You know the business lore joke. The departing CEO meets his successor and hands him three envelopes to be opened in the prescribed order when trouble strikes. First crisis, the message in envelope #1 says: Blame your predecessor. Easy enough. Another storm, the the CEO opens the second envelope: Reorganize. Good idea. And when calamity strikes yet again, he reaches for the third: Get three envelopes…
This past Tuesday, Steve Ballmer reorganized Microsoft’s Entertainment & Devices division, let go of its execs, Robbie Bach and J Allard, and moved a few more pieces around. All wrapped in the most mellifluous, Orwellian language we’ve seen from Microsoft in awhile. The full memo is here. We’re treated to encomiums to great work, friendship, spending more time with one’s family, leaving on a high note…under the guise of decency, this is indecent.
Ballmer’s view of executive leadership doesn’t admit standing up and taking responsibility. He can’t say ‘I screwed up’ and then explain what he’ll do to rectify the situation. No. Instead, two gents are fingered while they pretend they aren’t being blamed. In a surreal, a cappella farewell memo, J Allard writes to his soon former troops:
‘No one can touch our talent, our impact or our ambition. We’re the only high-tech company with the track record and self-confidence to reinvent ourselves as we have. If you want to change the world with technology, this is still the best tribe out there.’
Robbie Bach dutifully plays his part in the down-is-actually-up corporate farce. He gives a long exit interview to the Microsoft-friendly blog TechFlash where he claims the dual departures are coincidental, that everything is fine. What does he have to say about tablets? Nothing much:
‘Well, tablet is an area that will evolve going forward. Certainly it’s a focus for what we’re doing in the Windows space, and how they’re thinking that space. We’re going to have a bunch of netbooks and tablet stuff that’s in the works there. We’ll just see how that evolves. I don’t think there’s anything earth-shattering about that. It’s just another set of devices, and we’ll figure out how we make sure we bring a good offering to consumers.’
And, regarding the now defunct Courier tablet:
‘Courier, first of all, wasn’t a device. The project and the incubation and the exploration we did on Courier I view as super important. The “device” people saw in the video isn’t going to ship, but that doesn’t mean we didn’t learn a bunch and innovate a bunch in the process. And I’m sure a bunch of that innovation will show up in Microsoft products, absolutely confident of it.’
Serves us right for not reading the small print on the screen during the demo. These guys obviously think we’re idiots. That’s their privilege, but they ought to be a little more discrete about their low regard for us.
Not everyone buys this BS. One blogger, Horace Dediu, offers what many believe is the right explanation: Robbie Bach was fired because he lost the HP account. As the largest PC maker, HP is a hugely important Microsoft customer. A few weeks ago, HP acquired Palm for its WebOS smartphone software platform. The slap in Microsoft’s face still resonates; it’s a verdict on the failed Windows Mobile offering and a negative prognosis on its upcoming Windows Phone 7 Series operating system for smartphones. Days after the acquisition, Mark Hurd, HP’s CEO, let it be known that WebOS will be used in connected printers. As a final blow, HP’s (future) Slate Tablet, once held high as a Windows 7 device, will also use Palm’s WebOS.
Steve Ballmer has always been Microsoft’s most powerful salesman. That he lost the HP mobile devices account—and it was Ballmer who lost it, not Robbie Bach—is yet one more reason why Microsoft shareholders are troubled. Their unhappiness can be charted by comparing two stock price graphs, spanning the January 2000 – May 2010 period. Microsoft’s stock dropped from $56 to $25.80…
…while Apple shares rose from $25 to $256.88:
The morning after Steve Ballmer opened the proverbial Second Envelope, Apple’s market cap, the total value of its shares, surpassed Microsoft’s. In Wall Street terms, Apple is now the largest high-tech company, worth about $230B, a few percentage points ahead of Microsoft. Across all industries, Steve Jobs’ company is now second only to an oil company, Exxon, at $285B. When questioned about Apple overtaking Microsoft, Ballmer had this to say:
‘It is a long game. We have good competitors but we too are very good competitors,’ he said. ‘I will make more profit and certainly there is no technology company on the planet that is as profitable as we are.’
When it comes to profits, Ballmer is willing to take credit.
Over the last decade, Wall Street has declined to reward Microsoft for its superior profit. The explanation is simple: Professional investors don’t believe Ballmer, and they don’t see bigger profits in Microsoft’s future. Conversely, they bid up Apple’s shares precisely because they think the company will keep growing revenue and profits. Apple has managed to enter new, growing markets, a feat Ballmer has repeatedly failed to accomplish.
January 2000 was when Steve Ballmer was made CEO of Microsoft. Yes, we can discount the year 2000, that’s when the Internet Bubble burst causing most high-tech shares to collapse. Still, since the end of 2000, Microsoft stock has stagnated, hovering between $25 and $30.
This never appeared to faze Ballmer. While we joke about the Steve Jobs Reality Distortion Field, Microsoft shareholders ought to worry about Steve Ballmer’s own distortion, and about the self-inflicted effects of such a strong field.
We all remember Vista, it was a godsend for Apple. Did Ballmer acknowledge that there were problems? What about the Xbox 360 reliability nightmare? The apologies were left to underlings. Then Google comes out of nowhere to take 65% of the Search market, leaving Microsoft with an Apple-like market share (I’m referring to Macs, not iPods). In MP3 players, Microsoft failed again and again in its attempts to unseat the dominant (65% market share) iPod/iTunes combo. Social networks? A tiny investment (1.6%) in Facebook. And where is Microsoft in the Microblogging world, a.k.a Twitter? Nowhere, the old Microsoft Messenger is fading away.
