Business

Microsoft chief under pressure in Lord of the Flies world

Staff Reporter

Steve Ballmer is a fighter, but he works for a ruthless capitalist in Bill Gates -- and now a Wall Street hedge fund manager says he has to go.

Almost as soon as Steve Ballmer took over as chief executive of Microsoft in January 2000, the stock crashed. It wasn’t his fault; the dotcom crash pulled every tech stock down with it, including the Seattle software empire that, the previous year, had been the world’s most valuable at $612-billion.

This is the sort of mistiming that has dogged Ballmer’s tenure: always arriving a bit too late and overseeing a collapse of a promising lead. It happened with internet search, with tablets, with cellphones, with music players.

Ballmer last week faced calls for his removal from David Einhorn, a powerful Wall Street hedge fund manager famous for his early warnings about the weakness of doomed bank Lehman Brothers. Though sources on the company’s board backed him, investors know that Ballmer does not have a free pass just because he joined in 1980 as employee number 30.

“Bill Gates is ruthless,” said a fund manager at one of Microsoft’s largest shareholders. “If he wanted to, he’d walk Ballmer to the [exit] door himself.”

A fresh indignity came last week when after Ballmer spoke in Tokyo about the next version of Windows. He assured people that in 2012 “you ought to expect to hear a lot about Windows 8, Windows 8 slates, tablets, PCs, a variety of different form factors”. But his own press office called his words “a misstatement”, adding “We have yet to formally announce any timing or naming for the next version of Windows.” When both the shareholders and the press office are against you, times are definitely hard.

But Ballmer is a fighter, a dealmaker who likes the satisfaction of closing a sale. His challenge is to get the unwieldy behemoth that is Microsoft to align itself with the changes in computing. While Apple has run away with iPods, iPhones and iPads, and Google has revelled in internet search and the idea of “cloud computing”, the Redmond-based business has been trying to run with the twin weights of its ageing monopolies—the Windows PC and Office businesses, which each generate about $3-billion of profit every quarter—holding it back.

The stock has badly underperformed the technology-dominated Nasdaq index since 2008, when Ballmer launched a failed $48-billion bid for the website Yahoo!, languishing while other technology companies are spoken of as being in a bubble.

One ex-Microsoft executive described Ballmer’s problem thus: “He’s now got eight different product groups all reporting to him. Is he going to knit those together? I don’t think so. And if he doesn’t knit them together, how do you make sure the end price value of Microsoft is worth more than the constituent parts? Today the constituent parts are worth more separate than they are together.”

Former Microsoft managers say Ballmer’s problem lies in his lack of an overarching vision for where the technology world is going; that contrasts with Gates, whose vision reaches a long way, even if Microsoft became too unwieldy even for him by the time he quit day-to-day duties to run his charitable foundation.

But what about the nuclear option—that Ballmer is pushed or jumps? Scott Barnes, a former Microsoft product manager, is adamant it would have no effect: “Nothing, and I repeat nothing, would change,” he said on his blog.

The problem, he says is that Microsoft products are run “as clans within a larger empire” in which each clan leader is thirsty for power, and can be promoted to take over the others’ turf.

“The culture in [Microsoft] allows bullying,” says Barnes. “In fact it’s very Lord of the Flies at times when there is little or no direction, and worse when there is failure upon failure occurring.”

One deal that may work well, though, is the $8,5-billion acquisition of internet phone call company Skype. Though it is unlikely to earn back the price paid, allied to a deal with handset maker Nokia, in which the new Windows Phone mobile OS will power Nokia smartphones from late autumn, it could be a remarkably strategic choice just as the internet and internet-enabled phones become pervasive.

One former Microsoft executive remarked recently that “when you look back with hindsight and see a completely static enterprise value for the last 12 years, you’d say [the antitrust breakup proposed by the US courts in 2000] could have been the best thing that could have happened from a shareholder perspective.” Only now, he argued, are there enough interconnected pieces—Xbox, Windows Phone, Bing, and soon Skype—for there to be synergistic value. But, he added: “There’s always that challenge that the break-up value is greater than the sum of its parts.”

The bigger question for Ballmer is whether he can keep that challenge at arm’s-length for long enough for his gambles to pay off. - guardian.co.uk

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