Microsoft’s Business Model Ménage à Trois

Ben Thompson of Stratechery wrote yet another brilliant article on Microsoft entitled: “It’s Time To Split Up Microsoft“. Highly recommended reading. I agree with Thompson in part, and I disagree with him in part. Let’s start with the parts where we agree.

1.0 Balmer

1.1 Innovation Inflation

The following is from Steve Ballmer’s 2004 memo “Our Path Forward:”

    “The key to our growth is innovation. Microsoft was built on innovation, has thrived on innovation, and its future depends on innovation. We are filing for over 2,000 patents a year for new technologies, and we see that number increasing. We lead in innovation in most areas where we compete, and where we do lag – like search and online music distribution – rest assured that the race to innovate has just begun and we will pull ahead. Our innovation pipeline is strong, and these innovations will lead to revenue growth from market expansion, share growth, new scenarios, value-add through services (alone and in partnership with network operators), and using software to open up new areas.” ~ Steve Ballmer, via Ben Thompson’s Article

Hmm. If you have to use the word innovation 7 times in the span of a mere 115 words, you probably don’t know what the word means. Dogs chase cars, but that doesn’t mean they know how to drive. And Microsoft can chase innovation all it wants, but that doesn’t mean they know how to innovate.

I suspect what Ballmer was actually talking about in his memo was iteration, not innovation. Iteration is highly valuable too, but it has nothing at all to do with innovation.

  1. Iteration is incremental improvements in an existing product or service.
  1. Innovation is unique, yes. And it is uniquely useful, yes. But its key characteristic is that it meets unanticipated, unexpected, or unarticulated needs.

The trouble with innovation is that truly innovative ideas often look like bad ideas at the time. That’s why they are innovative — until now, nobody ever figured out that they were good ideas. ~ Ben Horiwitz

Iteration is preserving the status quo by enhancing it. Innovation is radical. It’s revolutionary. It’s subversive. It doesn’t build upon the old market, it shatters the status quo and creates a new market to build upon.

Truth be told, Ballmer wanted nothing at all to do with innovation. When Ballmer wrote his memo in 2004, Microsoft was the undisputed king of the tech world. Innovation is a change agent and last thing Ballmer wanted was to change things. On the contrary, Ballmer wanted things to stay exactly the way they were.

1.2 Focus

    “Ballmer then listed (in his memo) 10 different areas of “focus”, the vast majority of which were themselves so broad as to be meaningless.” ~ Ben Thompson

I love the point Ben Thompson is making here. Focusing on ten things is the same as focusing on nothing. Yet Microsoft’s “focus” problem went even deeper than this. In a perverse way, Microsoft WAS very focused. Only they were focused on the wrong thing: their competitors. Jeff Bezos nicely sums up the problem with that approach:

If you’re competitor-focused, you have to wait until there is a competitor doing something. Being customer-focused allows you to be more pioneering. ~ Jeff Bezos

Does this sound like the Microsoft we all know and love? The Zune was a response to the iPod. Windows Phone 7 was a response to the iPhone. Surface was a response to the iPad. And all of those responses came to market late, late, late.

During Ballmer’s reign, Microsoft didn’t so much have a strategy as they had an anti-strategy. (See my article: Microsoft Is The Very Antithesis Of Strategy.) They waited for their competitors to act and then they reacted. They reacted far too slow and far too late. Even worse, they made bad choices, the worst of which was the choice to make their own hardware. The Zune flopped, the purchase of Nokia is a boondoggle and the Surface is a financial anchor weighing Microsoft down. Microsoft needs hardware like a fish needs a net.

1.3 Microsoft’s High-Water Mark

Ben Thompson:

    “Ballmer and Microsoft simply could not break free of their Windows-first mindset, and while it would be another 3 years before the iPhone arrived, it was this memo and what it represented that marked the beginning of Microsoft’s decline.”

A belief is not merely an idea the mind possesses; it is an idea that possesses the mind. ~ Robert Oxton Bolt

[pullquote]Before you criticize someone, you should walk a mile in their shoes. That way when you criticize them, you are a mile away from them and you have their shoes. ~ Dave Barry[/pullquote]

This is the point in my article where I’m supposed to trash Steve Ballmer for being shortsighted. But, truth be told, I have a lot of sympathy for him. The only thing harder than saving a dying company is saving one at the top of its game.

A company near death HAS to focus.

The absence of alternatives clears the mind marvelously. ~ Henry Kissinger

A company near death HAS to be innovative.

Mortal danger is an effective antidote for fixed ideas. ~ Field Marshal Erwin Rommel

[pullquote]Until you walk a mile in another man’s moccasins you can’t imagine the smell. ~ Robert Byrne[/pullquote]

Microsoft’s problem was they didn’t have a problem. Without the impetus of bankruptcy or any credible threat, they had little reason to change. In fact, they had NO reason to change and EVERY reason to stay the same. However, as Carrie Fisher put it, “There is no point at which you can say: ‘Well, I’m successful now. I might as well take a nap.'”

If everything’s under control, you are going too slow. ~ Mario Andretti

If everything seems to be going well, you have obviously overlooked something. ~ Steven Wright

In this business, by the time you realize you’re in trouble, it’s too late to save yourself. Unless you’re running scared all the time, you’re gone. ~ Bill Gates

Broken nesting doll

1.4 Vertical Or Horizontal — Pick One, Not Both

Ben Thompson:

    “(T)ech companies ought to be either vertically/platform focused, with software and services that differentiate hardware (like Apple), or horizontally/service focused, with the goal of offering superior software and services on all devices (like Google and Facebook). To try and do both, as Ballmer explicitly did with his “Devices and Services” strategy, is to do neither well: differentiating your devices by definition means offering an inferior service on other platforms; offering superior services everywhere means commoditizing your own devices. “Devices and Services” was nonsense.”

I LOVE this.

Microsoft used to have a clear and simple business model. They made the operating system, they licensed the operating system to hardware manufacturers. The end.

Microsoft didn’t compete with their hardware manufacturers by selling hardware. They didn’t compete with their developers by selling software. ((There is one HUGE exception to this rule and that is Microsoft Office. Ben Thompson does a great job of explaining why this conflict worked and worked well — for a while — so I refer you to his article, “It’s Time To Split Up Microsoft“. I couldn’t have said it half as well.)) They competed with other operating systems and boy, did they ever compete. During the eighties, Microsoft squashed challenger after challenger and when the dust from the PC wars settled, the only rival operating system left standing was the Mac — and even it was on its metaphorical knees. ((STEVE WILDSTROM: “From the day that the IBM PC overtook the Apple ][, Microsoft software dominated the market. The Macintosh, introduced in 1984, never challenged MS-DOS or Windows for dominance.”

“Other rivals to Microsoft did indeed lose: Novell’s DR-DOS and IBM’s OS/2 operating systems disappeared, along with Netware, Novell’s once-dominant office networking system.”))

Today, of course, it’s a very different story. Microsoft still licenses its operating system to hardware manufacturers. But it also directly competes with those same hardware manufacturers by selling hardware of its own. And while Microsoft is currently making serious inroads into the business of providing internet services that run across all platforms, they continue to directly compete with the very same platforms that they are attempting to sell their services to.

No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. ~ New Testament, Matthew 6:24

It’s really, really tough to make a great product if you have to serve two masters. ~ Phil Libin, Evernote CEO

Two masters? Microsoft is trying to simultaneously serve THREE masters. Yikes!

Microsoft fits the definition of a business model ménage à trois: There are three of ’em, and they’re all trying to screw one another.

Russian Nesting (Matryoshka) Dolls

2.0 Nadella

2.1 Better Than Ballmer

Ben Thompson:

    “To understand why so many serious Microsoft observers were encouraged by Satya Nadella’s week-ago memo, “Bold Ambition and Our Core,” it’s useful to go back 10 years and read Steve Ballmer’s 2004 memo Our Path Forward.”

Hmm. Apparently “serious” Microsoft observers are more willing to overlook the serious problems with Nadella’s memo just because it’s better than Ballmer’s memo, while less serious Microsoft observers, like me, take those serious shortcomings more seriously.

A…speech should be like a lady’s dress—long enough to cover the subject and short enough to be interesting. ~ R. A. “RAB” Butler

[pullquote]He can compress the most words into the smallest idea of any man I ever met. ~ Abraham Lincoln[/pullquote]

Let’s set aside the fact that reading Nadella’s memo was like gargling with broken glass ((With apologies to Hugh Leonard)).

And let’s set aside the fact that what Nadella’s memo lacked in depth it made up for in length. ((With apologies to Chares de Montesquieu))

And let’s agree Nadella’s memo is better than Ballmer’s memo…so long as we also agree that still isn’t saying very much.

So what? At best that’s damning with faint praise. ((Damning with faint praise is an English idiom for words that effectively condemn by seeming to offer praise which is too moderate or marginal to be considered praise at all. In other words, this phrase identifies the act of expressing a compliment so feeble it amounts to no compliment at all, or even implies a kind of condemnation.)) Exactly what was it Nadella said in his memo that “serious” Microsoft observers could possibly have found even remotely encouraging?

2.2 Going Sideways

Ben Thompson:

    “In contrast to Ballmer’s anything-but-“focus,” Nadella was quite specific:”

      More recently, we have described ourselves as a “devices and services” company. While the devices and services description was helpful in starting our transformation, we now need to hone in on our unique strategy. ~ Satya Nadella

What a great start! (Well, technically, it’s not really a “start” since we’re already 558 words into Nadella’s memo. But let’s set that aside, for now.) This is great stuff. Nadella has tactfully repudiated his predecessor’s strategy without actually saying it in so many words. Further, he’s promising to hone in on Microsoft’s unique strategy. I’m all agog. Can’t wait to hear what’s coming next!

    “At our core, Microsoft is the productivity and platform company for the mobile-first and cloud-first world. We will reinvent productivity to empower every person and every organization on the planet to do more and achieve more.” ~ Satya Nadella


Seriously? That’s Nadella’s idea of honing in on Microsoft’s unique strategy? Prepare thyself for a MASSIVE rant.

Microsoft is a “platform” company? That could mean a lot of things. Or anything. Or nothing. Microsoft is a “productivity” company? Whoop-de-doo. Who isn’t? Microsoft is “mobile-first and cloud-first?” Newsflash: They can’t both be “first.” Microsoft will “reinvent productivity?” No, it won’t. You can’t reinvent productivity anymore than you can manufacture new antiques. Microsoft will “empower….” Ugh. Enough said.