Now we have the most recent Microsoft failure: Smartphones. When the iPhone came out in 2007, Ballmer pronounced it a “passing fad’’. Then, in 2008, he promised that Windows Mobile would have 40% market share by 2012. To be fair, he did recognize the failure in October 2009: ‘[We] screwed up with Windows Mobile.’ The platform was effectively dead. Earlier this year in Barcelona, Ballmer introduced his new smartphone OS, Windows Phone 7 Series, available in time for the Holidays. Two months after the Barcelona event, two Kin phones emerge to a lukewarm reception…and neither of them run on the old generation software, nor the next one, orphaned at birth.
Undeterred, Ballmer now predicts there will be 30 million Windows Phone 7 smartphones sold in 2011. Ballmer has proudly proclaimed there will be no iPod or iPhone in his household, so that’s a few Windows 7 Phones sold right there. As for the rest of the 30 million… has he heard of Android? At last week’s Google I-O, the company announced there were over 100,000 Android phones activated every day, more than 35 million Android phones this year. Given the enthusiasm of handset makers for Google’s OS, they’ll probably sell twice as many next year. Ballmer’s Reality Distortion Field is overheating.
There’s no dearth of advice for Ballmer to right the ship. You can find Galen Gruman’s at Infoworld and Anders Bylund’s at the Motley Fool. But I’m afraid none of it will work. The same leadership will cause the same effects. Ballmer is running out of envelopes.
One of Microsoft’s problems, paradoxically, is that it makes a lot of money. It can spend 15% of revenue in R&D—about $9B a year—with no market breakthrough to show for it. Great concept demos and prototypes… and then nothing. (How many new Googles, Facebooks, and Twitters could we VCs fund with that kind of money?…)
A bigger problem is Microsoft’s Board of Directors. Ten women and men with distinguished backgrounds ranging from banking to pharma, from university president to venture capitalist. (There’s a lonely entrepreneur there, Reed Hastings, CEO of Netflix. He’s a math whiz, which could explain the NetFlix prize.)
Three out of the ten members are old-time friends, connected through Harvard (Gates and Ballmer) and Stanford (Ballmer and Marquardt). Such closeness makes it difficult to make painful decisions. Furthermore, it’s not obvious how a research mathematician, the President of Harvey Mudd College—a terrific place for gifted kids—an auto executive, and a banker can parse the finer but essential points of a mobile software strategy. The PowerPoint slides look professional, the occasional demo looks good… but what can a “generalist’’ director do?
In theory, the directors’ most important function is to hire and fire the CEO. But how independent are the Microsoft directors? How could they get the CEO to open the third envelope?
Microsoft didn’t have Apple’s stroke of luck. Fire one if its founders who goes on to start two companies, Pixar and NeXT, and then comes back twelve years later, tempered by the experiences, good and bad, ready to lead the company to an amazingly successful second act. Except for Ballmer’s two-year stint at Procter & Gamble, all he and Gates have ever known is Microsoft.
So, there we are. An immensely successful company, still making large amounts of money but unable to go beyond its original Windows + Office + Exchange franchise, left behind by a combination of newcomers such as Google and Facebook with the old frenemy, Apple.
Someday, a large institutional holder will get tired of waiting, tired of watching yet another rah-rah, ‘the future will be great’ speech from Ballmer, and they’ll dump their shares. That might shock the Board into taking the required drastic action. Take a look at the institutional ownership of Microsoft stock. Many have already started selling portions of their holdings.
Next week in Los Angeles we have the Wall Street Journal’s D8 conference (the speaker line-up is here). Steve #1 and Steve #2 will be interviewed on stage by Walt Mossberg, the newspaper’s high-tech guru. We’ll see how Walt broaches the Second Envelope question with Steve #2. Will he pose hard questions or toss softballs, allowing Ballmer to give one more of his now tired and tiring ‘We’ll win…eventually’ speeches?
Come to think of it, Steve Numero Uno might very well heap praise on Microsoft’s CEO, he likes him just the way he is: with enemies like Ballmer, who needs friends?
I’ll be in attendance, and will report back next week.
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98 Comments
Superb analysis of the eleventh hour situation at Microsoft. I like the envelope analogy, but if it’s apt, then Ballmer’s not just on his second envelope, he’s been burning his mail unopened for his entire adult life. Someone may have to break the news to him in person.
With respect to Steve Jobs and Microsoft not having “Apple’s stroke of luck”: The word “luck” doesn’t belong in the same sentence with Steve Jobs. What he has achieved in his life isn’t a function of luck. Circumstance, karma, fate perhaps, have made him who he is, but luck has no bearing on why he’s Steve #1. Maybe it starts with something simple — he sure knows how to answer his mail.
Great, thoughtful analysis.
Big tech companies hit an inflection point long before the damage is visible.
Momentum, and in Microsoft’s case, huge profit margins can maintain the impression of success, power and relevance.
At what point did Microsoft’s decline really begin? There are a number of candidates; Vista is a popular one – which can be recast as an inability to successfully follow-up XP.
But I think the rot set in longer ago – maybe a decade ago. Sure Ballmer hasn’t helped, but this is a company that has been in cultural decline for ten years.
There are many, many good people in Microsoft but at a higher level they appear to lack vision.
They have an enormous enterprise cash cow and that has insulated them from the changes at consumer level which are now migrating slowing upwards into small to medium businesses and from there into enterprise.
keith
Hey frenchie, TechFlash has a lot more credibility than you do with your feces comparisons.
Microsoft still has the best development ecosystem out there, and keep improving it constantly (e.g. Team System).
I think they cannot be written off just yet.
Once they get WM 7 out – suddenly they will have a huge number of developers with (almost) 0 learning curve, using great development tools backing them up.
They just need to *not* get the application store wrong, and they can get WM 7 rolling pretty quickly.
