Microsoft: Is this Steve Ballmer's last throw of the dice?
Bill Gates built Microsoft on the belief that if the software was good enough, the rest would surely follow.
In his note to staff, Steve Ballmer paid tribute to Microsoft's 'incredible people' and the 'transformative power' of its technology to 'make the world a better place for billions of people.
For many years, it was a strategy that paid handsome dividends. Microsoft Windows was so far ahead of the game, it became the default choice for computer manufacturers. If Dell or HP wanted to sell a PC, they had to offer it installed with Microsoft’s software.
However, the world eventually changed. Apple took the opposite bet, staking its future on the notion that if its hardware – glossy Macs, iPhones and iPads - was good enough, it could persuade customers to swap Windows for their own iOS platform. The company, which had once nipped at Microsoft’s heels, managed to topple it from its position as the biggest technology business in the world. Google was not far behind, using its free Android operating system and cloud storage to woo hardware companies like Samsung to its platform and push Microsoft yet another rung lower.
Still, the Seattle behemoth, now under the stewardship of chief executive Steve Ballmer, doggedly marched forward with its “software is king” mantra. It made some belated efforts to catch up, wheeling out the Surface tablet and launching a tie-up with Nokia to produce Windows-based mobiles. But its core focus remained on software. Its last great bet was on Windows 8, a radical reinvention of its iconic operating system, designed to allow people to flip easily between tablets and PCs.
It was a disaster, both in the timing and the execution. Microsoft had started courting a tablet audience too late, and simultaneously alienated its longstanding customers who were still wedded to the old Windows style.
On Thursday, however, as Mr Ballmer revealed a major shake-up of the company, it became clear that its dogged faith in software had finally been shaken.
Microsoft halved its engineering units, leaving four engineering divisions focused on hardware and web services, designed to speed new products to market. It also stripped out the business of marketing and finance, so that Microsoft’s engineers can focus on developing new products, rather than dealing with red tape, and what is often depicted as a pit of internecine politics.
There was inevitable bloodshed. Craig Mundie, Microsoft’s onetime chief research and strategy officer, and Kurt DelBene, who culminated more than two decades at the company as president of Microsoft Office, will both leave the company. The recent defection of its Xbox chief, Don Mattrick, to become chief executive of struggling gaming business, Zynga, can also be seen in a new light.
Other executives’ stock has soared with the shake up. Qi Lu, Microsoft’s online services chief, best known for his work on the Bing search engine, has taken a significant step up as head of its entire cloud and enterprise engineering operation. Tony Bates, the British chief executive of Skype, the video call company which Microsoft bought for $8.5bn in 2011, also survived the cull. He will head “business development and evangelism”, Mr Ballmer said – broadly speaking, the job of devising new strategies and boosting Microsoft’s flagging morale.
Mr Ballmer already appeared eager to get the ball rolling on that front. In his note to staff, he paid tribute to Microsoft’s “incredible people” and the “transformative power” of its technology to “make the world a better place for billions of people”. “It’s why I come to work inspired every day. It’s why we’ve evolved before, and why we’re evolving now. Because we’re not done. Let’s go,” he said.
Investors were pleased, if not wholly convinced. Shares were up 0.74 at $35.44 in lunchtime trading in New York.
But the question that is still plaguing many analysts was why has Microsoft not done more, and why is Mr Ballmer still in place after its catalogue of recent failures. He famously has Mr Gates’ backing, not to mention a huge tranche of Microsoft shares, But even so, it is hard to think of other technology chiefs that would have ridden out the disasters he has.
“I can’t see any other company in the industry where a chief executive would have been given as much time and as many new chances,” says a source. “He hasn’t made the mobile phone work. He hasn’t made Windows 8 work as well as it was supposed to.”
It might be a surprise that he has remained in position this far, but one thing seems clear: while this is unlikely to be Microsoft’s last rodeo, it is Mr Ballmer’s last big roll of the dice.