Media Moves

Ballmer to leave Microsoft, and how it was covered

August 26, 2013

Posted by Liz Hester

Microsoft CEO Steve Ballmer abruptly announced Friday he was stepping down within the year, sparking a race to find his replacement. Investors welcomed the news, sending the stock up 7 percent on Friday, signaling the move may be long overdue.

Here’s are some of the interesting details from the Wall Street Journal coverage:

Microsoft remains a behemoth financially. It generated nearly $78 billion in revenue in the year ended June 30—an average pace of $150,000 worth of sales every minute. The company’s fat profit, amounting to $21.86 billion last year, remains the envy of most industries.

Under Mr. Ballmer’s watch, the company succeeded in limiting many threats, including the open software standard called Linux that Mr. Ballmer once described as a “cancer.” He also helped Microsoft recover from the shock of the U.S. government’s effort to break the company apart.

But Microsoft generates nearly all of its profit from a trio of products—Windows, Microsoft Office and related software to run companies’ back-end computing gear—that are deeply dependent on the sales of Windows-powered PCs. Other products, such as the Xbox videogame machine and the Bing search engine, are either unprofitable or only marginally so.

Executives inside and outside Microsoft said change at the top of the company was long overdue. People briefed on Microsoft board deliberations said directors have scouted potential successors to Mr. Ballmer for years.

But those people said it has been tough to find the right replacement to lead a sprawling company that has only had two CEOs in its history. Mr. Gates has sold much of his stake in Microsoft, but still wields more influence on the company’s shape than anyone else.

Microsoft said it would look both inside and outside the company for a replacement as Mr. Ballmer remains CEO for up to 12 months. The surprise announcement suggests there was no planned succession, coming only about six weeks after Mr. Ballmer shuffled his entire executive suite without naming a clear No. 2.

The New York Times mentioned that Intel, IBM and Apple all staged turnarounds at some point. But the question remains, can Microsoft do it as well?

Microsoft is different from the other three companies in one important respect. It is facing a crisis of technology leadership, but not a financial crisis. Microsoft’s Windows operating systems and Office productivity software remain immensely profitable. By contrast, Intel, I.B.M. and Apple were fighting for survival. In each case, it was clear that drastic action was needed — and it was taken, successfully.

Microsoft’s seeming strength, according to George F. Colony, the chief executive of Forrester Research, has proved a weakness.

“I would argue Microsoft does have a financial problem, and it’s been the fear of losing those massive profits from Windows and Office,” Mr. Colony says. “By doing everything it can to try to protect those profits, Microsoft has taken a defensive position for more than a decade. And in technology, if you play defense you’re going to lose.”

Still, thanks to the success of its mainstay businesses, Microsoft has been able to afford multibillion-dollar investments in newer fields like Internet search, digital media players, smartphone software and, recently, tablets.

The problem for Microsoft has been that it has often been forced to make those investments while playing catch-up. In the search and smartphone markets, all the snowballing effects of leadership, brand recognition and consumer habits that helped Microsoft in the PC market are working against it as it tries to catch Google and Apple.

Past success can obscure new opportunities when emerging markets or technologies don’t operate by the same rules as a company’s tried-and-true products. And Microsoft has suffered from that kind of corporate myopia. In an interview with me in 2007, Mr. Ballmer acknowledged the problem.

So Ballmer has known that Microsoft needed to make some changes since 2007? Seems like he’s had enough time to implement those and that maybe stepping down is a good idea for him, given that he seems unwilling to shake up the operations.

The Financial Times points out that his move isn’t likely to placate Wall Street or investors:

Last week’s pre-emptive announcement by Steve Ballmer that he is to step down as chief executive of Microsoft looks set to defuse some of the growing shareholder unhappiness about leadership at the software company, according to analysts.

But it is unlikely to guarantee either the company or its chief executive a smoother ride. With Wall Street still unsure about the company’s direction and an activist investor pushing behind the scenes for more shareholder-friendly action, Microsoft faces a critical period over the next two months that could determine the fate of the new “services and devices” strategy that Mr Ballmer has tried to set for it.

Discontent among Microsoft shareholders has hit at an all-time high, says Rick Sherlund, a software analyst at Nomura Securities, as Wall Street worries that the company has still not come up with an adequate response to the waning demand for PCs.

Mr Ballmer himself has been a frequent target of the unhappiness in recent years. While activists such as hedge fund manager David Einhorn have at times called openly for his dismissal, other influential shareholders have preferred to work behind the scenes, taking their concerns directly to Microsoft’s directors, according to people familiar with some of the approaches.

The pressure on Mr Ballmer mounted again this year as ValueAct Capital Management, an activist shareholder, took a sizeable stake.

Two events over the past six weeks have added to the tension with Wall Street. Mr Ballmer’s announcement of an extensive organisational shake-up in July drew cautious applause, but left many questions unanswered – chief among them how much Microsoft will spend as it tries to expand in mobile devices and internet services. Promises of answers at a financial analysts meeting on September 19 have done nothing to quell the impatience

That was followed within days by the news that Microsoft’s business had deteriorated even more than expected in recent months. The earnings provided the first evidence of how deeply this year’s slump in PC sales has eaten into its core Windows business, analysts at Barclays said at the time.

What’s the most surprising about all of this is that there’s no clear No. 2 or a plan in place for succession. Obviously that’s why Ballmer could stay on for as long as another year. Now that he’s announced his departure, it will be interesting to see if Microsoft can retain, much less attract, the talent needed to stay competitive. With change imminent and the future uncertain, recruiting will be a huge challenge. It also leave the huge company directionless at a time when it most needs it.

As a management tactic, this announcement will likely do more harm than good in the short-run.

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