As someone who has meddled with Symbian, android and WM6.5 development, I can say that WM is by far the easiest to develop for.
thank very good
ShloomKloom is right, Microsoft has very development tools, see http://bit.ly/wph7sdk. The next question is the Money Pump question: Android is (mostly) free, you still need to license the name and go through the CTS (Compatibility Test Suite), how will MS charge for WPh7 against the free Android? JLG
@ShoomKloom The Windows Phone 7 API is basically crippled Silverlight. Easy development or not, it is the most restrictive and least functional of all mobile platforms. After seeing the new user interface i was somewhat interested in WP7. But that was quickly gone after looking at the SDK a month later. Microsoft does not have the time to improve it until version 3 like in the past. Add to that an obsolete browser based on IE7 while all other platforms use HTML5 compatible Webkit and it is likely that Windows Phone is dead in the water.
The problem with Windows Mobile 7 is not that it doesn’t have potential, its that its entire business basis has been undermined by Android. Even if previous WinMo licensees continue to put out WM7 devices, they will also be building Android devices and not have to pay Google. Microsofts ingenious business plan for licensing OS software to device builders has been rewritten, brought up to date and is being applied against its original creator. Like Microsoft, Google needs big marketshare for this model to work. Google is not after Apples iPhone share, its not enough to sustain its model.
So where does this leave Microsofts’ mobile strategy? Basically, in the crapper. It’s not a conceptual advance that will grab attention and its hardware partners are openly double-dating the youngster. More worryingly, if Android (and/or iPhone OS) begins to pull in more desktop/laptop users, the Window’s license to print money will erode.
The Secret Powers of Time
http://www.youtube.com/watch?v=A3oIiH7BLmg&feature=player_embedded#
Essential viewing for Steve B.
The losing HP foundation was poured with Vista… Had to be.
MS Initiatives into the consumer space have all failed, with the exception of Xbox. Office and Windows have become enterprise centric ‘utilities’., with no near term threat. The latest moves indicate more of the same enterprise centric results (profits) from MS, along with ongoing confusion about most everything else.
MS has the enterprise in its DNA, with Ballmer as original stem cell line.
Trying to win in the “consumer” is not going to happen w/o regime change.
I don’t know much about business or how to decipher what is really going on. Did Robbie Bach really retire because he wanted to or was that simply the better choice of the 2 given to him? I don’t know, and in the big picture, my job is not affected by this change.
However, I do wonder if it would be possible for a high profile executive to retire without it raising suspicion?
Those effective TV commercials contributed to accelerate Microsoft’s decline, too. (PC vs MAC, played as smart, sympathetic MAC character, and lovable but clumsy PC character.)
Never underestimate the power of effective advertising.
I’ve always been a “PC” but MAC has never looked more inviting.
i stopped reading here –
“January 2000 – May 2010 period. Microsoft’s stock dropped from $56 to $25.80…”
have you heard of a stock split? microsoft had a 2:1 one on feb 18 2003 taking the stock price down from 47 to 24 while doubling the shares issued. given this amazingly stupid oversight on behalf of the author i can only assume that the author has an ax to grind and the rest of the article can only be filled with other glaring mistakes.
shame really as it started off not half bad.
With all due respect, I’m afraid “anon” hasn’t taken a close enough look at the Google Finance chart I included in the post. I went back to the original and rechecked, see here: http://www.google.com/finance?client=ig&q=MSFT
Google Finance “normalizes” for stock splits, that is the chart shows the “true” stock price, splits included.
@Felix. I beg to differ about WP7′s development platform being a crippled Silverlight implementation. There’s a lot of power there alone, plus the cloud services that Microsoft provides. Beyond that, the other API that’s provided is XNA, a mature, high performance game development environment. There have been multiple demonstrations showing 90%+ code reuse for XNA games between xBox, PC and WP7. No other platform comes close to that.
Excellent column. I wrote a post with a sarcastic look at these “retirements” but this is a really good, thorough review of Microsoft’s problems.
Excellent analysis of the situation with Microsoft. As a Microsoft shareholder, I feel that waiting for a turnaround has been like Waiting For Godot. So much cash, so much profit and so little to show for it, this is incompetence at it’s best. Forget about Microsoft’s Board, Bill Gates is the one who should show some leadership again and make the tough decision of firing his friend.
More on stock proces adjusted for splits.
Take a look at Google Finance here: http://bit.ly/MSFTPrice. You’ll see a neat Flash widget for Microsoft’s share price over time. Click on Max in the graph window where the choices are 1day, 5 day, … 5y, 10y(ears), Max.
Now, put the cursor anywhere on the price graph, you’ll get the price at that time. Go back all the way to the 1986 IPO, the price is stated as $.097, clearly recalculated for splits, it closed at $27.75 that day, see http://bit.ly/MSFT_IPO.
Now, go all the way to this past Friday May 28th, Google shows a 25495.24% appreciation since the IPO, not bad. And stagnation since the end of 2000. I hope this clears things up. JLG
Has anybody looked at the enormous economic cost burdens that Microsoft’s poorly architected and buggy software causes around the world? Examples: Tech support, anti-virus software, time wasted resolving countless problems such as missing DLLs, crashes, incompatibilities, automatic updates that do not install, time wasted waiting for the PC to boot, etc. Microsost has also been unable to make Sleep Mode work flawlessly in all situations. I, myself, stopped using it on Vista because each time I had to r-install all my HP print software and drivers, a 45 min task. Multiply that by hundreds of millions of PCs and this is a colossal waste of energy and a huge source of greenhouse gas emissions.
@WillT
No sockets (even Silverlight has that), no direct camera access, no support for libraries written in C or C++, etc. I am not a game developer but i did notice that XNA does not support custom shaders on Windows Phone. With iPhone, Android, Symbian and others you are not limited to a high-level 3D API and can use C with OpenGL ES. The strong Xbox brand may make the difference as you said, but i don’t think it is enough.
