On the news that Steve Ballmer is to step down as chief executive of Microsoft, let us acknowledge Bill Gates’s genius. Why? For founding the company that led the personal computing revolution? Sure – but also for his impeccable timing in departing as CEO in 2000 while the company was on top (note he would remain involved). Mr Ballmer’s departure within the next year, announced on Friday, comes at a less glorious moment for Microsoft.
It is unclear if Mr Gates saw the gathering storm clouds when he left to pursue saving the world. In 2000, Apple was a moribund PC maker. The trendy mobile devices were BlackBerrys and Palm Pilots. The leader in internet search was Yahoo. Companies and consumers bought software from Microsoft and Oracle only through licenses that required pricey upgrades every few years.
Of course, during the next decade Apple eventually invented devices that marginalised PCs, while Google not only developed a better search engine but also the leading mobile device platform, Android. Salesforce.com demonstrated that software can be efficiently rented and delivered over the internet instead of sold in a box.
Microsoft tried to step up its game by introducing its game consoles, server software, tablets, phones and cloud platforms. It also bought Skype for $9bn and tried to buy Yahoo for $45bn. But these bets were either too little, too late or just badly muffed.
The conundrum though for the third person to sit in the CEO perch is not that Microsoft’s business is in terrible shape. Revenue in 2012 was nearly $80bn, up from about $20bn in Mr Ballmer’s first year as boss. Its cash balance sits also near $80bn. Since 2004 (post-internet bubble), Microsoft’s total shareholder return is 58 per cent. Consider that Intel’s return over that time is -11 per cent.
Rather, shareholders seem to want big change anyway (say, exiting the consumer segments). Pumping the business for cash flow is great but insufficient. So good luck to the next leader, who will be asked to “fix” a stagnant but solid business. IBM and Apple were on the scrap heap just before their resurrections. But they had a key advantage over Microsoft today: nothing to lose.
Email the Lex team in confidence at firstname.lastname@example.org