    We will…empower every organization on the planet to do more and achieve more. ~ Satya Nadella

Ben Thompson seems to put particular stock in this phrase. I’ll discuss its “horizontal” business model implications below. However, in terms of defining Microsoft’s mission, it’s a complete dud. Microsoft is going to empower people to “do more and achieve more?” Wow, thanks for narrowing it down. Helping people “do more and achieve more” is about as non-specific, over-generalized, feel-good-but-means-nothing, applies-to-practically-every-company-that-ever-existed as it gets. That’s not honing-in, that’s zoning-out.

2.3 Teasing Out A Tortured Message

Ben Thompson:

      “Nadella was clear that focusing on “every person” meant focusing on every device as well:

        [Microsoft’s productivity apps] will be built for other ecosystems so as people move from device to device, so will their content and the richness of their services – it’s one way we keep people, not devices, at the center.” ~ Satya Nadella

This is exactly right. Nadella is making a choice here: productivity as a single unifying principle and, by extension, services based on people, not differentiation based on devices. Moreover, it’s a far more difficult and brave choice – obvious though it may be – than outside observers could likely understand. It was only a little over a year ago Ballmer declared, “Nothing is more important at Microsoft than Windows.”

Last week, Nadella said “No.” ~ Ben Thompson

Let’s break that analysis down.

    “(I)t’s a far more difficult and brave choice – obvious though it may be – than outside observers could likely understand.”

First, I concede I am an “outside observer.” However, I’m not willing to cede the interpretation of Nadella’s words solely to Microsoft insiders.

    “Nadella is making a choice here: productivity as a single unifying principle…”

Second, I’m totally not buying this. “Productivity” is far too broad a term to constitute a “single unifying principle.” And as for it being a “choice,” what exactly is Nadella choosing between: Productive and non-productive?

    “(S)ervices based on people, not differentiation based on devices.”

Third, what I think you are saying is you think Nadella is saying Microsoft is moving toward services, and away from devices. (If that’s what Nadella actually meant to say, it would have been nice if he had actually said it.) Further, I think you are saying you think Nadella is saying Windows is no longer Microsoft’s be all and end all. And — despite the tortured path used to get us there — I kinda agree with that interpretation. Unfortunately, Nadella’s actions — and Ben Thompson’s own analysis — disagree.

2.4 Two Problems

How do I know Ben Thompson’s analysis doesn’t support the suggestion Microsoft is moving away from devices and toward services? Because he says so in his article when he discusses Windows, here ((BEN THOMPSON: “For all the talk of moving beyond Windows (and Windows Phone), I am deeply skeptical Microsoft can truly pursue its potential as a software and services company as long as Windows is around.”)) and when he discusses Nokia, here ((BEN THOMPSON: “The effects of (the Nokia) deal – and understanding why it was made – have convinced me that Microsoft cannot truly reach its potential as a services company as long as Windows and the entire devices business is in tow.”)) and here ((BEN THOMPSON: “When Nadella took over earlier this year Microsoft had not only missed the mobile boat, he was now saddled with a $7.2 billion dollar anchor and 34,000 new employees. That’s the thing about last week’s layoffs: even after shedding 18,000 employees Microsoft will still be about 16% bigger than they were before the acquisition, and still tightly bound to a devices group that is working at diametrically opposed goals from the software and services businesses that are Microsoft’s future.”)) and when he discusses devices, here. ((BEN THOMPSON: “I’m bothered by the phrase “We have a big opportunity.” For (COO Kevin) Turner, the opportunity is in growing that 14%. As quoted by Gregg Keizer: We want to go from 14% to 18%, from 18% to 25%, from 25% to 30%. That’s the beauty of this model … [the opportunity] is much bigger than anything we’ve had in the past.

Turner is still talking about devices, and it’s really too bad.”))

And how do I know Satya Nadella isn’t moving Microsoft from devices and to services? Because his actions speak far louder — and far clearer — than do his words.

We know what a person thinks not when he tells us what he thinks, but by his actions. ~ Isaac Bashevis Singer

I’ll agree Satya Nadella has said “yes” to services. But what has he said “no” to? The Windows operating system licensing business model and the hardware business model (Nokia phones and Surface Hybrid) and the services business model all continue to co-compete, one with the other. Nadella is doing what Ballmer always did. When faced with a choice, he has chosen not to choose. When faced with a decision between business models, he has decided not to decide.

Action expresses priorities. ~ Gandhi

Yes, action expresses priorities. And inaction obscures them.

It’s true services may gain primacy at Microsoft. However, so long as three business models remain — like nesting dolls, one within the other — Microsoft’s internal conflicts and external turmoil will continue, unabated.

Deciding what not to do is as important as deciding what to do. That’s true for companies, and it’s true for products. ~ Steve Jobs

Matryoshka doll


Okay, let’s agree Nadella isn’t the best communicator in the world. That’s too bad because words can make your heart soar…or they can make your head sore. ((Tip of the hat to Dr. Mardy and his aphorisms.)) However, words aren’t everything. When the Nokia phone line is cut; when the Surface hybrid is cut; then we won’t have to read Nadella’s memos to know where Microsoft is headed. Nadella’s actions will speak far louder than any words could.

A man is judged by his deeds, not by his words. ~ Russian Proverb

Until that day, Microsoft should be careful that they don’t become a joke:

A Jewish woman had two chickens. One got sick, so the woman made chicken soup out of the other one to help the sick one get well. ~ Henny Youngman

Microsoft is in danger of making chicken soup out of their healthy business divisions in order to sustain their ailing businesses. If they’re not very, very careful, they’ll end up with a bunch of dead chickens and egg all over their face.

Microsoft: Point and Counter-Point

On April 10, I wrote: Say Goodbye To Microsoft. On April 17, I wrote Say Hello To Microsoft 2.0. The two articles, when taken as a whole, argued that:

1. In the beginning, Microsoft’s business model was simple — create the personal computing operating system (Windows) and license it to as many hardware manufacturers as possible.

2. Microsoft’s vision was equally clear:

A computer on every desk and in every home. ~ Bill Gates, Microsoft chairman and chief executive officer, 1980

3. By the turn of the century, Microsoft’s singular vision and simple, yet powerful, business model had virtually achieved its audacious goal of putting a computer on ever desk and in every home and having Microsoft’s Windows operating system running on each of those computers.

4. Ironically, having achieved the seemingly impossible, Microsoft was left without a goal to power them and without a vision to guide them. They drifted from product line to product line and from business model to business model.

5. Microsoft long knew the Mobile Wars were coming but when the revolution finally arrived, the mobile wars were fought with weapons so unfamiliar to Microsoft, and the front lines shifted so quickly and so decisively, that the wars were all but over before Microsoft was able rearm themselves.

  1. By the time Windows Phone 7 was released in October 21, 2010, ((Windows Phone 7 came out seven months AFTER Apple started selling the iPad. In other words, Apple had started the next revolution in computing before Microsoft even fired a single shot in the nearly completed smartphone revolution.)) Apple’s iOS had already sewn up the premium end of the smartphone market and Google’s Android had already locked down the low end.
  2. By the time Windows 8 and Microsoft’s Surface tablet was released in the Fall of 2012, millions upon millions of iOS and Android tablets were already in the hands of consumers, and businesses and educational institutional buyers had already adopted iOS as their preferred tablet operating system. By the time Microsoft entered the fray, they found themselves fighting a war already over.

6. In a matter of only a few, short years, Microsoft went from being the only relevant company in computing to a company that was completely irrelevant in mobile computing.

7. Microsoft’s board, which sat idly by for over a decade, finally acted by forcing Steve Ballmer out and naming Satya Nadella as their new CEO.

8. It’s still early days, but it appears Satya Nadella is realigning Microsoft around a horizontal business strategy which strives to sell services in the Cloud layer resting atop today’s modern personal computer (phone, tablet, notebook, desktop) operating systems and to sell those services to every type of personal computer maker and user.

9. If Satya Nadella is truly moving Microsoft to a horizontal-first model, then it logically follows Microsoft will want to jettison unprofitable vertical hardware projects like the Surface tablet and the Nokia phone lines and demote the importance of vertical software offerings like Windows 8 and Windows Phone 8.

Push Back

The truth will set you free, but first it will piss you off. ~ Gloria Steinem

My twin articles produced some extremely thoughtful and thought provoking responses. So I decided to give one reader — RATIONAL GEEK — a chance to respond which, in turn, allowed me to refine my original thinking on the matters discussed above.


Microsoft’s Functional Re-Organization


Microsoft’s divisional organization may have been dysfunctional but, in my opinion, Steve Ballmer’s attempt to move Microsoft to a functional organization was a disaster waiting to happen.

First, Microsoft’s culture and product lines were simply incompatible with the goals of a functional organization.

Second, making a transition from a divisional organization to a functional organization in these perilous times is like changing the proverbial horse in the middle of the river — or perhaps more like changing the proverbial horse while plunging over a waterfall.

Satya Nadella’s recent job reassignments indicate to me he is starting to undo some of the reorganization that began during Steve Ballmer’s final days. Frankly, I’d like to see Nadella, like a new broom, sweep some people clean out of Microsoft. But — as I was recently reminded by Ben Thompson of Stratechery fame — Microsoft “fires” gently.


In what way is Nadella undoing the reorganization? I don’t see it.

The One Microsoft reorganization is important because the old Microsoft would have powerful groups like Windows, Office and Enterprise hunker down and protect their operating margins at the expense of collaborating towards a common goal. One Microsoft is an attempt to “align the wheels”.

Everything they do is now with a common goal in mind.

We will see our product line holistically, not as a set of islands. We will allocate resources and build devices and services that provide compelling, integrated experiences across the many screens in our lives, with maximum return to shareholders. All parts of the company will share and contribute to the success of core offerings, like Windows, Windows Phone, Xbox, Surface, Office 365 and our EA offer, Bing, Skype, Dynamics, Azure and our servers. All parts of the company will contribute to activating high-value experiences for our customers. ~ Steve Ballmer

The old organizational structure was once one of Microsoft’s biggest criticism. In-fighting everywhere resulting in counter productive disconnects. We’ve all seen this amusing org chart comparison right?