JLG — are you sure the dropping institutional investment wasn’t simply due to the change in Microsoft’s weight relative to the S&P 500 or other indices, or to fund redemptions? Tech is the largest component of the S&P 500 ($2 trillion), and Microsoft was the largest portion of that until recently. Maybe it’s simply of a matter of rebalancing mutual fund’s cap against the company’s weight in the index or redemptions on funds.
@Claude Ezran
Claiming all this is Microsoft’s fault is extremely shallow and ignorant.
Besides, when a software (OS) supports literally millions of software and hardware combinations and offers thousands of features ranging consumer to enterprise, problems are bound to happen. Actually, it’s suprising that it doesn’t happen more often nowadays.
If you know an OS that supports/can do one tenth of what Windows supports/can do, name it.
Good comments generally but you’re dead wrong about HP slate thing. HP is still the primary OEM for Windows and Office and Microsoft couldn’t give a c**p about their slates. How many do you think HP was going to sell? A few hundred thousand at most. There are 1M PCs shipping EVERY DAY, even the market leading iPad is a rounding error in comparison. They’re great for PR but lousy for revenue and revenue is the only thing Steve cares about. Period.
Get your facts straight. Jobs didn’t found Pixar. He bought it. The very talented team at Pixar excelled both before and after his purchase. And if I recall correctly Next was pretty much a disaster.
Perhaps you might correct your references in your writings above.
Also if Jobs is so smart, why did he allow Eric Schmidt to stay on the board and gather all the information he could about the iPhone in advance of the Android phones, etc?
Microsoft has some enormously talented people, and the game is far from being over.
Bravo!
The problem with Microsoft is that their leadership actually believes their press releases. Apparently, there is no sense of reality at the Redmond campus; Microsoft’s leaders seem to believe that they are still the king of the tech, everything is going great, and the tech world revolves around them. They throw around words like “incubate” and “innovate” and actually believe that’s what they do. The reason Microsoft consistently comes up short is because no one with decision-making power has a realistic view of Microsoft’s place in today’s real world. The only way Microsoft becomes relevant again is not by firing two key leaders; they ALL need to be replaced, especially the one at the top. This action better happen soon, while Microsoft still has the Windows/Office cash cow to fund its strategy.
Litany of Ballmer failures:
*PlaysForSure music format
*Zune
*Zune HD
*Windows Mobile
*Microsoft Kin
When phone OSes are released, they tend to be immature. The very first iPhone had no copy/paste, or stereo Bluetooth. But over 3 years Apple fixed it.
Windows Phone 7, when it is released, will be more immature than the others, because it was rushed with such haste to get it to market. For software developers, it’s impossible to create a complex app on this immature platform.
How on earth will immature and feature incomplete Windows Phone 7 compete with iPhone or Android that had many years head start? It won’t. It’s already too late to change Windows Phone 7′s inevitable destiny with failure.
Its interesting to see how google essentially co-opted Microsoft’s horizontal licensing strategy and took it one step further. Instead of charging hardware makers for the rights to use Android, they are basically supporting it via ads. Its tough to compete with something like that. They are basically leveraging their near monopoly status in internet search to undercut their competitors in the mobile OS market – so that they can have more customers for internet search…
I wonder what strategy MSFT will use to compete with this? Will they try to do the same thing with WinPh7 – leverage Bing to fund it and let licensees install it for free? Leverage their Office and Windows Desktop/Server revenues and not charge for WinPh7? Could they even get away with this under the terms of the DOJ settlement?
Will they use their patent portfolio to force handset makers to pay regardless of if they install android or not? Recent grumblings from the tech blogs make it seem like they may try to exert pressure on HTC and the like in such a way. In exchange for a licensing fee they may agree not to sue over the patents that android violates. Or maybe they get creative with this and make the fee for actually using WinPh7 less than the fee they charge for licensing the patents for use of android tech – effectively making it more attractive to just use their stuff than pay to not get sued over android.
Or maybe they will finally just get religion and build a better mousetrap like Apple does. That would be the best scenario in the long run, for the consumer and for them.
How much did Ballmer spend acquiring Danger Incorporated? I think it was around 700 million dollars. This is more than the first iPhone cost to develop (150 million).
What did Microsoft make of its Danger purchase? One massive data loss (in 2009), and yet another phone platform failure, the KIN.
I found your observation about the “generalist” nature of Microsoft’s board interesting.
It makes sense, but Apple’s directors don’t seem any more technical, though they’re probably not school cronies either: Al Gore plus the heads or former heads of major companies in biotech, cosmetics, clothing, and personal finance software. Do you have any comments on why these seemingly generalist people appear to work out fine for Apple, while you see Microsoft’s board as a big problem?
(By contrast, all of Google’s directors have very strong technical / tech industry experience: two major tech VCs, two major university presidents (both technical, one in computers), head of Intel, a person with a history of senior executive experience in finance/administration at big tech companies.)
If Ballmer had confidence in Windows Phone 7, he would not need to remove the managers that created it (despite the spin about them planning to leave).
If Ballmer had confidence in Windows Phone 7, he would not need to inflate the projected sales figures.
His actions show he has no confidence in Windows Phone 7 at all.
I fully agree with you and I am amazed, too, by how the media downplayed Allard and Bach’s goodbyes. There may be more to it, though: Microsoft may have decided to withdraw from the consumer market altogether, but it is too early to give the news out. Core profit comes from the Windows + Office + Exchange franchise, which, on the longer term, is likely to survive only in the enterprise. Why keep bleeding on smartphones, gaming and other less profitable biz where competition is tough, too?
Very good analysis.
