The Top 10 Reasons Why Steve Ballmer has Failed as Microsoft’s CEO

Steven Zolman
Jul. 23,2012 |

In talks with clients, industry analysts, company insiders, investors and others, everyone seems to agree that Steve Ballmer has done a terrible job as Microsoft’s CEO.  Mr. Ballmer says he plans to retire in 2018, but with lukewarm support from the board, damaged credibility with partners, lost trust with employees, and constant outside criticism - it’s unclear if he can hold on that long.

While leading Microsoft through a time when some of the most innovative and spectacular technology advances occurred (e-readers, cloud computing, social networking, smartphones, tablets, and consumer stores just to name a few), Microsoft has failed to capture these and other major market opportunities, even though they were perhaps positioned better than any other company to do just that.

Years ago as disruptive upstarts, Microsoft pointed their collective finger at IBM and laughed, and yet has seemingly become what they once despised – protectors of the status quo.  Microsoft also differentiated itself from Apple by being all about the software, yet with recent examples of the XBox and its new tablet “surface”, and not ruling out speculation of a Microsoft smartphone, Microsoft appears to have capitulated on that principle, and is starting to favor integrated solutions which combine the hardware and the software, and some would argue, following Apple and losing what is left of its soul in the process.

It’s been a rocky 12-year stretch for current Mr. Ballmer, and below, we will outline the Top 10 Reasons Why Steve Ballmer has Failed as Microsoft’s CEO:

1) Ballmer Has an Exceptionally Low Approval Rating.  As of July 18, 2012, Microsoft’s CEO Steve Ballmer has a paltry 46% internal approval rating with *his own employees*.  Compare that to other technology leaders and competitors like Tim Cook, CEO of Apple (97% Approval Rating), Mark Zuckerberg, CEO of Facebook (95% Approval Rating), Larry Page, CEO of Google (94% Approval Rating), Jeff Bezos, CEO of Amazon (83% Approval Rating), and even Larry Ellison, CEO of Oracle (81% Approval Rating), and it’s a wonder how he remains the CEO.  Due to performance, and only lukewarm support from the board, employees have mainly lost confidence in Ballmer’s ability to execute, and therefore trust in Ballmer’s ability to lead.

2) Ballmer Has Led No Real Innovation.  Microsoft isn’t innovating fast enough or aggressively enough.  Office and Windows are clearly becoming less relevant. Once the business world’s de facto standard, both are under aggressive attack, and being replaced by cheap, easy-to-operate software, much of which is actually free as well as compatible. This is a big problem considering that, according to the Wall Street Journal, roughly 85% of Microsoft’s revenue (and an even higher percentage of profit) is coming from just two products: Windows and Office.  This lack of innovation, partly due to Microsoft’s flawed company culture, has forced Microsoft to play defense by following faster, more innovative firms.

3) Ballmer Squandered Major Market Opportunities.  What were the biggest market opportunities in the technology sector in the last dozen years?  Just name them, and you will have a great list of the Ballmer’s missed opportunities.  Search and online advertising, smart phones, tablets, social networking, mobile music, and e-readers are all great examples of where Microsoft was well positioned, but missed the major market opportunities.  As a result, in many of those areas Microsoft is an industry laggard and is forced to play catch up, a situation in which Microsoft rarely excels.

4) Ballmer has Overseen Dismal Product Releases. In an effort to capture some of the major market opportunities listed above, Microsoft released products like the Kin to capture smartphone users.  The Kin never caught on and was cancelled shortly after release.  Microsoft also released the Zune music player, which waffled for years barely making any inroads against the iPod, and was just recently ‘discontinued’.  While Microsoft Bing was (very) late to the game, it has also failed to gain any significant traction against Google, and is widely viewed as another in the long list of colossal Microsoft product failures.  Windows Vista was probably the worst product release of all time for Microsoft, not just because it was a terrible product (and it was), but more so because it struck at the very core of Microsoft.  It was released 5 years after XP, the longest span between major releases, and partly due to its dismal showing, was succeeded by Window 7 just 2 ½ years later.  Windows is the lifeblood of Microsoft, and to have such a terrible product release like Vista dealt a serious blow to Microsoft’s (and Ballmer’s) credibility.

