Why Steve Ballmer Failed

The resignation of Microsoft's CEO is also an acknowledgement: The computer world changed, and Microsoft hasn't.
More

800 ballmer.png

Microsoft CEO Steve Ballmer, a thunderous leader who presided over a deadly quiet decade for the tech giant, announced he will retire within the next year.

It is quite easy to say that Ballmer failed. And, in a way, he did fail. In September 2000, nine months after Bill Gates named Ballmer chief executive, Microsoft was worth $642 billion, a nominal record for an American company that wouldn't be eclipsed until Apple squeaked by in August 2012. But as the Nasdaq imploded, Microsoft fell hard, and leveled out. And stayed level.

For a decade, Microsoft's stock price has functioned like a thermostat set to $25. And shareholders tend to not like thermostatic stock.


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.

WinTel market share.png

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]

Screen Shot 2013-08-23 at 10.38.21 AM.png

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]

Screen Shot 2013-08-23 at 10.09.50 AM.png

Screen Shot 2013-08-23 at 11.21.48 AM.png

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.

Jump to comments
Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

Get Today's Top Stories in Your Inbox (preview)

A Delightful, Pixar-Inspired Cartoon About the Toys in Your Cereal Box

The story of an action figure and his reluctant sidekick, who trek across a kitchen in search of treasure.


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

Juice Cleanses: The Worst Diet

A doctor tries the ever-popular Master Cleanse. Sort of.

Video

Why Did I Study Physics?

Using hand-drawn cartoons to explain an academic passion

Video

What If Emoji Lived Among Us?

A whimsical ad imagines what life would be like if emoji were real.

Video

Living Alone on a Sailboat

"If you think I'm a dirtbag, then you don't understand the lifestyle."

Feature

The Future of Iced Coffee

Are artisan businesses like Blue Bottle doomed to fail when they go mainstream?

Writers

Up
Down

More in Business

Just In