Most of you sound like people who buy high and sell low. Smart money is on Apple’s decline in the wake of Google and Microsoft have ideally positioned themselves right in the middle of every fist fight in town …… the one who will benefit form the outcome of each of those fist fights. Also as well, I’m afraid all of the guys being discussed in such an Apple fanboy derogatory tone are infinitely more accomplished than any of the readers or commentators here EVER will be …… oh and one last thing – they (the accused) ACTUALLY know what they are doing, whereas you do NOT and are merely gossiping like a losers sowing circle, rank with jealousy. Once that megalomaniac control freak loony Jobs has passed away, they sink like Man UTD will after Ferguson – my money is on Microsoft and my money continues to make fat profits. Screw consumers, who ever listened to them anyway? Giants like Microsoft always win the day. I will return to read my comments with content this time next year as Windows 7 Mobile starts to make iPod+++ as ‘samey’ as Windows 7 is making Mac OS. Apple is a consumer company, a pretender to the corporate stage – Microsoft is a GIANT and everyone has their bad days. Ballmer FTW! RIP Jobs. Web OS who?
I just saw a great movie last night, “A Good Year” with Russell Crowe.
Albert Finney’s character, Henry, after a tennis match, explains losing as “an opportunity to learn… just don’t make a habit of it”.
I was thinking of that line with respect to Jobs and Ballmer, and almost feel sorry for Ballmer. He rode the Microsoft train from 1980 and saw it’s incredible rise. He now has such blind faith that the company will always succeed that he ends up making blunders. It’s as though VHS has beaten Betamax and now, 20 years later, as the last VHS factory closes, the CEO is looking around thinking “wait? I thought we won?”. (yeah, I know VHS isn’t a company, etc, but you get the idea)
Jobs on the other hand seems to have really learned from his failures. So many predictions and facts that everyone “knew” about the “mercurial Steve Jobs” who can’t work with anyone…ended up being flat wrong.
Everyone knew he wouldn’t let the iPod work with Windows, Everyone knew he wouldn’t let Intel macs boot into Windows, Everyone knew he wouldn’t let 3rd parties make apps for the iPhone.. Everyone was wrong.
It hasn’t been all pretty. There have been a few failures, but they were learned from, and failure didn’t become a habit. The Cube, for instance, is one failure people will mention. OK, call it a fail, but it sure looks like it laid the groundwork for the Mac Mini.
Then there is another one people forget, but I almost liked! The Apple HiFi!
I listened to one in the Store, and liked the sound a lot. I only wish it had built-in WiFi, so that you could stream wirelessly from your desktop to the HiFi, which you could carry around the house wherever you are, deck, pool, garage.
I’m not holding my breath waiting for a re-do though!
Great article.
I stopped reading the comments here:
“have you heard of a stock split? microsoft had a 2:1 one on feb 18 2003 taking the stock price down from 47 to 24 while doubling the shares issued. given this amazingly stupid oversight on behalf of the author”
What an unbelievably financially ignorant comment that was.
Happy to see some arose to explain the world of split adjusted stock prices to this astronomical bonehead.
It’s people like this that should stay away from armchair business consulting and continue to hone their skills as a Walmart Greeter.
Intosh said :
“Besides, when a software (OS) supports literally millions of software and hardware combinations and offers thousands of features ranging consumer to enterprise, problems are bound to happen. Actually, it’s suprising that it doesn’t happen more often nowadays.
If you know an OS that supports/can do one tenth of what Windows supports/can do, name it.”
The problem is, consumers are generally buying ONE item at a time, and the fact that the OS in this one product might be working in millions of combos throughout the world doesn’t do anything for that consumer when their device crashes. It’s like you’re saying “give MS a break! They’re trying to be all things to all people, and it’s tough!”. Maybe that goal is not a good one?
I guess we do appreciate Windows for doing the grunt work though!
Well, here’s two arguments for specific comments:
1. The XNA platform is great, but we’ve yet to see if the WP7 hardware fragmentation will still prevent a games ecosystem from flourishing. There’s a reason consoles are more popular than PC gaming lately, because there’s extremely specific hardware specs. That same reason applied to iphone/itouch. It doesn’t apply to Android (and it’s lacking games) or WP7 (wait another year or two to see).
2. MS’ leadership hasn’t shown that they know what they’re doing. Everyone who built the Office/Windows success on the technical side is pretty much gone. This current generation hasn’t done anything stellar outside of SQL server and the .net platform. And they’ve never succeeded on the consumer side – xbox should have been a much bigger success, but they blew the hardware.
@ Buzz Bruggeman: When Steve Jobs purchased Pixar, they were still trying to find a focus and a business model. I’m not even sure they were creating movies, but for demos for their products. As for Next, it got acquired by Apple and is an important piece of Apple today’s success.
Gassee is just repeating what former Microsoft VP Dick Brass wrote in the Wall St. Journal several months ago. Nothing new here. No insight, just repeating what others have already said. Yeah, Ballmer is a failure. Does Gasbag thing he figured that out? Besides, how can the man who destroyed the BeOS have the nerve to criticize Ballmer? For all his faults, Ballmer still has Microsoft in the black. Gassee was a complete failure as a CEO.
This article is spot on. Microsoft’s troubles start with Ballmer. He ego has blinded him to what is going on in the marketplace. First, mobile is the platform of the future. It will surpass desktops in number of units sold. Second, everything is going to cloud computing on the server side of things. People will not be buying Dell / HP servers preloaded with Windows. They will be using EC2 / Google / Azure. And guess what? Microsoft doesn’t sell any licenses when people use Azure! Microsoft’s crown jewel right now is their development tools. They are still in the lead with them, but that lead will be slipping soon I fear.
