Steve Ballmer's Mixed Legacy - Wall Street Journal

By DON CLARK and SHIRA OVIDE CONNECT Getty Images Under CEO Steve Ballmer, Microsoft has endured years of investor criticism as the rise of mobile devices and Internet services eroded the influence of the personal computer-era kingpin. Microsoft Corp.'s Steve Ballmer tried new operating systems, new gadgets and new management structures. But the times caught up with a man who helped build one of the greatest companies of the 20th century. Microsoft said CEO Steve Ballmer will retire after the naming of a successor within the next 12 months. But who will fill the shoes of the longtime chief of the software giant? Marcelo Prince has details. Photo: AP. Mr. Ballmer's surprise retirement announcement Friday follows years of criticism about the waning growth and stagnant stock price of Microsoft, a force in the personal-computer era whose power was once so great that U.S. regulators sought to break up the company. PC sales—the lifeblood of Microsoft's business—are on a steady decline. Business and casual users alike are switching to devices and services offered by Apple Inc. and Google Inc. Investors cheered the news, pushing Microsoft shares up 7%, or $2.36, to $34.75, in 4 p.m. trading Friday on the Nasdaq Stock Market. Microsoft's offerings to customers "are downright confusing," said Daniel Gasparro, an IT consultant who recently managed Microsoft software purchases for clients including Washington, D.C. law firm Patton Boggs LLP. "When you're spread too thin, you're not good at anything." Mr. Ballmer, who took the reins from Chairman Bill Gates in January 2000, has responded to the changes by recently overhauling the company's Windows software to be used with touch commands and introducing a Microsoft-designed tablet computer called Surface. Timeline: Microsoft Under Ballmer Potential CEO Candidates More broadly, Mr. Ballmer has attempted in the past year to remake the company's overarching strategy to become a provider of devices and services rather than emphasizing software sales. A management structure announced in July that abandons autonomous product groups is expected to speed the transition. But the shifts haven't yet helped reignite the company's growth, though its longtime businesses continue to produce healthy profits. Its stock hasn't shown significant gains since the crash following the Internet bubble, which had taken its share price to a high of $58.03. In July, Microsoft booked a $900 million quarterly write-off for unsold Surface units, and reported revenue and net income that missed analyst expectations. "There is never a perfect time for this type of transition, but now is the right time," said Mr. Ballmer said in a memo to Microsoft employees. Mr. Ballmer held about 4% of Microsoft as of its last proxy statement in October. That stake is worth more than $11.5 billion at the current share price. He added that his "original thoughts on timing would have had my retirement happen in the middle of our company's transformation," but said the company now needs a CEO who "will be here longer term for this new direction." Microsoft employees were floored by the news, according to people familiar with internal conversations. The announcement set off speculation akin to Kremlinology, as Microsoft employees read and reread Mr. Ballmer's internal memo for clues about why he is retiring and who might be next. One person familiar with Microsoft's board deliberations said directors and Mr. Ballmer have been discussing for months when to reveal a succession plan. The decision was completed on Wednesday during a board conference call with Mr. Ballmer, the person close to the board said. Some former Microsoft executives said the latest move appeared abrupt in view of the recent reorganization—since such a new corporate structure would ordinarily be dictated by a new CEO rather than the outgoing one. Rick Sherlund, an analyst at Nomura Securities, said Microsoft directors may have felt pressure from ValueAct Capital Management LP, a hedge fund that in April said it had accumulated a stake in the company worth $2 billion. The fund has been known for seeking board seats or asking for other changes at companies to try to raise stock prices. Steve Ballmer's Hits and Misses Jeff Christensen/Reuters Windows Mobile—April 2000 The person familiar with the board's discussions said ValueAct played no role in Mr. Ballmer's retirement. George Hamel, ValueAct's operating chief, didn't respond to a request for comment on Thursday. Microsoft's CEO search committee will be chaired by lead independent board director John Thompson, a longtime International Business Machines Corp. In prepared remarks, he said the board is committed to the transformation of Microsoft into a successful "devices and services" company. Mr. Ballmer, a sales specialist with a booming voice, met Mr. Gates when they were students at Harvard University. He earned a bachelor's degree in mathematics and economics and worked for two years at Procter & Gamble Co. before joining Microsoft in 1980. Microsoft CEO Steve Ballmer announced he would be stepping. WSJ's Spencer Ante discusses the Ballmer legacy and what could be next for Microsoft. Photo: AP. The Redmond, Wash., company, first known for computer languages and then the DOS operating system, helped ignite an era of furious PC growth. It branched into software applications such as word processing and spreadsheets, and then a range of programs used to help run corporate back-office functions. After the Internet emerged in the 1990s, it became a dominant force in Web browser software and gradually built up online services. Mr. Ballmer noted that Microsoft has grown from a $7.5 million company to nearly $78 billion in annual revenue since he joined, with its workforce expanding from just over 30 people to almost 100,000. Along the way, Mr. Ballmer led several Microsoft divisions, including operations, operating systems development, and sales and support. In July 1998, he was promoted to president, a role that gave him day-to-day responsibility for running Microsoft. Mr. Ballmer had some successes during his tenure, including the building of Microsoft's Xbox videogame business, and such major acquisitions as its $8.5 billion acquisition of the Web communications service Skype. He failed in a hostile bid to acquire Yahoo Inc. for $44.6 billion, a defeat now widely regarded as a good thing; Yahoo's market value currently stands at about $28 billion. One optimist about Microsoft's future is George Colony, a longtime observer of the tech scene who is chairman and chief executive of Forrester Research. He argued that winning in the coming era of technology will require deep knowledge about software running on user devices, not just online services—which plays to Microsoft's strengths. The company's next leader can't shy away from angering old partners and risking longtime sources of profits, Mr. Colony said, such as by continuing to make tablets in competition with companies that buy its software. "It needs someone who is not afraid to break connections with their old business model," Mr. Colony said. Mr. Ballmer's missteps loom large. One of the biggest and costliest was a Windows version called Vista that Mr. Ballmer in a trade press interview Friday called his biggest regret. The successor Windows 7 version proved popular, but the touch-oriented version Windows 8 so far has failed to propel Microsoft into a major position in tablets. In mobile phones, the story is similar. Mr. Ballmer, who in 2007 famously told USA Today that Apple's iPhone had "no chance" to get significant market share, hitched Microsoft's fortunes largely to onetime market leader Nokia Corp. But its smartphone software has a minimal share of a market now largely dominated by Google's Android. —Saabira Chaudhuri, Ian Sherr and Joann S. Lublin contributed to this article. Write to Don Clark at don.clark@wsj.com and Shira Ovide at shira.ovide@wsj.com A version of this article appeared August 23, 2013, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Steve Ballmer's Mixed Legacy. via Technology - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNGmAhFZLk4NBec7rBwZSEihJKFNuA&url=http://online.wsj.com/article/SB10001424127887324165204579030611858818656.html

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