Anyone who describes outgoing Microsoft CEO Steve Ballmer's tenure as a "failure" is wrong. An annualized growth rate of 16 percent in a large, established company, selling into mature markets, is nothing to scoff at. Revenue tripled under his leadership; profits doubled. That's some failure.
It's also not the case that Ballmer was simply riding high on the Windows and Office monopolies he inherited. They played a part, certainly, but they're not the whole story. During Ballmer's time as CEO, Microsoft Dynamics (its suite of CRM and ERP software) went from non-existent to a billion-dollar-a-year business. So too did SharePoint. So did Xbox. So did the System Center suite. So did Lync (formerly Office Communicator). So did Office 365. So did the Windows Azure cloud platform.
Concurrent with this, established products such as Windows Server, Exchange Server, and SQL Server continued to show strong growth. This growth includes the introduction of new features such as Hyper-V that have enabled Microsoft to go toe-to-toe with market leader VMware.
During Ballmer's time as Microsoft's CEO, the company grew. It diversified. It expanded into new markets, and it did so successfully. Ballmer enthusiastically promoted new directions like cloud computing, investing money to expand new businesses and giving the technical people the freedom and flexibility to implement the right solutions.
Ballmer worked to actively expand Microsoft's reach, to strengthen its position and broaden its revenue base.
It hasn't all been plain sailing, of course. Xbox has had a rocky road. The first model was cripplingly expensive to make, and it sold at a loss, as Microsoft worked to establish a beachhead in the console market. The second model suffered the Red Ring of Death reliability problem. The messaging and PR surrounding the imminent Xbox One has been nothing short of incompetent.
Online, Microsoft still has many challenges ahead. Bing has become a credible search engine, but Online Services Division still loses money (though it's heading in the right direction). The $6 billion purchase of advertising and marketing firm aQuantive in 2007 turned into a $6 billion write-off in 2012.
Even in enterprise there are anomalies. The rise of BlackBerry (or RIM, as it then was) is remarkable. With Exchange, Microsoft had a strong position in corporate mail and related technologies. With the variously named iterations of Windows Mobile and Pocket PC, Microsoft had a mobile, smartphone operating system. The components were all there. And yet it wasn't Microsoft who provided a way for busy executives to have reliable, instant access to their Exchange mail wherever they went: it was BlackBerry.
This was an enterprise market through and through, one concerned with remote management and security, one where Microsoft strengths such as support for Office documents could have been brought to bear. It was a market Microsoft should have completely owned. But it didn't.
The rise of the consumer smartphone
And of course, there's the whole rise of the iPhone thing.
To an extent, it's not entirely surprising that Ballmer and Microsoft failed to immediately understand the importance of the "consumer smartphone" as a broad concept. Xbox excepted, Microsoft isn't really a consumer company. It produces products that consumers do use, but by and large, those consumers have no direct relationship with Redmond. They buy their PCs with operating systems and Office preinstalled, and that's that. Microsoft talks to, and hears from, its enterprise customers directly, which is why it should have recognized the importance of the BlackBerry much sooner than it did. On the consumer side, this kind of disconnect just isn't as surprising.
The company didn't even suffer from a lack of vision per se. Microsoft wasn't late to touch; it was early. It was often resistive touch, and it worked better with a stylus, but the company had been shipping touch products for a long time. Microsoft wasn't late to smartphones; it was early. The devices were corporate-oriented, again using resistive touch screens, with a focus on Office and e-mail rather than apps and the Web, but the company was shipping smartphone platforms for a long time. Microsoft wasn't late to tablets, either. Same story.
But consistently, under Ballmer's watch, the company failed to adapt and respond, especially to changes driven by the consumer space. The use of finger-oriented, capacitive touch transformed the way both smartphone and tablet operating systems were designed. It changed the positioning of the smartphone as a consumer object that prioritized entertainment, the Web, and reliability over customization, Office, and line-of-business apps. It made the tablet a consumption-oriented casual device rather than a new way of using Office.
Microsoft had the right vision in broad strokes and was early to market in each of these categories. It failed to swiftly adapt that vision, to rework parts that did not work, to adopt new technology, and to produce the products that consumers wanted. The changes have come, but years after they should have.
In turn, that lack of adaptation has hurt two of Microsoft's core businesses: desktop Windows and Office. Consumers aren't replacing home PCs with new PCs. They're keeping their old PCs and buying iPads and Android tablets instead.
This in turn is encroaching on the enterprise space. The corporate world still places a greater importance on software such as Office, so Microsoft isn't facing any imminent collapse in this sphere, but increasingly companies are looking at these non-Windows devices to see what roles they can fill, and long term, that's a threat.
Turning high-level vision into class-leading products
Ballmer has a mathematics degree from Harvard, and his Microsoft career was largely spent in sales and management positions. He didn't position himself as a tech visionary, and as befits a man with a sales background, he believed in the company's products to a fault.
If Microsoft were a company like IBM, his time as CEO would be nothing short of a triumph. But it isn't a company like IBM. As Ballmer recognized in this interview with Mary Jo Foley, the consumer space and enterprise space are connected and become more so. Microsoft needs to be strong in the consumer space to remain strong in the enterprise.
If Ballmer was not to be this visionary, ready and able to reshape Microsoft's broader vision and ambitions and turn it into compelling, class-defining products the way Apple did, then he needed to appoint someone to this role and entrust them with the latitude and influence to drive Microsoft's consumer-facing products accordingly.
But he didn't. Moreover, as he told Ars in 2010, he didn't think he needed to.
The reorganization announced earlier this year is a step in the right direction, as it should result in a company with more common interests and fewer turf wars. If the company follows through on, and commits to, the reorg, it should have the infrastructure to produce better products, more quickly. But it still needs leadership to set the direction.
Steve Ballmer's replacement needs to bridge both the consumer and the corporate worlds. That person needs to have the influence and persuasiveness to redirect and focus the company's efforts when necessary, as Bill Gates did in the 1990s amid the rise of the World Wide Web and the Internet. He or she also needs to have the vision to devise compelling, market-defining products that resonate with consumers, as Steve Jobs did at Apple, but without Jobs' hostility to the enterprise. Rather than Ballmer's overwhelming confidence in the company's products, Ballmer's replacement needs the same critical eye that Bill Gates demonstrated. I think that person would be well advised to continue down the Devices and Services path that Ballmer has promoted.
Where Microsoft might find such a person is anybody's guess. The combination of features—someone with a credible vision of the future and the ability to get there, someone who is equally attuned to the demands of the corporate world, someone with the experience of running large technology companies (preferably with software expertise)—is rare, and people with the proven competence in these areas aren't abundant.
But perhaps that doesn't matter. Microsoft is a diverse company, and it's unlikely to ever find someone who would have all the right properties. Consumer visionaries rarely care about the enterprise market, after all.
A better route might be to look for another Steve Ballmer, but without that salesman's overconfidence. This CEO would be someone willing to appoint and listen to a consumer-oriented, product-focused visionary who could be empowered to guide the company's consumer-facing products. This could be every bit as effective as a "classic" visionary CEO in the Bill Gates or Steve Jobs mold, while being somewhat easier to find.
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