The important takeaway is Microsoft recognizes their sacred cows of the past are no longer sacred. They’ll need to look beyond them towards cloud, devices and services to compete in the future.


Microsoft’s Surface Tablet


I think Microsoft should recognize the Surface Tablet for the disaster it is and drop it like a hot coal.

Surface business worsening? Q2: Surface lost $40 million on sales of $890 million. Q3: Surface lost $45 million on sales of $494 million. ~ Peter Bright (@DrPizza)

First, while it’s very true a few people definitely DO desire and desperately DO need a hybrid device — something between the tablet and the notebook — those road warriors are far fewer than Microsoft thinks (thought?).

Apple is right to shun the MSFT hybridization/bastardization. ~ Jean-Louis Gassée (@gassee)

For example, some people find hybrid utensils such as the spork and knock useful. However, the vast majority of utensil users stick with more traditional categories like spoons, forks and knives. Similarly, while the Surface and other hybrid tablets are extremely useful for some, the vast majority of users will stick to using phones, tablets and notebooks to satisfy their computing needs.

Second, Microsoft’s Surface tablet is in direct competition with Microsoft’s tablet manufacturing partners. How can people not see this is a bad idea? Let me illustrate what a god-awful strategy this is through the use of an equally god-awful joke:

Two Eskimos, sitting in a kayak, were chilly so they lit a fire in the craft. Unsurprisingly it sank, proving once again you can’t have your kayak and heat it too.

Microsoft needs to acknowledge reality and admit they can’t license their software to hardware manufacturers while simultaneously competing directly against those manufacturers too.

What you can expect from Microsoft is courage in the face of reality. ~ Satya Nadella

Third, I reject — and more importantly the market rejects — the entire concept of using the Microsoft Surface tablet as a “showcase” device.

Microsoft didn’t write off 900 million dollars on the Surface last year because they were trying to make the Surface their “showcase” device. Microsoft was all in with the Surface tablet.

One might argue Google’s Nexus devices are a successful example of how to do a showcase device right. One might argue that if one wanted to be wrong.

The concept of a Showcase device DOES NOT work. It’s been a great big zero for Google, it’s been far worse than a great big zero for Microsoft and it will forever and ever continue to be a losing strategy for anyone foolish enough to employ it.

Fourth and finally, while I agree the Surface tablet demonstrates Microsoft’s commitment to Windows 8’s dual OS (desktop and tablet touch) philosophy, I vehemently disagree with the notion a hybrid OS is something Microsoft SHOULD be making a commitment to. The philosophy behind Windows 8 is deeply flawed and it’s not going to be fixed by “committing” to it. On the contrary, the first thing Microsoft needs to do is to abandon, not commit to, the Frankenstein’s monster that is Windows 8.

It is better to run back than run the wrong way. ~ Proverbs


There’s no denying the $900 million dollar loss is a good indicator people didn’t want what Surface, version 1, had to offer. I do however think it is not accurate to then conclude people are rejecting the idea of a converged device — one that is a tablet and can also potentially replace your laptop/desktop. I think the failure to sell has more to do with the painful transition from old style Windows to the new hybrid Windows 8. We are already seeing many small but significant improvements in Windows 8.1 that helps the two modes blend more seamlessly. This stuff happens. The first version tends to be rough around the edges but through iteration we begin to see a more polished product.

EDIT: This just in! Gartner’s latest report shows “hybrid PCs” are on the rise as iPad sales slow down.

This is notable because with all the talk of a declining PC market – if you combine hybrid PCs with traditional PCs, that segment is actually trending upward for 2014. No, this is not worthy of a victory lap just yet but it may be the beginning of a bright future for hybrid PCs.

I confess I am a bit biased, but not blindly. My bias is based on reality. My primary PC is a Surface Pro 2. It connects to a 27″ monitor, mouse and full sized keyboard when I’m at my desk. On the go, it’s just the Surface Pro 2 and a Type Cover. It easily morphs into a tablet when I want one – giving me a great touch experience – AND a laptop when I need it with full desktop support. Who else might be interested in a device that fits this flow? Possibly anyone carrying around an 11″ MacBook Air AND an iPad. Oh! and add to that everyone trying desperately to turn their iPads into laptops with various 3rd party keyboards. That’s no small market.

Regarding Surface itself, we should consider the state of the Windows OEM market at the time Windows 8 launched. Most had no idea what to make of Windows 8. It was new and confusing and expensive to include a touchscreen for their mainstream offerings. They weren’t sold. Left to their own devices, it’s not hard to imagine them abandoning the concept altogether.

Microsoft producing Surface did a couple of important things. One, it showed without a doubt their commitment to Windows 8. There was no hedging. This was their idea of a device that fully embraced the concept of Windows 8. If Microsoft didn’t believe in it then neither should their partners. Two, it represented *one* form factor but left the door wide open for OEMs to build and fill in the rest. You probably won’t see a Surface Ultrabook or a Surface desktop and everything else in between any time soon.

This is somewhere in the middle of old Microsoft where OEMs built the entire range of devices and Apple who builds all their devices. Understandably, Apple’s hardware selection is limited because they can’t make them all. For example, there is no 17″ MacBook Pro but I bet many would love there to be. Microsoft’s new approach is effectively the best of both worlds. They can produce a showcase lineup – though limited – and rely on their partners to build everything else.

Lumia+Surface+Xbox = Microsoft sells several billion dollars worth of hardware per quarter now. ~ Alex Wilhelm (@alex)


EDIT: Two hundred million IT workers want Windows tablets. ~ Forrester

Microsoft’s Nokia Phone

A reminder: Microsoft now is the world’s biggest software company, and 2nd biggest phone maker by sales. ~ Shira Ovide (@ShiraOvide)


I don’t think Microsoft should be making phone hardware any more than I think they should be making tablet hardware (See “Microsoft’s Surface Tablet”, above). Unsurprisingly then, I think Microsoft’s acquisition of Nokia — which was just completed this week — was a huge mistake.

I would like to blame Ballmer for the monstrously confused and strategically backwards Nokia purchase. It was, after all, done on his initiative.

But the Microsoft board has to take the lion’s share of the blame. Apparently, the board didn’t agree with Ballmer’s pursuit of Nokia — but they let the purchase go through anyway, even as they were forcing Ballmer out the door. What the heck were they thinking?

The best thing — perhaps the only thing — the Microsoft board did on Microsoft’s behalf in the past ten years was to replace Ballmer with Satya Nadella. The second best thing they could do now would be to resign, en masse, in order to allow Nadella to get on with the job of fixing the mess they allowed Ballmer to make.

Please understand, the purchased portion of Nokia is still capable of making great products. But that is irrelevant. What is relevant is having one consistent business strategy. Microsoft can’t expect phone manufacturers to make Windows 8 Phones if Microsoft is making them too. It’s just common sense.

Further, you can’t justify the purchase of Nokia by pointing out Windows 8 phone sales are bad. This is tortured logic. If third party Windows 8 phone manufacturers are having trouble selling their wares now, how the hell is that situation going to be improved by having Microsoft compete against them too?

Reports indicate Satya Nadella originally opposed the idea of purchasing Nokia but later agreed it was the right thing to do. I take this as a good sign. I don’t think Nadella truly changed his mind. Instead, I’m hoping Nalella still thinks the purchase of Nokia is a mistake — but he was politic enough to know the Nokia acquisition was going ahead whether he was on board or not and he choose to climb on board rather than risk being left standing at the dock.


This one is interesting because if the circumstances were different, i.e. Windows Phone was not dominated by Nokia and was getting traction with other OEMs, I would agree. But because the exact opposite is true, Nokia is too important to be left out of Microsoft’s control. Microsoft has recently announced WP will be free of charge. This should help entice more OEMs to build Windows Phones. Carriers have incentive to see a 3rd platform emerge and OEMs do as well. The fact Microsoft is now making WP free is a great example of OEMs benefiting from this competition.

Also, I wouldn’t compare Microsoft’s Zune to their current foray into hardware. Side note – the Zune was pretty great! 🙂 The big difference is the MP3 player market was a dead end. Apple completely dominated it and by the time Zune came along people were already transitioning away from dedicated players to their phones.

Unlike the MP3 player, no one would dare say the mobile phone market is a dead end. This space is full of potential – and it keeps growing!


Cash Cows


Microsoft has two cash cows — Windows and Office — that are NOT fully aligned with Microsoft’s new horizontal strategy.

In my opinion, Microsoft should milk those cash cows for all they’re worth. However — and here’s where it gets hard — they should always, always, always favor their new horizontal strategy over their cash cows whenever conflicts inevitably arise. For example, they should release Office for iPad, regardless of how it affects the sales of Windows licenses, Surface tablets, etc.

Oh wait…Microsoft just did that!

Tim Cook says he’s happy to have Office on the iPad. “If it had been done earlier it would have been even better for Microsoft, frankly.” ~ Harry McCracken (@harrymccracken)

And Microsoft should give up the notion that they’re going to be able to make a profit from licensing mobile operating system software.

Oh wait…Microsoft just did that too!

These are, in my opinion, signs that things are changing at Microsoft and changing in a very positive way.

Ideals may tell us something important about what we would like to be. But compromises tell us who we are. ~ Avishai Margalit


I think we mostly agree here. Microsoft should definitely continue to milk their cows except I don’t think abandoning Windows and Office should be part of the goal. The strategy to move to the cloud should not require they abandon Office and Windows. In fact, the ultimate goal for Microsoft would be for people to continue using Office and Windows while leveraging Microsoft’s cloud and services. The key difference here is it is not “all or nothing”. Microsoft understands the current reality. There will be a mix of users on different devices and platforms and Microsoft wants to be a part of their flow. But their goal should still be people will get the best experience using all of Microsoft.

In the world of ubiquitous computing, we want Windows to be ubiquitous but that doesn’t mean one price or one business model. It’s actually a market expansion opportunity and that’s how we’ll execute on it. ~ Satya Nadella

Microsoft’s Universal Apps


Microsoft has announced Metro and RT apps will run across the phone, tablet, PC and even Xbox form factor. I am DEEPLY suspicious of the concept of Universal Apps. It sounds as if Microsoft has done a wonderful job with them but this “write almost only once and run almost everywhere” concept has been the Holy Grail — desired by all, found by none — of personal computing ever since there were two or more form factors or two or more operating systems to choose from.

