The ‘obituaries’ are flooding in for Steve Ballmer following the announcement of his retirement. There are many echoes of those for former Intel CEO Paul Otellini, who quit earlier this year. Both men defended their core businesses effectively in many ways, but grasped the real nature of the mobile revolution too late. Both thought that adapting their long-standing platforms and processes for smaller, connected devices would be enough, and watched as entirely new interfaces and chip architectures grabbed the new generation of consumers.
Microsoft presented the departure as one that had been considered for a long time, but some insiders believe Ballmer had intended to stay to oversee the major reorganization he announced in July, hoping that would restore some of the reputation he has lost in recent years because of the failures in mobile and other areas. According to AllThingsD, it was Microsoft founder and Ballmer’s mentor Bill Gates who pushed him to announce his departure earlier by withdrawing his usually unquestioning support, in the face of increasingly restive shareholders and the possibility of a proxy fight led by activist investor ValueAct. In his letter to employees, Ballmer wrote: ‘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.’
It was notable that the farewell letter did not mention Gates at all, even though the two men have been close friends since the formation of Microsoft and effectively ran the firm as a duo from 1980 onwards, since when the founder and chairman has always supported his partner.
Although Ballmer could stay in place for up to a year while a replacement is found, most expect him to go far sooner, in order to reassure shareholders that a new dawn is imminent under new leadership.
However, in terms of the key objectives of a chief executive, Ballmer has often been a success story. He became CEO in 2000 and since then, has more than trebled Microsoft’s sales (from $23bn to $78bn) and more than doubled profits ($9.4bn to $21.9bn), returning $164bn to shareholders and adding $90bn to net assets. However, in recent times the share price has been flat and this year the company has suffered a major earnings disappointment and the fifth consecutive quarter of decline in its vital PC market.
Under his watch, the software giant has been criticized on two fronts ‘ for being too successful, and abusing that power; and for not being successful enough, by failing to adapt sufficiently well to the rise of the internet, open source, mobile devices and the cloud.
In the first area, the decline of the PC, and the increasing rise of open server platforms in the web environment, are ending the period of Microsoft having sufficient power to abuse, even without the attentions of the regulators in the past decade. About that, former engineer and general manager Hal Berenson wrote on a blog post: ” Between the actual restrictions from these settlements [with the DoJ and EU], and the general caution about antitrust that then pervaded the Microsoft culture, Steve was essentially running Microsoft with one hand tied behind his back. The truth is, I don’t think Steve gets enough credit for saving the company.’
In the second respect, Ballmer’s record is not all bad. After all, Microsoft has continued to grow despite the strength of those four fundamental changes in its world, all of which were forecast to kill it. In the web and later the cloud, it managed ‘ belatedly and clumsily perhaps ‘ to become a major force itself. He presided over important acquisitions like Skype, and the launch of strong cloud and ‘as a service’ offerings including Azure.
That leaves mobile, though, as the critical area where, like Otellini, Ballmer will be judged a failure. While the company is painfully, but recognizably, moving towards the vision set out by Ray Ozzie, of ‘three screens and a cloud’, this would certainly have happened more quickly under a CEO with more genuine commitment to the cause. Ballmer always gave the impression of embracing these new ideas and platforms reluctantly, while clinging to the ‘good old days’ of Windows. And the botched launch of three mobile OS ‘ Windows Mobile, Windows Phone and Windows RT ‘ reveals a firm that still does not understand this world at all.
So who might take over? The succession process may also follow a similar pattern to that at Intel ‘ plenty of discussion about external candidates and the need for new blood, followed by a safe internal appointment. With only two chiefs in its almost-40 year history, Microsoft has little experience of CEO hunting. Insiders told Bloomberg that the frontrunners among existing executives are COO Kevin Turner, and a quartet of people who gained high profile roles in the July reshuffle – Tony Bates, Satya Nadella, Qi Lu and Terry Myerson.
Bates joined Microsoft in 2011 with Skype and now runs the business development organization and is tipped because he is ‘almost an outsider’, with experience at Cisco as well as the VoIP company. Nadella is the EVP in charge of cloud and enterprise business and joined in 1992 from Sun, so would be a far more old-world choice. Lu has been at Microsoft for five years and oversees the applications and services group, having joined from Yahoo. Myerson has been at the firm since it acquired his start-up, Interse, in 1997 and has been in charge of Windows Phone, but in the reorganization took expanded responsibility for all the Windows platforms plus Xbox, immediately putting him in line for future promotion.
Several executives previously considered as likely future CEOs have left, sometimes after clashes with Ballmer, most notably Steven Sinofsky, former Windows head, who some believe could return to take the top job. Other potential returnees being rumored include former Juniper CEO Kevin Johnson, who recently retired from that role and previously ran platforms and services at Microsoft; and Nokia chief Stephen Elop, who was a long term Microsoft man before he took the helm at the handset maker and engineered the two companies’ alliance from both sides of the fence. Then there are the real external possibilities, mainly web players like eBay CEO John Donahoe, Netflix chief Reed Hastings or Facebook COO Sheryl Sandberg.