About Apple’s Board: First, Apple is a consumer electronics (hardware+software) company. Thus, it cares about environment and retailing. Al Gore provides insight on environmental issues and the US government (including connections). Andrea Jung (Avon) provides insight on retailing, especially in China (largest retail opportunity), also including connections. Millard Drexler (Gap now J.Crew) provides insight on retailing – i.e., Apple Stores. Bill Campbell (Intuit) is a sought-after leader/coach; he also provides Marketing expertise. And Arthur Levinson (Genentech) provides insight in technology R&D and product development. All except Gore have been CEOs of rapidly growing companies (brands). And Gore was VPOTUS.
Apple is now missing a financial expert with the passing of Jerome York.
Jean-Louis, a couple of points….
the largest tech company in the world runs smooth as silk on ….Mac OSX;
Apple became largest tech company while still having a very small share of computing, phones and software markets;
and honestly JLG, with your history in this industry, don’t you think that Gates v3 finally understood the ageing writing on the wall for Microsoft, prepared the three envelopes for his successor and timed his exit well before faeces met fan? Come on now JLG. Things like that you just know it viscerally, you feel it in your bones, no?
Thanks for another fine article.
Chandra
@ John Blackwell
I feel your pain. There is a certain class of person who admires success by theft and bullying and despises hardware research, customer-centricity and innovation. The trouble is, with companies like Microsoft and people like you were in the majority, the world would be a primitive and very dangerous place. The terms ‘Microsoft fan’ and Stockholm Syndrome sufferer are exactly synonymous.
I’m not so convinced by the analysis. Sure, Microsoft has problems entering new markets but in large measure that’s down to protecting it’s $40Bn in revenues – something worth looking after. Sure the investment might not have rocketed up but the revenues are there.
Apart from professional investors who want a stock to climb relentlessly when mugs are induced to buy so they can bail out, does anyone really consider that Apple is worth a *huge* multiple of earnings? No, an in the long run asset prices don’t rise forever.
A lets not forget that Apply really has one product ‘i’. Touch Phone and Pad are variants on a theme. The iPhone has a useful UI but is especially innovative in other respects. The model of tying the store has been successful but is limited to the ‘i’ eco system. The iPad has been bought by the faithful but have you bought one? I’ve no intention of buying such a retarted device. So it’ll sell a few million then what? Where’s the rest of the product going to come from to justify the capitalization and earnings expectation implied by it’s stock price.
So this article is just fanciful. Ballmer, like him or not,has a significant revenue base to protect. That Microsoft invests ~9Bn in R&D each year and the Vista debacle shows how difficult it is to produce new product that doesn’t cannabalize your existing business. Apple has yet to show it can keep increasing its revenues and it gets harder the bigger the number gets.
Microsoft alredy is a dinosaur which could not get fast enought to to new technological reality.
Open Source has rocketed the game and the super top amazing companies today have been using it as weapon.
Take Apple which borrowed freebsd to create its darwin O.S for Macs, Ipos, Iphones, Ipads.
Also google bootstrapped itself with Linux for the O.S. for its search engine and now are using it again in Android.
The rule today is who copy fast sell fast. Technology is slowly becoming commodity.
Microsoft would not hurt Windows sales adopting a alien O.S for its Mobile product, for example. And could not get the time to market of its competitors anymore. Because of this it will loose relevancy in web 2.0 and technology driver world.
The future for M$ is using its cash cow (Windows, Office) to get money, until it becomes less relevant.
The signs of this could be observed in Internet Explorer saga. They are loosing ground fast in a already stabelished market. But corporate world will remain a good time with their IE6.
I´ve known this from the beginning. Steve is uninspiring. It’s all in his name, he is the embalmer of a dead corpse.
In a way, despite all of its success, Microsoft was born brain-dead. It has always been a company that played a very simple business game. The country it was born in, gave it the right to play this game of money, by money, for money. The right to win and the right to crush the competion based on market monopoly.
Microsoft is an artifact of american society before anything else. It is not real, and it will die because of this. I see no way it can be turned around. It can only grow smaller, get rid of the bubble.
Microsoft success is entirely comprehensible, because it didn´t have to pay for the support that I and others like me had to give, and suffer, to resolve Ever-Lasting silly bugs in its software.
Microsoft harmed us. If we’d had a voice there would have been a better product. But justice isn’t made by humans, for humans. It preserves the wrong interests.
Again, this is American society. Worldwide. America is bound to Microsoft as in fate. Capitalism, as an artifact, we must, at some time in the immediate future, get rid of. We have to get with the times.
Jean-Louise,
Great article. I think the stock price is simply one in a multitude of issues at MS right now. The biggest being the failure to innovate and create a truly competitve product beyond their operating system and the MS office suite.
Even their dominance in those areas is starting to wane, I know several developers who are working at large corporations who are starting to move away from MS office onto other platforms. I also know several small agency owners who are moving to a colud platform and getting rid of MS all together.
There really is a movement by companies to “un-burden” themselves from MS. It’s a small movement right now, but in 5-10 years, MS could be a third or fourth tier provider if they don’t pull their heads out of the sand.
Like someone else said, “it’s been rotting for a decade or more now” and I couldn’t agree more. Once the profits start shrinking and the money starts to dry up, reality is going to be a bitter pill to swallow.
The money is going to run out and
Ah, the never ending comparison of a software company being whupped from its peak, vs a hardware company heading back from near oblivion. Always good use of charts.
not.
What “required drastic actions” would be needed, besides firing Ballmer?
I’m the consumer — Have been using MS off an on since DOS 4.11 and nothing made by MS has EVER worked. MS products are crap and if sold instead of licensed, the company would have been out of business decades ago under consumer protection legislation. With free Ubuntu and OpenOffice programs, like a lot of other consumers I have cut the chain to MS while keeping my cheap and now reliable PC. Anyone with MS stock should bail out fast.
