The de­ci­sion that ru­ined a Mi­crosoft part­ner­ship

Steve Ballmer and Bill Gates lost their close friend­ship over the fu­ture of hard­ware

Toronto Star - - BUSINESS - EMILY CHANG AND DINA BASS

Steve Ballmer said his de­ci­sion to push Mi­crosoft into the hard­ware business con­trib­uted to the break­down of his re­la­tion­ship with long­time friend and com­pany co-founder Bill Gates. Ballmer’s only re­gret: not do­ing it sooner.

Ballmer, who was chief ex­ec­u­tive of­fi­cer of Mi­crosoft for 14 years, told Bloomberg Tele­vi­sion that if he could do it all again, he would have en­tered the mo­bile de­vice mar­ket years ear­lier. When he fi­nally did, Gates and other mem­bers of the board dis­agreed, he said.

Ballmer, now owner of the NBA’s Los An­ge­les Clip­pers, told Bloomberg Tele­vi­sion’s Emily Chang, that he and Gates have “drifted apart” partly due to a dis­agree­ment over whether Mi­crosoft should make its own hand­sets and tablets.

“It was def­i­nitely not a sim­ple thing for ei­ther one of us,” he said. There was a “lit­tle bit of a dif­fer­ence in opin­ion on the strate­gic di­rec­tion of the com­pany.”

“To­wards the end, that was a bit more dif­fi­cult than not, par­tic­u­larly with the strate­gic di­rec­tion change and you know, the stock price isn’t go­ing any­where, so the rest of the board felt pres­sure — de­spite the fact that prof­its were go­ing up — so I think you had kind of a com­bustible sit­u­a­tion,” he re­called.

“There was a fun­da­men­tal dis­agree­ment about how im­por­tant it was to be in the hard­ware business,” Ballmer said.

“I had pushed Sur­face. The board had been a lit­tle — lit­tle re­luc­tant in sup­port­ing it. And then things came to a cli­max around what to do about the phone business.”

Mi­crosoft en­tered the mar­ket in 2012 with the Sur­face RT, a tablet that sold poorly and re­quired Mi­crosoft to take a $900 mil­lion (U.S.) charge to write down the value of in­ven­tory. Now, the re­jigged Sur­face business is prof­itable and gen­er­ated more than $4 bil­lion in sales for the most re­cent year.

Mi­crosoft’s foray was a mess al­most from the start, with the com­pany’s board re­ject­ing Ballmer’s ini­tial plan to ac­quire Nokia’s hand­set unit.

By the time the $9.5 bil­lion deal closed, Ballmer had handed the reins over to Satya Nadella and the Nokia business was in tat­ters. Mi­crosoft has now writ­ten down al­most the en­tire value of the deal and laid off most of the work­ers. Ballmer said the mis­take was get­ting into hand­sets and tablets too late.

“I would have moved into the hard­ware business faster and rec­og­nized that what we had in the PC, where there was a sepa­ra­tion of chips, sys­tems and soft­ware, wasn’t largely gonna re­pro­duce it­self in the mo­bile world,” he said.

What about that fa­mous quote where Ballmer said Ap­ple Inc.’s iPhone would never sell be­cause it cost too much?

He now wishes he’d re­al­ized how Ap­ple was go­ing to make it work — through mo­bile car­rier sub­si­dies.

“I wish I’d thought about the model of sub­si­diz­ing phones through the op­er­a­tors,” he said.

“You know, peo­ple like to point to this quote where I said iPhones will never sell, be­cause the price at $600 or $700 was too high. And there was business model in­no­va­tion by Ap­ple to get it es­sen­tially built into the monthly cell­phone bill.”

JUSTIN SUL­LI­VAN/GETTY IMAGES

Steve Ballmer, for­mer CEO of Mi­crosoft, said he and Bill Gates “drifted apart” after a dis­agree­ment over the mak­ing of hand­sets and tablets.

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