I am willing to wait and learn but I am not willing to give Microsoft the benefit of the doubt. They can’t just tell me universal apps can be done. They have to show me they can be done.


Yes I’m old enough to remember Java’s promise a long time ago. I think one of the big challenges for Java was it depended on Virtual Machines installed on various platforms, i.e. Windows, Mac, Unix, Linux etc. The same Java code would need to be interpreted and translated to each operating system’s specific language. I don’t think it’s unreasonable to say this model had many variables working against it. Contrast this to Windows RT. You are no longer dealing with multiple operating systems. There is only one – Windows. The universal app developer should be able to leverage the bulk of their code while focusing on adapting their User Interface to various form factors.


Microsoft’s Muddled Thinking


In my opinion, having a horizontal business model that emphasizes services in the cloud AND having a hardware business model that sells Surface tablets and Nokia phones AND having a proprietary operating system model that licenses software and tries to create operating system lock-in, is muddled thinking. A company should have only one, not multiple, business models.

The response I often get when I suggest Microsoft has to choose one business model or another is: “Why? Why can’t Microsoft do it all? In fact, it’s Microsoft’s ability to do it all that makes them unique; that gives them a competitive edge.”

I’m sorry, but that kind of thinking is not just wrong, it’s dangerously wrong.

There is nothing worse than a sharp image of a fuzzy concept. ~ Ansel Adams

A company’s products are like the wheels of a car. They support the vehicle and enable it to speed ahead. A business model aligns the “wheels” of a company. If they’re not aligned, the vehicle will shimmy and shudder and run inefficiently.

Having multiple business models that prioritize different things is like pointing the wheels of your car in four different directions and expecting that to make your car go faster. What’s going to happen instead is you’re going to get a lot of wheel spinning, a lot of rubber burning, a lot of noise, a lot of smoke, a lot of engine wear and tear and not a lot of traction. In other words, you’re going to get the old Microsoft.

Satya Nadella has said “It’s gold rush time” in the cloud and SaaS markets. There are just a couple of companies positioned to capitalize on the dual opportunity of SaaS and infrastructure services and Microsoft is one of them.

Well, there are two ways to make money in a gold rush. You can pan for gold or you can sell the pans to the gold miners. This is the key — YOU CAN’T DO BOTH.

Microsoft is a big company but it’s not now, nor was it ever, so big that it could ignore the laws of business. If it wants to be good at any one thing, then it has to stop trying to be good at multiple things.


I look at all of this in the context of ecosystems. The ecosystem story is important – maybe the most important. Microsoft, Google and Apple are all working very hard to keep users in their world. I think it would be quite compelling if Microsoft is uniquely capable of offering users the ability to buy an app on the phone once and download a version on a tablet and PC for free – or in any order therein. This is a value proposition easy to understand. With respect to apps, Google’s Android ecosystem starts at the phone and ends at the tablet. Same with Apple and iOS. With Windows RT, Microsoft can complete the circle.

I’d also like to note that competing ecosystems can be hostile. Take Apple for example. Their move to drop Google Maps from iOS and use Bing as Siri’s default search engine is a good example of why relying on another platform to deliver your services can be risky. Then there’s Google who’s still denying Microsoft any native Youtube application for Windows Phone. It would be wise for Microsoft to take necessary steps to control as much of its destiny as possible.

Microsoft’s Satya Nadella

Satya Nadella has really impressed me. The tone at Microsoft has completely changed since he’s taken charge and he’s saying all the right things.

In particular, Nadella has said Microsoft needs to “ask the hard questions” and have the “courage to face reality.” To many, these seem like mere platitudes. To me, they are an accurate diagnosis of what ails Microsoft and a prescription for how to fix it.


Your Turn…

One of the quickest ways to find out if you are wrong is to state what you believe. ~ Penn Jillette

I want to thank Rational Greek for helping me with this point/counterpoint experiment. He went above and beyond the call of duty. Truth be told, I’m not sure I agree with a single word he’s written (and I think the feeling is mutual – he doest agree with a single word of what I’ve said) but I do deeply respect his arguments. They were rational and well thought through. They were just built upon a different set of premisses than my own.

Fencing with Rational Geek has helped me to hone my arguments and further clarify my thinking on the future of Microsoft.

The aim of an argument or discussion should not be victory, but progress. ~ Joseph Joubert

You’ve heard from me and you’ve heard from Rational Geek. Now it’s your turn. What do you think is going to happen to Microsoft? Let us know in the comments, below.

The point of seeing both sides isn’t to hover between them but to be able to come down on the right side with the right degree of conviction. ~ Julian Baggini

Say Hello To Microsoft 2.0

Last week I said goodbye to Microsoft. This week I say hello to Microsoft 2.0. But before we look at where I think Microsoft is headed, let’s take a quick look at where they’re coming from.

The further back you look, the further forward you can see. ~ Winston Churchill

Microsoft 1.0 had one of the most successful business models of all time. But no matter how successful Microsoft became, management seemingly could not abide the thought of any other technology company sharing the spotlight of success.

  1. If a competitor was being successful with customers Microsoft wasn’t addressing, Microsoft had to have those customers as well.
  2. If a competitor was being successful in a market where Microsoft didn’t compete, Microsoft felt compelled to compete there as well.
  3. Most damning of all, if a competitor’s success could be attributed to its business model, Microsoft felt compelled to assimilate that business model and make it their own.

Microsoft wasn’t setting their own agenda. Instead, they were letting the successes of their competitor’s set the agenda.

Next to knowing when to seize an opportunity, the next important thing is to know when to forego an advantage. ~ Benjamin Disraeli

[pullquote]Thinking that adding another business model will make your company stronger is like thinking that adding another iceberg would have made the Titanic more seaworthy[/pullquote]

No company can satisfy every customer. No company can satisfy every market. And as for simultaneously employing different business models, thinking that adding another business model will make your company stronger is like thinking that adding another iceberg would have made the Titanic more seaworthy. ((Inspired by Chet Hurley))


As an example, look at how Microsoft responded to the success of the iPod.

In 2001, Apple introduced the iPod to mostly tepid reviews. However, approximately two years later, Apple added iTunes integration. The iPod’s popularity skyrocketed, becoming the vehicle that both saved Apple from the technology graveyard and later propelled Apple to technology greatness.

Now what does any of this have to do with Microsoft?

Absolutely nothing.

And that’s the point.

The iPod was no threat to Microsoft’s overall business strategy. In fact, when iTunes came to Windows, the iPod STRENGTHENED the Windows ecosystem.

However, the iPod’s success drove Microsoft mad with envy. Like a spiteful neighbor, Microsoft couldn’t stand to see Apple enjoying any success, even in an area where Microsoft didn’t compete and had no compelling reason to compete. Without ever clearly addressing the question of “why” they needed to respond to the iPod, Microsoft decided that it had to crush the iPod with a competing product of its own.

At first, Microsoft came out with their own MP3 software layer called “Plays-for-Sure” and licensed it to their hardware partners. When that failed to make a dent in the iPod’s success, Microsoft abandoned its traditional licensing business model (and their so-called hardware “partners”) and, with the Zune, adopted a vertical business model — the very same vertical business model that Apple had been honing and perfecting for over thirty years.

The Zune experiment was a dismal failure. Are we surprised? The goal of strategy is to make our opponents play to our strengths — to play our game on our home field. Microsoft did exactly the opposite. NO ONE does vertical technology like Apple. Apple lives and breathes vertical. Yet Microsoft — with virtually no experience in using a vertical business model — challenged Apple where Apple was strongest; where Apple had an inherent advantage; where Apple held the home field advantage.

It was a bloodbath. Not only did the Zune fail, it failed so spectacularly that it became the poster child for how NOT to compete with Apple ((The iPod remained the poster child for how not to compete with Apple until 2007, when Steve Jobs famously introduced the iPhone and Steve Ballmer famously responded by laughing at it.)).

If you can’t imitate him, don’t copy him. ~ Yogi Berra

Multiple Business Models

If you don’t know where you’re going, you might not get there. ~ Yogi Berra

Business models are not cords of wood that can be stacked up, one upon the other. You do not grow better by adding a new business model; you grow confused. You do not become bigger by adding a new business model; you become bloated. You do not become stronger by adding multiple business models, you become stranger.

FAKE CAPTION: The Simplest Known Explanation Of Microsoft 1.0’s Conflicting Business Models

A good business model — like a good argument — should be consistent, self-supporting and contain no inherent contradictions. You can tell when you have a good business model by how little internal friction it causes. You can tell when you have a bad business model by how your company always seems to be at war with itself.

To arrive at a contradiction is to confess an error in one’s thinking; to maintain a contradiction is to abdicate one’s mind and to evict oneself from the realm of reality. ~ Ayn Rand

Say Hello To Microsoft 2.0

With the changeover from Steve Ballmer to Satya Nadella, Microsoft has entered into a new era.

We can’t quite be sure yet exactly WHERE the good ship Microsoft is headed, but we can be very sure that Microsoft’s new Captain, Satya Nadella, is steering Microsoft in a radically different direction.

Microsoft is no longer pretending that its Office software suite will help it sell more Surface tablets. They have accepted the reality that Office should be untethered from their Windows operating system and from their Surface tablets so that it can be free to reside on Microsoft devices, Apple devices, Google Chrome devices…and as many other personal computing devices as possible.

It’s but little good you’ll do a-watering the last year’s crops. ~ Eliot Adam Bede

Microsoft is also no longer pretending that they can make a profit from selling mobile operating systems. They have accepted as reality the fact that Apple’s bundled hardware/operating system model and Google’s freemium operating system model have reduced the price of mobile operating systems to zero.

Face reality as it is, not as it was or as you wish it to be. ~ Jack Welch


Microsoft offering free Windows on phones and tablets is nontrivial. This is a big move, as it changes their business model entirely. ~ Aaron Levie (@levie)

Month’s back I stated Microsoft needed its “hell freezes over moment.” I wonder if giving Windows software on smaller screens for free is it. ~ Ben Bajarin (@BenBajarin)

For a company which has been too long stuck in the fog of Redmond, it’s a remarkable turnaround. ~ Kontra (@counternotions)

Microsoft is re-inventing its business model which is the same as saying Microsoft is re-inventing themselves.

Say goodbye to Microsoft 1.0. Say hello to Microsoft 2.0.