WRONG, as long as MS has the best development ecosystem all of the others will be losers in the short or long term it does not matter, for years and years to come people had and will always play nostradamus and predict MS destruction, keep dreaming writer you too
Personally, I think that Apple’s products are overrated. Sure, they’re innovative, but at a considerable premium. I would also argue that their success at this point in time is fueled by the “haves”, the overgrown yuppies with more expendable income than “the rest of us”, who must have the latest and the greatest, or what hype tells us is the latest and the greatest. I find MacOS to be a clunky UI, requiring more pointer movement and menu gyrations than Windows or Linux in order to accomplish the same tasks. There is also the argument that some of Apple’s business practices are anti-competitive and that they have thrived partly due to having more of a lock on their market due to these anti-competitive practices.
Microsoft is to darn top-heavy and loaded with to many “theory” geniuses who, for whatever reason (organizational structure ? ) are incapable of implementating or developing new ideas.
Sort of like the Civil War’s General McClelland – a real intellect incapable of bold / daring – but necessary, real world military decisions and General US Grant, who was a real leader not afraid to make decisions, an operational genuis, but intellectually no wizard (he finished near the bottom of his West Point class, and before the Civil War was an abject failure in his civilian pursuits).
Microsoft needs a real LEADER and VISIONARY in the Steve Jobs mold.
Microsoft’s visionary geniuses- and they must have a bunch – most likely are simply NOT listened to.
I believe it was in the late 1940s where, during a gathering of the world’s greatest scientists, they were asked to predict what the future would bring in terms of technology.
Not one of them predicted the development of the computer.
Massive intellect does not necessarily translate into thinking outside the box in regards to what can actually be developed and utilized in the real world.
Gud and nie information collected i really enjoyed while reading this article so it is really a nice job done thanx
I will point out that yes Microsoft isn’t perfect, but then again, every dog has fleas, as they say. I can point to lots of imperfections at Apple, Amazon, and Google as well, but there are some very good observations in this post, and it’s well presented (incuding correct math on the stock splits). I also think it’s a very interesting point to watch the trend of institutional investors.
Two things I might point out. First, in addition to the issue with HP mentioned in the post, HP just hired Bill Veghte, a former Microsoft executive to run their sofware division. That needs to be watched closely.
Second, irrespective of envelopes, what is the solution to the issues you raise? Who could replace Steve at this point? There just aren’t that many people who can do that job.
What other steps do you think are needed (beyond better PR commentary on challenges)?
One fact people lose sight of is the simple fact of what the #1 goal of every company is, which is to deliver shareholder value. For about ten years Microsoft has delivered revenues and profits but not shareholder value, as you point out, and I think it would be helpful to hear from Microsoft what they think it is going to take to deliver shareholder value, because it’s clear that big revenues and profits aren’t enough.
Woohoo! excited for steve jobs. Plus Peter Chou from HTC according to here:
http://briefmobile.com/steve-jobs-to-speak-at-d8-conference
NORTEL.
This is NORTEL act II.
NORTEL owned the World. They flicked companies aside and ate new technology for breakfast. Problem was (and is w/ Mr. Softie) NORTEL ended up a bloated European type Monarch who’s final statement after eating its last wafer thin mint was ” BRING ME A BUCKET!@!”
MS is toast. Time to move on and capitalize on the transition to open standards documents and the mass confusion that will reign within the millions of cubicles when MS Office is removed and folks have no idea what to do with the ‘new stuff that doesn’t look like the stuff i’ve have for 10 years in my cube’. They will survive the switch, but there’s a Wide Open Market to profit during the transition.
I developed for and on an OS called “Windows” once. …back in the mid 90′s. Haven’t really paid it any attention since ’99 when I switched my focus to BeOS, then Linux. Apparently this “Windows” is still around(?)
Ballmer is the classic example of the executive or top level manager who is never responsible for anything that goes wrong and displaces others, whether they had any direct responsibility in the manner, so as to re-direct the blame and therefore the consequences onto others.
APPLE has surpassed MICROSOFT not because they are better over all but because they are innovative and they know how to market. The iPad is in fact the worst MP3 player anyone other than a non-computer savvy individual could buy. There are plenty of better and cheaper products out there with far less restrictions then the iPAD but the iPad won out because of marketing and embracing the “coolness” that makes any product a member of the pop culture icon which the iPad has along with others like SONYS WALKMAN.
Microsoft could have kicked APPPLES butt with the ZUNE if they had done it right but you can bet Ballmer or some other idiot executive who has no business getting involved with those types of decisions, stepped in and fragged things up. The CEO and other high level managers and or executives need to stay out of those types of decisions and leave them to those they hired to do that job.
I hope Ballmer sees the bottom of a black boot soon because he needs some humility.
Oh and btw. Mine is now an almost MS-free household. I say almost because I keep a Toshiba laptop running XP. We boot it up every time we need a reminder of where to set the zero mark on our gp benchmarks of software quality ranging from 0 to 10. And we almost, kind of, nearly liked XP.
The odd thing is that Win Vista ranked minus 7 on this scale and Win 7 ranked minus 2.
Never mind Back to the future.
MS is headed squarely Forward to the past.
Apple is around $12 billion up on MS’ market cap today. There may be occasional reversals in this tango, but the trendline is clear. AAPL $500+!!
There are a lot of upset MS unhappy bunnies out there. The trendline on their numbers is upwards for the foreseeable future.
Jean-Louis
Glancing through your Cloud 2.0 article, a thought occurred to me. I think MSFT shareholders are growing angry and weary of Ballmer’s empty responses to adverse trends and value dilution.
