Mobile: The Nail in Steve Ballmer’s Coffin

by Tom Taulli | August 23, 2013 11:09 am

Dow Leaderboard[1]Microsoft (MSFT[2]) dropped a bombshell this morning: CEO Steve Ballmer will retire within the next 12 months[3].

Wall Street loves the news — MSFT shares were up 6% early — but the excitement might be a bit premature. After all, whoever comes in is going to face the exact same challenges Ballmer faced (and couldn’t overcome).

It was just a couple months ago that Ballmer launched a wide-scale restructuring of the company[4]. He consolidated Microsoft into four broad product categories — Operating Systems, Apps, Cloud and Devices — and centralized the finance and marketing departments. He also reshuffled many of the senior executives.

The goal was to cut back on bureaucracy and fiefdoms, and position the company to win mobile … but it smelled of the Titanic and rearranged deck chairs.

The fact is Ballmer failed to understand — or at least properly address — the importance of smartphones and tablets during his tenure as CEO. Google (GOOG[5]) got it. Samsung (SSNLF[6]) got it. Apple (AAPL[7]) definitely got it. All of them had the foresight to jump into the mega-opportunity head-first, and as a result, all three suck up much of the industry’s profits, leaving only scraps for companies like Microsoft.

Whiffing on mobile is an unforgivable blunder for a tech giant like Microsoft, and the man helming it. How could the long-time king of operating systems miss this? Didn’t Ballmer pay attention to what was going on in the tech world?

Of course, Ballmer’s exit and the struggles he left behind don’t mean Microsoft is necessarily heaved for oblivion.

MSFT should continue to generate lucrative cash flows from Office and Windows platforms, which remain the mainstay of corporate work stations.

The company also should remain a big player in the cloud market, which is expected to grow at a torrid pace for some time. Keep in mind that Microsoft has an extensive set of enterprise software offerings and has made some smart acquisitions in the space, such as for Yammer. MSFT also has a community of millions of developers who use the company’s coding tools.

However, a company the size of Microsoft — a $290 billion market-cap behemoth that generates about $78 billion in annual revenues — needs big-time growth drivers. That’s why mobile was so critical.

But Ballmer just wasn’t a product guy (as evidenced by the embarrassing failure of the Surface tablet). Until he became CEO in 2000, his role was mostly in operations, sales and support, and during this time, Bill Gates was the product visionary.

All in all, Ballmer and Gates made a pretty good team. Gates created, Ballmer sold.

But Gates hasn’t been behind the product line for some time, which means going forward, whoever Microsoft hires should be a product person — someone who will at least quickly follow the important trends, and hopefully start some, too.

Unfortunately, considering how few people have that kind of extraordinary skill set, it’s a pretty good bet that Microsoft will be found wanting in the C-suite again, and continue to be little more than a mature operator in the fast-growing tech world.

Tom Taulli runs the InvestorPlace blog IPO Playbook[8]. He is also the author of High-Profit IPO Strategies[9]All About Commodities[10] and All About Short Selling[11]. Follow him on Twitter at @ttaulli[12]. As of this writing, he did not hold a position in any of the aforementioned securities.

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