Entrepreneurship is essentially identifying the path that everyone takes; and choosing a different, better way. ~ Sheldon Adelson


A coming together, a cloud for everyone and for every device; the first step on a journey. ~ Satya Nadella

Microsoft is going to a horizontal business model with a services layer above device platforms that isn’t dependent on any one operating system and provides Cloud services to all operating systems. Microsoft 1.0 was about Windows on every computer. Microsoft 2.0 is about MICROSOFT on every computer. It’s a subtle distinction with huge implications.

Horizontal business models thrive on cooperation and abhor confrontation with their vertical partners. Microsoft 2.0 — and its horizontal business model — wants its products to run almost everywhere, therefore it wants to be friendly with almost everyone.

Before Microsoft moved to a horizontal business model, try to imagine the following Twitter exchange taking place:

Welcome to the #iPad and @AppStore! @satyanadella and Office for iPad ~ Tim Cook (@tim_cook)

Thanks @tim_cook, excited to bring the magic of @Office to iPad customers #cloud4mobile ~ Satya Nadella (@satyanadella)

Or try to imagine John Gruber being on-screen at Microsoft’s Build conference:

This is odd/interesting. MS highlighting Apple watcher @gruber’s Vesper as an Azure developer/customer #bldwin ~ Mary Jo Foley (@maryjofoley)

jobs_macworld_1997In my opinion, John Gruber on screen at Microsoft’s Build Conference in 2014 is the poor man’s equivalent of when Bill Gates towered over Steve Jobs at Macworld in 1997.

Sometimes I’ve believed as many as six impossible things before breakfast. ~ Lewis Carroll

We didn’t know it then, but in 1997 Steve Jobs had just stooped to conquer — he had just conceded the PC wars to Microsoft thereby setting the table for his later post-PC triumphs. I think Microsoft — on a lesser scale — is doing the same today. They’ve conceded the post-PC wars…because they want to win the next war – the war for the Cloud.

Horizontal v. Horizontal

When you have a Horizontal business model, Verticals (like Apple) are not your enemies, they’re your friends. Your enemies are other horizontal business models competing in the same space as you. Hmm, who else do we know who has a Horizontal business model and competes in the Cloud?

Microsoft is clearly gunning for Android more than Apple now. ~ Matt Rosoff (@MattRosoff)

Legacy Business Models

Even if I’m right and Microsoft is trying to move toward a pure horizontal business model, they are still burdened with several dysfunctional legacy business models. I expect Satya Nadella to employ a two-pronged strategy to rid himself of these cancerous business models:

1) Unprofitable strategies (like Windows RT, the Surface tablet, Windows Phone 8, buying Nokia, moving to a functional organization) will be undone. This will take some doing but the process has already begun.

2) Profitable strategies (like the cash cows of Windows and Office) will be milked until they’re “udderly” dry. Then those cash cows will be put out to pasture while Microsoft moves on to the next great thing.

If I were running Apple, I would milk the Macintosh for all it’s worth and get busy on the next great thing. ~ Steve Jobs [Observation made before returning to Apple]

Part of me feels, at times, that Microsoft’s base case for mobile is to wait it out until the next disruption hits the reset button. ~ Ben Bajarin (@BenBajarin)

The End…Or Is It The Beginning?

Success wayIt’s still early days for Microsoft 2.0.

Lots of good stuff at the Build keynote, but it feels like Microsoft is still in the fairly early stages of a years-long transition. ~ Harry McCracken (@harrymccracken)

Any prediction would be premature.

Never make forecasts, especially about the future. ~ Samuel Goldwyn

With Microsoft’s bankroll, there’s still time to make the transition from Windows everywhere to Microsoft everywhere.

It’s never too late to be what you might have been. ~ Mary Ann Evans (under the pen name, ‘George Eliot’)

Microsoft 2.0 is very, very late to the game. Or maybe I’ve been looking at this all wrong. Maybe Microsoft is very late to the post-PC game but very early to the Cloud game. If so, then Microsoft 2.0 may have been well worth the wait after all.

If a girl looks swell when she meets you, who gives a damn if she’s late? Nobody. ~ J. D. Salinger, The Catcher in the Rye

Microsoft: Failing By Design

Microsoft Achieved Its Goal

Microsoft had one of the greatest corporate mission statements of all time:

“A computer on every desk and in every home, running Microsoft software.”

And guess what? Incredibly, THEY ACHIEVED THEIR GOAL! ((For a wonderful take on this, I highly recommend Ben Thompson’s article entitled: “Skating Towards The Goal“)) There IS a computer on nearly every desk and in nearly every home, and nearly all of them run Microsoft software…

…but then what?

For Over A Decade, Microsoft Has Been Playing Not To Lose

Ben Thompson compared Microsoft to the great ice hockey legend, Gordie Howe, and I heartily agree with the analogy. Like Howe, Microsoft has great strength, durability, and a willingness to mix it up. There is also great virtue in Microsoft’s single-minded pursuit of a goal, and its absolute refusal to be deterred from that goal. However…

Those who know how to win are more numerous than those who know how to make proper use of their victories. ~ Polybius

Microsoft’s dominant traits worked magnificently when they were striving to become the king of the hill; when they were aggressively pursuing a clearly defined goal. Those very same traits became counter-productive when they became king of the hill and there was nothing left to achieve; when they stopped playing to win — because they had already won all they had set out to accomplish — and started playing not to lose, instead.

“Ultimately it was Bill’s decision. When you’re king of the hill, you are driven to play defense and protect.” ~ a former Microsoft executive

In truth, I very much like the “king of the hill” metaphor as a way of describing Microsoft, because Microsoft was not just great at climbing the hill, but they were masterful at pulling down, and climbing over, the bodies of the corporations that were ahead of them. But again, what good are those skills once one has reached the pinnacle?

Without a clear goal to head towards, Microsoft lost their focus. With nothing to look up toward; they turned their gaze downward, onto their competitors, instead.

Our friends up north [at Microsoft] spend over five billion dollars on research and development and all they seem to do is copy Google and Apple. ~ Steve Jobs

After a competitor had achieved a product breakthrough, Microsoft belatedly attacked. They were the slow follower — not so much going where the metaphorical puck had been, more like chasing opponents all over the ice, throwing vicious body checks, missing, then crashing into the boards just after their opponents had gracefully skated by.

After a decade of exhausting themselves by skating all over the ice for no apparent reason, all that Microsoft was left with was a warehouse full of unsold Zunes, Kins, and Surfaces, a server full of unused Bing searches, and a wistful memory of fifty billions in lost expenditures.

I spent a lot of my money on booze, women, and fast cars. The rest I just squandered. ~ George Best

The Ballmer Era Is Over

Any jerk can have short-term earnings. You squeeze, squeeze, squeeze, and the company sinks five years later. ~ Jack Welch

Microsoft’s revenues tripled during Ballmer’s tenure to almost $78 billion in the year ended this June, and profit grew 132% to nearly $22 billion. But while profit rolled in from Microsoft’s traditional markets, it missed epic changes, including Web-search advertising and the consumer shift to mobile devices and social media.

“Steve was a phenomenal leader who racked up profits and market share in the commercial business, but the new CEO must innovate in areas Steve missed—phone, tablet, Internet services, even wearables.”

I disagree that Steve Ballmer was a phenomenal leader. He fell into the classic trap of protecting his cash cows and chasing short-term profits. In my opinion, during the Ballmer era, Microsoft looked as silly (and as ineffective) as a one-legged man in a butt kicking contest.

What Ballmer Is Leaving In His Wake, Ain’t Pretty

The time to repair the roof is when the sun is shining. ((John F. Kennedy)) Once it starts to rain, it’s too late.

A quick overview of some of Microsoft’s current woes:

1) Microsoft is LOSING money on phones. And that’s not counting the purchase of Nokia.


2) Tablets are decimating the Notebook and Desktop markets.

All you need to know about tablets is that they will drive more innovation in personal computing the next 10 yrs than the PC ever did. ~ Ben Bajarin (@BenBajarin)


3) PC shipments fell 8.6% in the third quarter, the sixth consecutive quarterly decline.


Microsoft’s software was on 17% of all personal computing platforms sold last quarter. Apple’s was 13%. (Tablets, smartphones, PCs) ~ Ben Bajarin (@BenBajarin)

Having a “monopoly” on notebooks and desktops will soon be equivalent to having a “monopoly” on non-colored soda products — a distant third of three.

4) Windows lock-in is becoming irrelevant. ((Even the Windows lock-in is becoming irrelevant and losing power quickly. ~ Matthew Johnson (@anandabits)

You used to buy a Windows PC because everyone had Windows PCs. All the major programs were written for Windows and it became the de facto standard for almost every office and home on the planet. Windows ran the world and because of its wide reach, we all grew accustomed to the Office suite of applications. Writing a report? You used Word. Needed to do a presentation on plant life in the rainforest? PowerPoint and its atrocious sound effects were there to add glass-shattering emphasis to that clip art on slide two. Your email was stored in Outlook and your numbers were crunched in Excel and there was nothing you could do about it because nothing else came close to the power and reach of Microsoft Office.))

5) Long-Time Windows Users Are Fleeing The Platform. ((Why I’ve all but given up on Windows.))

6) Almost all of Microsoft’s Revenue is all sourced from software and software pricing is dropping to $0. ((The contrast couldn’t be more stark: 75% of MS’s revenue and 95% of its gross profit come from licensing. Apple now charges $0 for most software.))

7) Microsoft’s hardware offerings are not competitive. ((Apple’s Software revenues are more than double Microsoft’s Surface revenues. ~ Horace Dediu (@asymco)

So iPad Air weighs half as much as Surface Pro 2, has longer battery life, and costs $200 less. But hey – look at that kickstand! ~ Ian Betteridge (@ianbetteridge)))

8) Throwing advertising dollars at the problem isn’t helping. ((Apple spent $1.1 billion on advertising in the last 12 months. 0.64% of sales. (Microsoft spent $2.6b or 3.3% of sales yr. ended June). ~ Horace Dediu (@asymco)))

9) Hardware manufacturing partners are fleeing Windows.

If you don’t make a total commitment to whatever you’re doing, then you start looking to bail out the first time the boat starts leaking. It’s tough enough getting that boat to shore with everybody rowing, let alone when a guy stands up and starts putting his jacket on. ~ Lou Holtz

10) Microsoft’s consumer satisfaction rating fell to its lowest level since 2007.

