketing can yet go.

8. Microsoft has started delivering search results for Yahoo, which also means that the worst of the distracting integration is over. Now Microsoft can present something better to advertisers and partners.

9. The long-awaited, but pricey, Xbox Kinect will release for the holidays. Microsoft may have found a way to reinvigorate Xbox sales without releasing a new console.

10. Microsoft is in process of launching Windows Live Wave 4, and some of the integration with Windows and across social networks looks promising. The latest Windows Live Essentials is the best version yet, nearly closing the gap on Apple's iLife suite.

What Ballmer Must Convey During FAM 2010

Microsoft's CEO has much to lose, starting with his job, should he and his core leadership team fail to deliver a clear and immediate vision of Microsoft's near future. The two lists of 10 things above offer a framework for what and what not to emphasize. If Ballmer apologizes for mobile mistakes and makes promises about next-version done right, Microsoft's board of directors should fire him on the spot. There's no time for apologies or far-off promises. Microsoft's future is now. Because Wall Street analysts and Microsoft watchers see that:

  • Google has led in search since early 2003, despite Microsoft's best efforts to catch up
  • Microsoft has fallen behind in mobile, after being a leader in smartphone operating systems
  • Apple snatched away the tablet category that Microsoft cofounder Bill Gates trumpeted for years
  • Microsoft's cloud strategy has drifted from the original vision; its future direction or success is cloudy
  • Apple's brand towers over Microsoft among consumers, particularly the next-generation of buyers -- the Millennials

Ballmer must show that he is in charge and has a vision for Microsoft in 6 months and 6 years. The story he tells will mean everything. Ballmer must convince financial analysts that he and only he can forge from Microsoft's past successes a bold future.

I'm most bothered by tomorrow's speakers' lineup, which is tough to read for its meaning. Typically, Microsoft's divisional presidents make presentations during FAM. But, as of this afternoon, none are on the agenda. Only core leaders are scheduled to present, including Ballmer, COO Kevin Turner, Chief Research Strategy Officer Craig Mundie, CFO Peter Klein and Bill Koefoed, general manager of investor relations. Mundie is a perennial presenter and the man who usually talks about far-future products. Visibly missing: Chief Software Architect Ray Ozzie, which is commentary enough on the real state of Microsoft's cloud computing strategy.

If the FAM lineup reflects a focus on financials past, Ballmer has already failed. However, if Ballmer seeks to put himself forth as the hands-on visionary leader in charge, accompanied by his core financial and tactical leadership team, hope remains. Tomorrow's FAM will tell the story.

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