USA TODAY International Edition
In the end, Ballmer’s tenure at Microsoft was a wash
Focus on Bing proved a bust, but company is still in the tech game
SAN FRANCISCO One fair way to evaluate the tenure of a CEO is by how the stock price performed under his or her watch. For outgoing Microsoft CEO Steve Ballmer, his performance by that measure is a wash.
Ballmer failed to conquer new markets big enough to move Microsoft’s huge revenue meter back into double- digit growth territory.
As a result, he couldn’t garner sustained interest from growth investors, and shares went essentially nowhere under Ballmer’s watch.
At the same time, however, he also prevented the implosion of the company, which could have happened, given how far Microsoft’s technology road map fell behind several rivals.
In Internet- based software, for example, Amazon. com and Salesforce. com were years ahead of Microsoft, in application hosting and customer tracking, respectively. Likewise, VM Ware ( now owned by EMC) took the lead in virtualization software, leapfrogging Microsoft’s offering for server management at the time.
In all these cases, Microsoft had to claw its way, late, into lucrative markets that had first been pioneered by more nimble rivals. But claw his way into them, Ballmer did.
Yet, he also made two strategic mistakes in his investment priorities that constrained Microsoft to singledigit growth, even as new markets generating explosive growth were created in the software industry.
One was his largely failed quest to challenge Google in the online search market, despite heavy investment.
The other was his failure to reshape Microsoft’s product development culture to reward software developers whose ideas had the best growth potential, rather than continue to feed slow- growing, yet highmargin cash cows, such as Office.
Years ago, Ballmer should have devoted a lot more funding and evangelizing toward the Xbox platform, which has been and still is at the forefront of innovation in the market for online games.
Instead, the word on his lips perhaps more than any other during the last five years has been: Bing.
Neither by itself or via its yearslong partnership with Yahoo has Microsoft made much headway in cutting Google’s dominant ( two- thirds) share of the search ad market, worth more than $ 60 billion a year. It wasn’t for lack of trying. Ballmer put a lot of time and energy into Microsoft’s attempt to buy Yahoo, the No. 2 search company, in early 2008. It was a months- long courtship that was never consummated — even though Microsoft raised its initial bid to $ 44 billion — as Yahoo adopted a poison- pill defense against the takeover.
Before and after that pursuit, however, Ballmer evangelized on Bing with zeal and confidence, even though the strategy was questionable from the start.
In a speech at a tech conference in October 2011, Ballmer said Microsoft had a 15% share of the U. S. search market, just three years after releasing Bing. Yet, in the same speech, he also made a startling admission when he shared market research that Microsoft had done, which found that 70% of consumers who performed side- by- side searches on Bing and Google found no difference between the two products. Of the 30% who did, half preferred Bing and half preferred “the other guy” — meaning Google search — Ballmer said then.
In other words, Microsoft had spent several years and hundreds of millions of dollars in research costs to build a product that was no better than Google’s, the entrenched and dominant market leader.
Ballmer’s full- pedal pursuit of search market share cost Microsoft a lot of product- development time, with the payback of niche market share, and it suggests that he was using the old Microsoft playbook long after his industry had outgrown it.
That strategy had been to match the most important features of software rivals, then back its products up with Microsoft marketing muscle.
The problem with that strategy against Google is that search software is ad- supported and free to use, something consumers love so much that they use the company’s name as a verb to mean “search the Internet.”
No amount of Bing marketing dollars is ever going to change that.
Even if Bing had won more market share, or Microsoft had been able to acquire Yahoo and become the No. 2 search company, what would that have been worth to Microsoft shareholders? Wall Street analysts estimate that as much as half of Yahoo’s current market valuation of $ 28 billion is due to its holdings of Alibaba, a China Internet firm that’s expected to have an IPO this fall.
That means being No. 2 in search is worth somewhere between $ 10 billion and $ 15 billion, a tiny fraction of Microsoft’s $ 285 billion valuation.
To get an idea of what might have been had Ballmer poured more money into Xbox and less into search, look at the holiday shopping season of 2010. Microsoft’s Xbox team rolled out a product called Kinect, a breakthrough technology in motion capture and interface design, and took the gaming industry by storm.
But Microsoft was slow to roll out a software developer kit, a tool that makes it easier to write applications for a device platform.
As a result, the company never fully exploited the product’s momentum, and the number of games developed for the platform is nowhere near the scope of applications being developed for tablets and smartphones, even as more consumers play mobile games.
The company wasn’t ready to throw all its weight behind Xbox, because too many Microsoft jobs still depend on its Office franchise.
Ballmer’s missteps should inspire the mantra for the next CEO: less Bing, less Office, more Xbox.