11) Business model transitions are terribly dangerous.

Why Has Microsoft Tied The Hands Of Its New CEO?

Over the past several months, Microsoft has:

1) Committed To A New, Functional Organizational Business Structure;
2) Purchased Nokia for 7.2 Billion Dollars;
3) Ended Stack-Ranking; and
4) Committed to becoming a “Devices & Services” Company

We are watching Microsoft abandon nearly all the strategies that made them successful and embracing new ones in the hope of a future ~ Ben Bajarin

Well, yes and no. But mostly no. Because Wait! There’re MORE!

Microsoft has also committed to their old strategies of:

a) X-Box;
b) Turning Bing into a platform;
c) Maintaing both Windows RT and Windows 8; and
d) Manufacturing their own, Surface, Tablets.

Microsoft is like a sailor who has one foot on the departing boat but refuses to take his other foot off the dock.

Microsoft hasn’t just tied their incoming CEO’s hands — they’ve trussed him up like a turkey. Now ask yourself: “Why would Microsoft do that?” To my mind, there can be only one answer.

After finding no qualified candidates for the position of Microsoft CEO, the Board is extremely pleased to announce the appointment of…

The Microsoft Board Has Taken Charge Of Microsoft And Is Charting Microsoft’s Course

I do not subscribe to the idea that a Bill Gates return would be a good outcome for Microsoft. Indeed, much of what troubles Microsoft today is directly attributable to Gates, particularly the Vista disaster/distraction and the Windows obsession. ~ Ben Thompson

[pullquote]The Microsoft Board is going to TELL the new CEO what to think[/pullquote]

Too late. Gates, via the Board, is already back. He’s the reason Ballmer “volunteered” to walk the gang plank, he’s the reason Microsoft has been forging ahead so quickly with the functional business reorganization, the purchase of Nokia, the ending of stack ranking, the commitment to new policies and the recommitment to old. Microsoft doesn’t need to wait to see and hear what the new CEO thinks, because the Board is going to TELL him what to think.

Doubling-Down On The Wrong Strategy

It is better to run back than run the wrong way. ~ Proverbs

Prior to pushing him out the door, The Board’s mandate to Ballmer was to move faster.

Motivation alone is not enough. If you have an idiot and you motivate him, now you have a motivated idiot. ~ Jim Rohn

It’s clear to me that the Microsoft Board didn’t “get” why Microsoft has been falling behind over the past decade and, based on their recent actions, it’s just as clear that they still don’t get it.

The human body has two ends on it: one to create with and one to sit on. Sometimes people get their ends reversed. When this happens they need a kick in the seat of the pants. ~ Theodore Roosevelt

Microsoft isn’t failing because it’s not going fast enough — it’s failing because it’s going in the wrong direction.

If someone is going down the wrong road, he doesn’t need motivation to speed him up. What he needs is education to turn him around. ~ Jim Rohn

If the Microsoft Board could kick the person in the pants responsible for most of their troubles, they wouldn’t sit for a month. ((Inspired by Theodore Roosevelt))

In this business, by the time you realize you’re in trouble, it’s too late to save yourself. ~ Bill Gates

True enough.

David The Disruptor v. Microsoft The Goliath

This is part two of a two-part series. Part One looked at the fall of Steve Ballmer and the decline of Microsoft in mobile. Part Two tries to discover why it all happened.


Steve Ballmer was just fired after 13 uninspiring years at Microsoft. A hotly debated question is whether Ballmer failed because he was a bad manager or whether he was simply a victim of disruptive innovation.

Analogy: David v. Goliath / Disruption v. Microsoft

PATIENT: Doctor doctor,- I keep comparing things with something else.
DOCTOR: Don’t worry, it’s only an-alogy

Disruption is often described as a David v. Goliath story. Let’s take that analogy and run with it.

Saul and the Israelites are facing the Philistines near the Valley of Elah. Twice a day for 40 days, Goliath, the champion of the Philistines, comes out between the lines and challenges the Israelites to send out a champion of their own to decide the outcome in single combat, but Saul and all the Israelites are afraid. David, (a mere shepherd,) accepts the challenge. Saul reluctantly agrees and offers his armor, which David declines, taking only his sling and five stones from a brook.

David and Goliath confront each other, Goliath with his armor and shield, David with his staff and sling. David hurls a stone from his sling with all his might and hits Goliath in the center of his forehead, Goliath falls on his face to the ground, and David cuts off his head. ~ Excerpted from Wikipedia

Obviously, in our story, David represents disruption and Goliath represents the fallen giant, Microsoft.

The Rules Of Disruption

Disruption occurs:

    • When a new product or service competes with a successful incumbent product or service.

David challenged Goliath.

The Apple iPhone challenged Microsoft’s Windows Mobile. The iPad challenged low-end notebook and desktop computers running Microsoft Windows. Google Docs challenged Microsoft’s Office Suite.

    • When the features of the new product or service are inferior and the features of the incumbent product or service are superior.

David was young, small, weak, had no armor and no weapon to speak of. The incumbent, Goliath, seemingly had all the advantages and no disadvantages. What was there to fear?

The iPhone, iPad and Google Docs were the “David” to Microsoft’s “Goliath.” The iPhone was low capacity, with no stylus or keyboard and with few advanced features. The iPad was underpowered – nothing but a big iPod Touch. Google Docs were immature and terribly limited in functionality. Microsoft seemingly had all the advantages and no disadvantages. What was there to fear?


    • When, unbeknownst to the incumbent, the existing product or service is over-serving a large part of their current customer base. The incumbent’s supposed strengths are actually irrelevant to the vast majority of its customers. This means that the challenger need only provide “good enough” service to satisfy the over-served part of the market.

Goliath was the master at one-on-one, hand-to-hand combat. With his size, strength and power, he was simply unbeatable. However, David’s sling shifted the shape and size of the battlefield. David didn’t have to engage Goliath’s strengths. He could attack Goliath from a distance, thereby negating Goliath’s strengths and turning Goliath’s size into a weakness.

Microsoft was a major player in mobile phones ((42% market share in 2007)) and dominated PC operating systems and Professional Software Suites. With their size and ongoing monopolies, they were simply unbeatable. However, the iPhone shifted the battlefield from styluses and menus to touch, the iPad shifted the battlefield from power to simplicity and mobility and Google Docs shifted the battlefield from expensive, powerful and compatible on all PCs to free, simple and compatible on all browsers. The iPhone, iPad and Google Docs negated Microsoft’s many strengths and turned those strengths into weaknesses.

    • When the challenger, in addition, provides exceptional service where the incumbent is weakest and where the customer’s unmet needs are the greatest.

David was exceptionally strong where Goliath was exceptionally weak. His small size and lack of heavy armor made him quick and mobile. His sling made him agile and deadly from a distance.

The iPhone, iPad and Google Docs gave people the simplicity they craved at the price of complexity and power that they neither desired nor needed. From Microsoft’s vantage point, users were replacing powerful tools with weak “toys” (replacing powerful swords with limited use slings.) From the user’s vantage point, however, they were giving up nothing of practical use (heavy armor that they could not wear and weapons that they could not wield) for the sake of mobility and ease of use.

    • The incumbents cannot effectively respond without sacrificing the benefits they are receiving by maintaining the status quo.

The incumbents were no fools and they were no slouches, either. Both Goliath and Microsoft saw the shift in battle strategy and they would have liked to have responded in kind. However, their very nature prohibited them from doing so. Only by giving up his strength, armor and sword could Goliath have competed with David’s sling. And then his size would have slowed him down and hampered him anyway.

Only by giving up their monopoly profits in Windows and Office, could Microsoft have competed with the lower margin ((Yes, lower margin. The iPhone and the iPad had high margins for Apple because Apple made their profits from the hardware. However, Apple’s integrated model bundled the software and Android’s subsidized model gave away the software for free, thus making it impossible for Microsoft to maintain their software licensing margins.)) iPhone, iPad and Google Docs. And then, Microsoft’s size and structure would have made it impossible for them to keep up with the nimble Apple and Google, in any case.

The incumbent is caught in a bind. He can’t cater to the new service without abandoning the old. And he can’t abandon the old service without abandoning the advantages that go along with it. Furthermore, any such change would make his best customers, and his best incentivized employees, and his best shareholders (or, in the case of Goliath, his fellow soldiers, his commander and his King), mad as hell.

20/20 Hindsight And Revisionist History

It’s very easy to criticize both Goliath and Microsoft. The answer, in retrospect, appears perfectly clear. Goliath should have simply reshaped his body into that of a lean, mean, sprinting machine and become skilled with the sling. Microsoft should have abandoned its obsession with Windows and focused on new, innovative products that would cannibalize Windows.

Or not.

There is always an easy solution to every human problem—neat, plausible, and wrong. ~ H. L. Mencken

The above is all perfectly good advice…assuming one knows absolutely nothing about human beings. Not only does this course of action run counter to human nature, it runs counter to common sense, too.

PATIENT: Doctor doctor, I’ve broken my arm in two places.
DOCTOR: Hmm, I’d advise you not to go back to either of those places then.

Telling someone to do what no sane person in their their position would do is not really good advice, it’s madness.

Too bad that all the people who know how to run the (company) are busy driving taxicabs and cutting hair. ~ George Burns

It’s easy for those of us who have have absolutely nothing to lose, to blithely provide radical advice to those who have everything to lose. But it’s also easy for those who have “skin in the game” to reject such wrong-headed advice. If either Goliath or Microsoft had taken the above-prescribed advice, it would have been a case of curing the disease by killing the patient. ((Cure the disease and kill the patient. ~ Francis Bacon, Essays [1625]. Of Friendship))

Microsoft Is Like A Trust Fund Baby

Microsoft does have one major advantage that most disrupted companies do not. Microsoft has — and will continue to have for quite some time to come — a huge stream of income.

This means that Microsoft can, unlike, for example, Palm, Nokia and Blackberry, make the changes necessary to survive. Their resources give them the time that most companies are denied.

But just because they can do something, doesn’t mean that it would be easy to do and just because they can do something doesn’t mean that they will choose to do it either.


When evaluating companies, and in particular their executives, I find it useful to start with the assumption they’re highly intelligent. ~ Ben Thompson

Was Ballmer a bad manager or was he a victim of innovative disruption? I have no doubt that Ballmer made some serious mistakes. But it was not what he did wrong, but what he did “by the book” that got Microsoft into the mess that it’s in today.