5) Ballmer has made horrible investments.  In what can only be seen as an effort to attempt to compensate for Microsoft’s shortcomings in innovation, Ballmer has gambled with increasingly ill-conceived acquisitions.

a. aQuantive.  Microsoft recently wrote off $6.2 billion of this $6.3 billion acquisition of this internet ad agency (initially designed to make aggressive inroads on Google’s dominance of online advertising after its 2007 acquisition of DoubleClick), making the investment nearly worthless, and demonstrating that Microsoft has failed to expand its online advertising business.

b. Skype.  Microsoft paid $8.5 billion in cash for Skype. Apparently the fact that Skype was not profitable didn’t matter. Apparently, the fact that Skype is primarily used by consumers (and not businesses) to make ‘free’ computer calls to their friends and family didn’t matter either.  Ballmer’s track record on acquisitions suggests to me that he often buys businesses that nobody else “must have”, making me question why a Cisco or Apple didn’t buy Skype.

c. Yammer.  Microsoft recently paid $1.2 billion for Yammer.  What is Yammer you might ask?  Think of it as a private Facebook for Businesses.  It’s probably too early to consider this a horrible investment, but many industry analysts characterize Yammer’s ascent as ‘mediocre’, and market analysts suggest that Yammer was valued at $600 million last fall when it raised $85 million in a venture offering.  Microsoft may have purchased Yammer at its height due to recent infusion of capital from new investors.

6) Ballmer has accomplished nothing.  What is Microsoft’s major contribution in the last 12 years?  If you consider all the missed market opportunities, the failed investments and products Microsoft has killed (Zune, Kin, Windows CE, etc), Microsoft is basically the same company that Ballmer took over 12 years ago when former CEO and co-founder Bill Gates stepped aside.  Microsoft offers Windows and Office, and is primarily driven by the PC.  As the PC increasingly loses ground to tablets and smartphones, and as the continuing rise of iOS and Android diminishes the influence of Windows, so too does Microsoft’s influence diminish as a technology giant.  If you consider Windows and Office the lifeblood of the company, the future isn’t very bright for Microsoft, but what’s even more disturbing is the absolute lack of concrete and meaningful accomplishments by its CEO over the last 12 years.

7) Ballmer has eroded shareholder value.  Ballmer took over as CEO at Microsoft 12 years ago.  At that time, Microsoft’s stock was trading at about $60/share.  Microsoft’s stock now struggles to hover at around $30/share.  If CEOs of public companies are ultimately measured on their equity returns to stockholders, how is this guy still employed?  A 50% erosion of shareholder value in 12 years is what some people refer to when they speak about “the lost decade” at Microsoft, a moniker Ballmer vehemently disputes, but one he does little to defend against.

8) Ballmer Can’t Leverage His Cash.  Despite making many horrible investments, despite significantly over-investing in R&D with really nothing much to show for it, Microsoft still has hoards of cash; over $58 billion in cash.  With that much money in your war chest, one would think that Microsoft could simply capture new market opportunities by out-investing its competitors.

a. Over the last three years, Microsoft has spent $26 billion on research and development whereas Apple has spent just $5.54 billion.  During that time, Apple has been able to produce products that are not only leaps and bounds ahead of anything Microsoft has come up with, they also carry with them a cultural phenomenon that demands a premium value.

9) Ballmer is a Maniac.  If you’ve ever seen the guy do a presentation, you’ll know what I’m talking about.  He turns into this crazed psycho, something like a cross between a Planet of the Apes extra, a solo mosh pit dancer, and Gallagher.  Ballmer is infamous too for his temper, having reportedly had many obscenity laced screaming matches in his office with subordinates, even reportedly throwing a chair when Mark Lucovsky told him he was going to work for Google.

a. When compared to the competition, Ballmer looks like a circus show.  Apple’s Steve Jobs was always cool, calm and collected when he did product release presentations.  Oracle’s Larry Ellison is seemingly overflowing with confidence and swagger, always with a quippy one-liner that makes everyone laugh.  Ballmer is just sweaty and disheveled and, well, a mess.

10) Ballmer can’t get Microsoft to compete (and win) with consumers.  When you consider more consumer driven, and seemingly faster moving competitors, like Facebook, Google, Apple, and Amazon, Microsoft has gotten, is getting, and continues to get killed.  Microsoft is still losing in search, barely able to dent Google’s market dominance.  Despite a sizable head start using Yahoo’s core search technology, Bing has a mere 15% of the search market today. After many failed attempts, they are still not able to answer Apple’s dominance in consumer stores, music players, smartphones, and tablets.  We will see how Microsoft’s new “Surface” does against iPad.  Ballmer waited nearly four years to respond to the iPad and the “Surface” appears to be more ho-hum when it could have been jaw dropping.  Microsoft continues to make stupid investments.  Microsoft shelled out over $605 million for an 18% stake in the Barnes and Noble Nook e-reader and still has no real ability to compete with Amazon’s Kindle.

Please post any comments or perspective to this blog below.

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