Ballmer’s Performance

Every morning I wake up, I grab my iPhone, I check out what’s happening in the Twitterverse and then flip over to my Bloomberg app to see where some shares I follow ended up overnight.  The three that interested me today were Google, Microsoft and Apple.  One thing I’d noticed is that since the announcement of the iPad back in January and this past week’s release date, Apple’s shares have gone up over 10%.  It would seem that despite some negative press and wondering aloud by many commentators, the market believes Apple has a winner on its hands and one that will continue to drive new value for shareholders.

That thought about value for shareholders made me realise what a poor performer Steve Ballmer has been as CEO of Microsoft.  When Steve took over as CEO from Bill Gates in January 2000, Microsoft has a market cap of about $550B – $575B, depending on the swings and roundabouts of the market on the day.  Then the bubble burst in April 2000 and over the remainder of that calendar year Microsoft’s market cap dropped to a low of about $220B.

From 2002 through 2007, the world had a very prosperous period of wealth creation.  Yes, much of it came from cheap credit and banks over-leveraging themselves, but just the same, the value of companies went up.  At Microsoft, not so much.  At the beginning of 2002, Microsoft had a market cap of about $300B and at the end of 2007, the market cap was about the same $300B.  During that time (fiscal years 2003 – 2007 to account for Microsoft’s accounting cycle) Microsoft went from $32B in revenue with net income of $10B to revenue of $51B and net income of $14B.  So during a five year boom, Microsoft’s value as a company stagnated and their margins dropped from over 30% to just over 25%.

The past two years for Microsoft have seen share value lowered considerably.  Their market cap took two huge hits during 2008 going from a high of about $340B down to a low of about $170B.  The first hit came during the first four months of 2008 when Ballmer made his play for Yahoo!.  The offer was made in early February 2008 and died in early May 2008 – the failure wiped about $60B of market cap off the high of $340B.  When Bear Stearns collapsed in September 2008 and the world was concerned about a global depression through March 2009, Microsoft got down to its low of about $140B.  Over the past year, the panic selling in late 2008 and early 2009 has been corrected and today, Microsoft sits at about $250B in market cap.

From a product and technology perspective, Ballmer’s leadership has been an unmitigated disaster.  That said, it looks as though Microsoft might be turning a corner in this area.  Their cloud computing initiatives in Azure have promise, Windows Mobile 7 looks like it could have an impact, the XBox Live and upcoming Project Natal are giving Microsoft a leadership position in the connected home console market, products like SeaDragon and even Bing are showing signs that Microsoft is regaining some techy “chops”.  Personally, I’m a big fan of the upcoming Silverlight 4 and ASP.NET MVC 2.0 platforms that are being developed by Scott Guthrie’s team – I think Silverlight 4 is going to be very compelling.

The big question now is, if Microsoft is coming back into the technology game is Ballmer the right leader, or should a technology visionary like Bill Gates be leading the company?  My take is, Ballmer had a chance to make hay while the sun shined in the period from 2003 – 2007 and failed.  He’s a money guy and he couldn’t deliver great results in an upswing last time.  I think Gates needs to come out of retirement, re-invigorate the organisation, place some technology bets and compete in that space.  I don’t think Microsoft are going to be able to leverage their desktop and productivity suite monopolies for too much longer, so the trick now will be for Gates to pull another “Internet Tidal Wave” moment and re-align the business with the cloud.

Ultimately, I think Ballmer will be judged harshly by history.  He will be seen as something that was “wrong” with business during his tenure – neither a founder or investor in Microsoft, he became one of the wealthiest people in the world on his stock options.  By no means will he be considered a failure in the class of Jerry Yang (Yahoo!), Gil Amelio (Apple) or Rick Wagoner (General Motors), but I doubt history will be kind to him.  

I think Ballmer was the perfect #2 man to Gates #1.  Gates could keep the internal techies fighting fit internally with his acerbic comments and incredible technical mind and Ballmer could make people believe whatever Gates was selling.  Unfortunately I doubt there could ever be a situation where Ballmer would stay on and let Gates come back in as top banana, but maybe that’s a good thing – right now if you’re a shareholder in Microsoft you probably want change.


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