Why Steve Ballmer Failed

Rather than fall for some great man theory of technology it's fairer to observe that Ballmer failed not because of some obvious product flop (even though Surface stinks) or some famous design snafu (even though Windows 8 is sort of a nightmare). Instead he failed because he inherited a company whose success relied on desktop computers stuffed with Windows and Excel. And his tenure coincided with the rise of another sort of computer mobile computers that Microsoft couldn't continue to monopolize.

The long view is useful here. Windows along with Intel got its clock cleaned by Apple and Google in the last decade. Their global market share of operating systems fell from 96 percent around 2000 to 35 percent in 2012. Apple and Google wedged their way into our laptops phones and tablets while Microsoft saw its sliver of the mobile market decline between 2005 and 2012.

Let's travel back in time. It's the year 2000 and Microsoft is a ginormous software company. In particular it is an operating systems company. It builds the foyer of American computers.

Microsoft derived more than half its profits from Windows when it was the biggest tech company in the history of the republic. Most of the rest came from Office and its Word and Excel operating systems. Here are two illuminating graphs from Microsoft's annual report in 2000 showing you exactly how the company made money. Glossary Windows Windows Apps Microsoft Office Exchange and other software Consumer grab bag of devices and learning apps

Schooled by the California's geniuses of consumer experience Microsoft has tried to remake itself as a consumer company. Arguably it has succeeded in only one place XBox. But becoming a consumer company requires more than a great product idea. It requires a top down change in corporate culture to turn around an entire company's ethos.

But look at how Microsoft makes money today. I've left the Windows category in green for easier comparison.

Glossary Windows Windows Server/Tools Windows Server Azure Premier support Microsoft Consulting Services Business Division Microsoft Office Exchange Entertainment Devices Xbox Skype and Windows Phone Online Services Bing/MSN

I don't know what these graphs tell you but here's what they tell me. Microsoft for all its celebrated attempts to be beloved by consumers is still not a consumer company. It's a rich company. It's a huge company. But it's still an Excel and Windows firm now with a servers side business. When you take away XBox which still isn't a huge part of the company's overall business Microsoft still isn't a place that builds things people really like. It's a place that builds things people and particularly business people think they have to use.

To say that Ballmer didn't recognize the frailty of the put our stuff into PCs strategy is too simple. In his tenure he has replaced almost every major division head at Microsoft shifted the company away from its PC first heritage toward search video games and Internet calls. But he arguably failed to anticipate the simplest and most important shift in his business which is that people were taking computers off their desks. He didn't compete with Google and Apple to protect the moat around his software business and today Ballmer's would be competitors hardly even consider him worthy competition. As Google Chairman Eric Schmidt said of Microsoft They're a well run company but they haven't been able to bring state of the art products into the fields we're talking about.

Steve Ballmer made some very bad things. But his tenure will probably be judged by the things he didn't make and the big picture he didn't see. Microsoft used to be huge and then the computers got small.

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