A man is known by the company he organizes. ~ Ambrose Bierce

In the long view, you can’t really criticize Ballmer and Microsoft ((“But why would anybody want that CEO job as long as Bill stays on the board? (Steve, too, most likely, given that he still owns 333 million Microsoft shares.) Both need to quit to give the newcomer a free rein and air to breath. Otherwise, failure isn’t just an option, but the most likely outcome.” ~ Joachim Kempin)) for striving to do what they do best. It’s innovative disruption, not Ballmer, that’s sinking the good ship Microsoft. ((“Microsoft’s next CEO will need to be Superman. Here’s the mess Steve Ballmer will leave for his successor:  
–Windows 8 has failed to produce a turnaround in Microsoft’s gradual decline.
–The Surface tablets have more or less died in the market.
–The company’s just been through a massive top-level organizational change. Those things typically take a year to trickle down through the organization, as the lower levels of management get resorted and reassigned. That process will be disrupted while everyone waits to see if the new structure will stick with the new CEO (unlikely; new CEOs almost always want to change things).
–And now Microsoft needs to mesh the Nokia and Microsoft businesses. There’s a cultural challenge: Nokia’s is a collectivist Finnish hardware company while Microsoft is a dog-eat-dog hypercompetitive software business. There are also operational challenges. As I learned when I worked at Palm, it’s incredibly difficult to manage an operating system to please both your in-house hardware team and your licensees. They always want conflicting things. Microsoft claims it can both license Windows Phone and run Nokia. I hope that’s just bluster, because I don’t think it will work in practice.” ~ Michael Mace))

I must be willing to give up what I am in order to become what I will be.” – Albert Einstein

Ballmer: The Good, The Indifferent, The Bad and The Analysis

QUESTION: Why is it when birds fly in a “V” shape one side is longer?

The answer will be provided, below.

Part 1 of 2

Microsoft’s Steve Ballmer is going to retire within the next 12 months. There’s a lot of ground to cover, so let’s get to it.

One of the most striking differences between a cat and Steve Ballmer is that a cat has only nine lives. ((With my apologies to Mark Twain for stealing and re-purposing his prose.))

1. The Good


The surest way to make a monkey of a man is to quote him. ~ Robert Benchley

images-72Ballmer gets a lot of grief for what he says, what he says it about, what he does and how he looks. He does, admittedly, have an eerie resemblance to Uncle Fester from the Adams Family.

But let’s set all that aside. You’ve got to get off the guy’s back and cut him some slack. The man is high energy and fun. The world would be a lot better place if more people put as much of themselves into their work as he does.


Besides, Ballmer is the sales guy. Firing up the troops is part of his job. And he does that job exceptionally well.

The secret of life is honesty and fair dealing. If you can fake that, you’ve got it made. ~ Groucho Marx

chartAnd speaking of doing one’s job, the job of the sales guy is to bring in the money. And NOBODY did a better job of bringing in the money than did Steve Ballmer.

Microsoft more than tripled its annual revenue from $22 billion annually when Ballmer took over to $78 billion when he announced his departure. To put that in perspective, while Ballmer was CEO, Microsoft grew revenue by $55B. Dell grew by $31B, Oracle by $27B, Intel by $19B, IBM by $16B. [Source: Aaron Levie (@levie)]


Oh yes. With all his heart and all his soul. And I honor him for it.

[pullquote]Steve Ballmer loved Microsoft…just not enough to leave it[/pullquote]

“This is an emotional and difficult thing for me to do. I take this step in the best interests of the company I love…” ~ Steve Ballmer

Steve Ballmer loved Microsoft…just not enough to leave it as soon as he should have. And for that, his legacy, and Microsoft, will have to pay a price.

2. The Indifferent

There were things about Steve Ballmer that I didn’t much care for, but they weren’t relevant to his demise. They were merely annoying. In terms of analyzing his tenure at Microsoft, I’m indifferent to them.


I don’t put all that much stock in the stock market’s knee jerk reactions to events, but I will admit that it’s kind of discouraging that the announcement of Ballmer’s resignation made shares jump as much as 9.4%. That’s good for a cool $28 billion in extra market cap value overnight. Not exactly a ringing endorsement.

Being a CEO is a poor way to make a rich living.


So much of what we call management consists in making it difficult for people to work. ~ Peter Drucker

Politicking is endemic in any big company, but Microsoft does seem to epitomize the very worst of this kind of behavior. And Ballmer apparently raised politicking to an art form.


If I seem unduly clear to you, you must have misunderstood what I said. ~ Alan Greenspan, Federal Reserve chairman

Microsoft has always had a bizarre communication style. To be truthful, it sometimes hurts my head.

Perhaps Bill Gates and Steve Ballmer had the same, inscrutable, English teacher when they attended Harvard together. Perhaps not. In any case, Ballmer has the gentle touch of a blacksmith when it comes to word craft. For example, did you fully understand his recent reorganization tome memo? No?

Neither did anyone else.

Here’s a couple of snippets:

“The evangelism and business development team will drive partners across our integrated strategy and its execution.”

Say whaaaaaa…?

“Our focus on high-value activities—serious fun, meetings, tasks, research, information assurance and IT/Dev workloads—also will get top-level championship.”

Meetings…serious fun…top-level championship…Come again?

“In the new, rapid-turn world, we need to communicate in ways that don’t just exchange information but drive agility, action, ownership and accountability.”

As Curt Woodward so charmingly puts it: “You’ve got to love a passage about communication that makes almost no sense….”

If you’re a glutton for punishment, there’s way more where that came from. Knock yourself out.

There are worse things in life than death. Have you ever spent an evening reading a Steve Ballmer Memo?

Poor communication is not really a fatal flaw, but still, Ballmer’s inability – or unwillingness – to communicate clearly didn’t help him any.


Steve Ballmer:

— “Linux is a cancer that attaches itself in an intellectual property sense to everything it touches.”

— “Google’s not a real company. It’s a house of cards.”

“Zeal without knowledge is fire without light.” ~ Thomas Fuller

— “(T)here will be 30 million Windows Phone 7 smartphones sold in 2011.” ((Say, what ever happened to Windows Phone 7, anyway?))

“500 million people will be using Windows 8 (in 2013).”

Underpromise and overdeliver. ~ Thomas Peters

— “There’s no chance that the iPhone is going to get any significant market share. No chance.”

— “(W)e are not going to let any piece of this [go uncontested to Apple].” … We are not leaving any of that to Apple by itself. Not going to happen. Not on our watch.”

The words you speak today should be soft and tender … for tomorrow you may have to eat them.

I think that part of Ballmer’s bombast comes from his sales background. But personally, I could have done with less of it.

Boasting is not courage. – African proverb


I make mistakes; I’ll be the second to admit it. ~ Jean Kerr

Excerpt from: Ballmer just opened the second envelope:

“Ballmer’s view of executive leadership doesn’t admit standing up and taking responsibility. He can’t say ‘I screwed up’ and then explain what he’ll do to rectify the situation. No. Instead, (Lieutenants) are fingered while they pretend they aren’t being blamed.

When questioned about Apple overtaking Microsoft, Ballmer had this to say: ‘It is a long game. We have good competitors but we too are very good competitors,’ he said. ‘I will make more profit and certainly there is no technology company on the planet that is as profitable as we are.’

When it comes to profits, Ballmer is willing to take credit.”

“A man can fail many times, but he isn’t a failure until he begins to blame somebody else.” ~ John Burroughs


People complain that Ballmer wasn’t a software guy, wasn’t a product guy, wasn’t a visionary. But Ballmer wasn’t hired to be a visionary.

You may as well expect pears from an elm. ~ Miguel de Cervantes

Bill Gates had set the course. What the board wanted from Ballmer was a steady hand at the tiller that would follow the course that had been laid in for him and to follow that course with all due speed. And that’s exactly what Ballmer did — in spades.

“If you see Ballmer’s job as being the preservation of MS’s position on the desktop, he’s certainly been a success. Microsoft’s real customers, IT departments, still trust Microsoft and still buy from them, mainly because Microsoft treats them very well. You say Ballmer’s a failure because he hasn’t been “disruptive”? His customers don’t want disruption…. ~ In defense of Ballmer

[pullquote]Ballmer thought he was both the skipper and the pilot[/pullquote]

There’s nothing wrong with having a non-visionary at the helm. There are lots of non-visionaries at the helms of large corporations. The trick is to know that you’re not the pilot and to find a pilot (visionary), that you trust, to advise you.

If Ballmer had a failing as a captain, it might have been that he thought he was both the skipper and the pilot.

3. The Bad


Two campers named Ballmer and Gates are walking through the woods when a huge bear appears in the clearing about fifty feet away. The bear (which owns a huge block of Microsoft stock) sees the campers and begins heading toward them.

Gates drops his backpack, digs out a pair of sneakers, and frantically begins to put them on. Ballmer says, “What are you doing? Sneakers won’t help you outrun that bear.”

“I don’t need to outrun the bear,” Gates says. “I just need to outrun you.”

Technically, Ballmer may have fallen on his metaphorical sword – but only because the Microsoft board was already ushering him before their metaphorical firing squad.

“I think it’s very likely that Ballmer’s decision [to retire] is part of a broader strategy within Microsoft as expressed by the reorganisation in July that is geared toward shifting the corporate culture.” ~ David Cearley of Gartner

Poppycock. ((Look that word up. I think you’ll be surprised by its origin.))

The evidence that it was a recent and sudden decision to abandon Ballmer to the bears is overwhelming:

  • Interviews with dozens of people indicate that Ballmer had not aimed to leave this soon.
  • One former senior executive said: “It’s a total shocker.”
  • He was definitely not leaving and then he suddenly was,” said one source.
  • He was at the very beginning of a major corporate restructuring that consolidated power to himself.
  • Ballmer’s July restructuring announcement made it crystal clear that he was there to stay. ((“Lots of change. But in all of this, many key things remains the same. Our incredible people, our spirit, our commitment, our belief in the transformative power of technology — our Microsoft technology — to make the world a better place for billions of people and millions of businesses around the world. It’s why I come to work inspired every day. It’s why we’ve evolved before, and why we’re evolving now. Because we’re not done. Let’s go.”)) (“It’s why I come to work inspired every day … Because we’re not done. Let’s go.”)
  • He clearly lost the backing of Bill Gates — notice how his farewell letter didn’t thank or even reference Gates?
  • The board gave themselves 12 months – TWELVE MONTHS – to find a successor. They were clearly unprepared.
  • Finally, I find the implied logic contained in the following tweet to be totally persuasive:

Not to be cynical but who decides to retire without “spending a lot of time thinking about what comes next?” Just saying… ~ Lessien (@Lessien)

Diplomacy is the art of saying ‘Nice doggie’ until you can find a rock. ((Will Rogers)) The Microsoft Board just found themselves a big ol’ rock.