Over the last 10 years, MSFT investors have had dividends but they have lost more than half of their investment value. Over the same period, AAPL’s shares have risen from the $7 to $1 mark to its present $265; let’s call it 26 times. Every indicator suggests that Apple will continue to grow revenue rapidly as it moves to bring smartphone share to iPod levels (~70%)and bring Mac market share to a modest, say, 25%. This can happen in the next five years. It will take Apple beyond $500 per current share. These kinds of sustained trends, up and down respectively are no temporary blip. Both have strong momentum in opposite directions.
I believe that, for as much as Dell and Microsoft etc., have been the ‘darlings’ of Wall Street and of their shareholders for decades, Apple finally has some firm believers in Wall Street too. For the first time in their history, Apple have analysts sitting up, paying attention and adjusting their forecasts upwards very often indeed, just to keep pace with the unfolding trend as it gathers pace. And it is gathering pace Jean-Louis.
Microsoft is vulnerable because Google’s Android and eventually Chrome too will woo away the voluminous low-end made up of Motorola, HP, Dell and all the Taiwanese phone and PC manufacturers. If they lose Windows licenses in large enough numbers, they will lose Office sales and upgrades too. It’s like sudden loss of confidence in a bank. There’s an unnecessary run on the bank and soon enough it suffers loss of viability. People start reducing their risk connections. They reduce their licensing commitments. Users don’t buy. It may take 20 years, but it will happen unless there is a 100% transfusion of new management at MS. I don’t understand the sheer profundity and scale of Ballmer’s disconnect with reality. This is the mother of all train-crashes and it’s happening in slow motion. He doesn’t see it.
oops… $7 to $10 mark …
@Jean-Louis Gassée – you are completely correct, and my apologies (for what they are worth) to you for mistaking the facts and jumping to conclusions (oh the irony).
i do agree that balmer has screwed up by not significantly growing the company in the last 10 years and although the stock price has remained steady (boringly so) given the market and product cycles we have seen with ipod, tablets, etc., there was ample opportunity for success. it’s amazing to me that the product line that should have been built by microsoft was described by gates five or six years ago – in stark contrast to job’s vision from the same period. perhaps with the recent shake up there is a restructuring that is readying his third envelope.
@ anon. Re: MS stock split/price. Very gracious, gentlemanly follow-up, thanks. JLG
Y’know, I’m a developer, and I have a couple of applications in development right now that are just dying to be cross platform apps. I’ll have no difficulty making versions that run more-or-less identically on OSX, Chrome, Android, iPhone, and asstd Linuxen. I’ll have to fiddle with the UI’s a bit, but the underlying code will run just fine without much in the way of modification.
Forget doing Windows, anything. The problem isn’t that MS has bad products, they don’t have bad products. The problem is that pretty much everyone else in the world saw the writing on the wall more than a decade ago that the Unix based internet was the future of tech, and dumped their proprietary cores for standards compliant Unix cores. I can’t believe that (well, I can actually, and sadly) that MSIE still doesn’t support SVG, for example, or that they haven’t at least thought that bundling something like MinGW with Windows Professional.
Who DOESN’T use GCC these days, at least occasionally? Who doesn’t use Subversion?
The number of features I have to leave out of a web app, just for starts, because of IE’s short comings is too numerous to name, and don’t get me started on CSS or javascript compliance.
If there’s one thing that has defined the 2nd Jobs era at Apple, it’s been (at least on paper) support for open standards.
I’ll be honest and admit I’ve had no love for MS, ever, but I once had respect for them. As of IE 8, that’s gone.
I should be a fortune teller – article just broke about MS suing Salesforce.com
http://www.techflash.com/seattle/2010/05/microsoft_sues_salesforcecom_alleging_patent_infringement.html
Oh yeah, it just so happens salesforce.com is the biggest provider in the cloud computing arena.
This is MS trying to get one last gasp of breathe before the waves of new technology wash them out to sea.
I worked at MSFT in its growth period. At one time BillG went to run some development projects and SteveB ran the business. It failed and they switched back quickly
Its failed again.
SteveB is a great sales leader and motivator, not a CEO.
As this analysis shows, he has failed and he needs to step aside.
Steve Ballmer on the mound: “There’s your problem.”
tinyurl.com/37u2dyx
It’s clear Ballmer is just a smooth talking salesman who has surrounded himself with like minded inner circle that are afraid to challenge him. MS inner culture is sick at higher levels and as Dick Brass (ex-MS VP) said kills innovation. Not only should Ballmer be fired so should some of the failures that are still sticking around like mold on a tree (Jon Devaan, Yusuf Mehdi, Kevin Egan, Rick Liotta), glad they got rid off some dead wood like Bruce Jaffe.
nice information
It’s easy to criticize but harder to do! Never count out the guy that can continue to finance the war. Microsoft is down, but not out. Balmer understands that this is a marathon – not a 100 yard dash.
the problem is it is a 10 year marathon that he has lost because of lack of vision. He is a good manager that can milk windows and office cash cow but not someone who can envision and drive into new businesses like Jobs can.
bravoooooo
Seems we all agree, MSFT declined the moment all the software weenies there were too rich to give a shit, which coincided with when new recruits had no hope of getting rich (read as, apathy, apathy), just coincidentally that was when SteveB took over (2000, or so). Don’t blame Steve, I love Gorillas!
I agree with “Microsoft’s problems” comment regarding this blog post as i also thinks that it is useless for us to argue what is happen in the past.
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It’s a long yet very easy-to-read articles… I came to know that it was HP that acquired Palm for the Web OS smartphone platform from this post…
From all the sites I have been to covering this subject matter, I think you do that best at explaining it, so very well done my friend.
Open source is indeed changing the nature of the game. At the same time however opportunities do present themselves, especially at times likes these, times of “corporate earthquakes”. The next few years will be interesting in seeing how things will unfold.
The envelope story is a classic and it is frequently used in business circles. Indeed, Ballmer has one envelope left, and it seems like he is walking on a tight rope.
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