Ballmer writes in his farewell memo:

There is never a perfect time for this type of transition, but now is the right time.

No. It’s not.

They’ve just completely recreated the company in a pattern that’s totally alien to most organizations of their size. ~ Guy English

The just announced reorganization consolidated power with the CEO. Announcing one’s retirement right after an audacious power grab doesn’t make any sense for either Ballmer or Microsoft.

The timing is painfully awkward. I think that Guy English is spot on when he says:

Microsoft is currently searching for a new CEO who’ll fit the straight jacket Steve Ballmer has left behind.

Just a disaster in the making.


Microsoft PriceDo you really want to know why Ballmer is being left to the bears? Feast on this chart.

On the last day of 1999, the day before he took over as CEO, Microsoft’s market capitalization was $600 billion. On the day before he announced his intention to retire, it was less than $270 billion. ~ John Paczkowski

When Ballmer became CEO, Microsoft had a market value of $604 billion … Now, Microsoft’s market value is $269 billion, less than half of its value when Ballmer came to power. ~ Excite News

For a guy who said that helping Microsoft’s stockholders was a big part of his job, he did one lousy job.


Don’t judge each day by the harvest you reap, but by the seeds you plant. ~ Robert Louis Stevenson

Flat stock market not enough justification to fire Ballmer? How about the loss of Microsoft’s all important computer operating system monopoly?

Screen Shot 2013-07-20 at 9.32.23 pm

Microsoft’s share of connected devices sales (in effect, PCs plus iOS and Android) collapsed from over 90% in 2009 to under a quarter today.

Screen Shot 2013-07-20 at 9.23.57 pm

And Microsoft is nowhere in mobile. And mobile is where all the growth is occurring.

[pullquote]Should we be shocked that Ballmer lasted as long as he did?[/pullquote]

Looking at the above two charts, should we be shocked that Ballmer is being pushed out the door or should we be shocked that he lasted as long as he did?

I’m not going to write a long Ballmer blog post. He did some great work, but Microsoft is absent from mobile and mobile is all that matters. ~ Benedict Evans (@BenedictEvans)

Wow. That about says it all. Mobile is everything and (for analysts more discerning than I) dissecting Ballmer’s demise isn’t even worth the effort. It’s the ultimate dis.


In the first quarter of calendar 2013, iOS accounted for 75 percent of total device activations among enterprise users, Good Technology’s latest Mobility Index Report revealed on Wednesday. The remaining 25 percent were Android devices, while other platforms took less than 1 percent.

Tablets are now so popular among business users that they accounted for 27 percent of total device activations in the workplace in the first quarter. ~ Good Technology

Were you wondering if the Enterprise was going to bail Microsoft out? Stop wondering.


“There’s no chance that the iPhone is going to get any significant market share. No chance.” ~ Steve Ballmer

Remember how I was saying earlier that no one made money the way Steve Ballmer did? Well, that wasn’t quite accurate. Actually, a single Apple product—the iPhone—now generates more revenue than all of Microsoft put together. ((Apparently, if you’re a Nobel prize winning economist, the only possible conclusion you can draw from this information is that Apple is in much worse shape than Microsoft. Go figure.))


Give that some time to sink in.


A Windows Mobile Phone, a Zune, a Kin, and a Windows RT Tablet, WALK INTO A BAR and the bartender says, ‘What is this? Some kind of joke?’ ((AN ENGLISHMAN, AN IRISHMAN, A SCOTSMAN, A RABBI, A MINISTER AND A PRIEST WALK INTO A BAR and the bartender says, ‘What is this? Some kind of joke?’))

Steve Ballmer missed on search, tablets, phones, MP3 players, the consumerization of IT…the list goes on and on. As Nicholas Thompson of The New Yorker wrote: “Ballmer proved to be the anti-Steve Jobs” in his tenure. “He missed every major trend in technology. His innovations alienated people.”

Once a new technology rolls over you, if you’re not part of the steamroller, you’re part of the road. ~ Stewart Brand


[pullquote]There’s more birds on that side[/pullquote]

QUESTION REDUX: Why is it when birds fly in a “V” shape one side is longer?

ANSWER: There’s more birds on that side.

* * * * *

Sometimes answers are complex. Sometimes they’re dumbfoundingly simple.

Sometimes the questions are complicated and the answers are simple.” ~ Dr Seuss

In Part 2, I’ll explore WHY Steve Ballmer and Microsoft failed. Is it as simple as saying that Steve Ballmer was a bad CEO? Or was his end inevitable and preordained by the Innovator’s Dilemma? Or was it something else entirely?

Discovery consists of seeing what everybody has seen and thinking what nobody has thought. ~ Albert Szent-Györgyi von Nagyrapolt

Join me next time and we’ll thrash it out together.

The Anatomy of an Iconic CEO Firing

Unless you were on vacation in Alaska last week, you know that Microsoft announced that CEO Steve Ballmer would retire in 12 months and that a special board committee had been formed to find his replacement.  The departure was positioned as voluntary, but there has been a lot of pontification and doubt about that claim.  I personally doubt CEO Steve Ballmer left voluntary and believe he had some pushing from the board.  After personally watching many CEOs come and go, I thought it would be valuable to share some insights from my nearly 25 years of Fortune 500 company experience so you can arrive at your own conclusion. 

The first thing I want to stress is that some CEOs do actually leave the company voluntarily.  There are a few key signs to look for:

  • Public succession planning process named the replacement 6-12 months before the old CEO leaves
  • The old CEO takes the chairman of the board seat (don’t be fooled by just a seat on the board or chairman emeritus)
  • CEO is of retirement age
  • CEO leaves the company and goes immediately to another company
  • CEO cites family or health challenges (don’t confuse with the “leaving to spend more time with the family” schtick)
  • Company’s stock performance has outperformed their peers

It’s important to get into the head of the board of directors, because they really call the shots when it comes to firing a CEO.  When it comes to CEO hirings and firings, the board is there to not only find the right people, but also to make sure that when firing a CEO, the company looks as good as it can.  They balance throwing the CEO under the bus versus the downstream implications to other stakeholders like investors, employees, suppliers, and customers. If throwing the CEO under the bus makes the company look even more screwed up or even mean, they will opt to position the departure as an amicable departure.  If publicly and openly taking out the CEO makes the company look good, they’ll do that.

The best case scenario for a board who wants a new CEO is to quickly drive them to quit on their own and orchestrate events to make it look amicable.  This happens every day in corporate America. Typically, the CEO will be pulled into a special meeting where the board will express their displeasure in something the CEO or the company has done or that the board has been “thinking” that something should change.  The board then makes what the CEO believes is an untenable request.  That request could be to hit a specific metric in a specific time or just a dictate of a decision they’d like the CEO to make.  The CEO either quits on the spot under a specific separation package or after the meeting.  The board has been through this many times and it works like clock-work.

Now let’s get into the head of the departing CEO whose board doesn’t want them anymore.  The departing CEO wants to save as much face as possible, as their friends, family, business associates and potential future employer are watching.  Their desire is to position the exit as their decision, not anyone else’s, and certainly without a board commenting poorly on past performance or decisions.  Departing CEOs don’t want to be perceived as having been leaving mess, because no future employer wants that carry-over drama.

So what does a firing positioned as an amicable separation look like?  Here are a few signs, which, in some sense, is the antithesis of a CEO actually leaving on their own:

  • CEO leaves well before the board’s succession plan called for
  • CEO didn’t leave immediately for another company or cite health or family problems
  • CEO leaves well before a turnaround is complete
  • Company’s stock under-performs their peers
  • CEO isn’t invited to take the chairman seat
  • CEO leaves after a major and very public company gaffe

Microsoft’s Steve Ballmer made some very telling comments in ZDNet’s Mary Jo Foley’s interview.

“Q: When did you actually decide you were going to retire? Was this a sudden decision?

Ballmer: I would say for me, yeah, I’ve thought about it for a long time, but the timing became more clear to me over the course of the last few months. You know, we worked hard. We worked hard on our strategy process, our org process. And frankly I had no time to think about it during all of that…. I would say my thinking has intensified really over the last couple, two, two and a half months, something like that.” 

“Q: So when did you finally decide?

Ballmer: Officially, a day or two ago. We had a board call. When was that, two days ago? And it was really two days ago … I would say that we really — I finalized and we finalized that this was the right path forward.”

“Q: What’s next for you now?

Ballmer: Frankly I don’t know. I haven’t spent a lot of time — I don’t have time to spend actually even thinking about what comes next. I’m not going to have time to do that until the board gets a successor in place.My whole life has been about my family and about Microsoft. And I do relish the idea that I’ll have another chapter, a chapter two, if you will, of my life where I’ll get to sort of experience other sides of life, learn more about myself, all of that, but it’s not like I leave with a specific plan in mind.”

What I don’t fully understand is that if this has been in the works for years with intense thinking over the past few months, why no ideas about next steps?

“Q: What are you guys looking for in a successor?

Thompson: Well, we’ve had a process underway for quite some time to think through what the attributes of the successor would need to be. We’ve worked with an outside firm, Heidrick and Struggles, to help us define that. But I don’t think we’re ready to declare that externally at this point in time. We are well down the path in the search, and hopefully in some reasonable amount of time we’ll have a new leader.”

Similar point here.  If this has been in play for years with intense activity over the last few months and if the new strategy and org is so sound, why doesn’t the board know of the characteristics they want in a new CEO?  Were they trying to save face for Ballmer here?

So, did Ballmer leave on his own or was he motivated or pushed by the board to leave?  I’ll let you make up your own mind.  I urge you to read Microsoft’s press release and also Ballmer’s letter to the troops. I believe, based on my experiences with large companies the last 23 years that Ballmer was pushed to leave or was put under some very aggressive directives by the board.  What do you think?