The news of Microsoft boss Steve Ballmer’s exit from Microsoft was greeted with a level of exuberance that would be enough to bruise the ego of even the toughest executive. But Steve Ballmer is probably as tough as they come.
Ballmer’s decision to step down sent Microsoft shares soaring seven per cent, a reflection of just how badly the market wanted to see the back of Ballmer. Simply put, Microsoft watchers and investors couldn’t wait for him to leave and their derision towards his tenure was palpable.
But don’t expect Ballmer to shed any tears. The outgoing Microsoft CEO owns eight per cent of Microsoft, so the share spike adds more gold to his burgeoning bank balance; and once the euphoria wears off the real question is, who does Microsoft hire to wear Ballmer’s crown?
It won’t be Bill Gates and it won’t be Steve Sinofsky, the former head of the Windows division, who was shown the door in November last year. So is Microsoft better off bringing in an outsider to run the company?
There a couple of candidates that immediately come to mind. Nokia boss Stephen Elop, a Microsoft man through and through, is on the pointy end of Microsoft’s challenges in the mobile space. Microsoft is struggling to find relevance in the mobile world. It got into the game late and its belated attempts to make a mark in the space have so far been lacklustre. Forging the relationship with Nokia is part of that concerted effort on Microsoft’s part and making the Nokia-Windows Phone combo work is Elop’s core objective,
Microsoft could take the existing relationship to another level by making him the CEO. Elop was the head of Microsoft’s Business Division, so legacy isn’t an issue here and understanding the byzantine corporate culture of Microsoft would be a big plus. Navigating the post-PC landscape will need a steady hand and the time spent so far at Nokia should serve Elop well.
Meanwhile, the other name doing the round is Satya Nadella, the man currently running Microsoft’s Cloud and Enterprise group. The group is Microsoft’s key profit centre and the one thing that Microsoft has going for it is its dominance in enterprise solutions. As Forrester analyst JP Gowender points out, MS Office is still a hit success and Windows Azure is a fully-fledged contender in the cloud services market. Microsoft Exchange and its Server and Tools offerings remain entrenched in enterprises.
Nadella is at the heart of a lot of these initiatives and his previous experience with the online services division and the business solutions unit mean that he has sufficient knowledge across Microsoft’s overall portfolio.
Both Elop and Nadella make a compelling case but there is also a bevy of former Microsoft executives who could all be in the running.
"IBM or GE moment"
But judging their suitability comes down what sort of a CEO Microsoft needs right now. A like for like replacement for Ballmer is probably the last thing the company needs, especially at a time when the underlying environment is changing so significantly.
Ted Schadler, VP and principal analyst at Forrester Research, says at some point Microsoft is going to have to face its “IBM or GE moment”. According to Schadler, an environment where the lines between personal and environment are blurring – where software is giving way to services – means that the Ballmer-era is quickly becoming a relic.
The software to service shift, according to Schadler, will push Microsoft to flatten its business model and “drive a massive shift to subscription pricing regardless of the deployment model”.
“This force will push Microsoft to consider separating its businesses into something like business, consumer, and entertainment,” Schadler says.
Perhaps the biggest challenge for Ballmer’s successor will be to reposition Windows as a platform that can compete with Apple and Google. Schadler says this repositioning will push Microsoft faster towards services and also drive the consumer business away from the enterprise business.
“When Steve took over from Bill as CEO of Microsoft in 2000, the company's revenues were $21 billion and the business was led by desktop software. Under Steve's guidance, Microsoft made massive inroads into enterprise server software and tools while investing, but not really winning, in consumer services, and certainly not in mobile devices,” Schadler says.
“At the same time, the world has moved faster than Microsoft's licensed software business model could respond. Apple, Google, and Amazon have become enterprise suppliers. Salesforce.com and Amazon are accelerating the shift to cloud computing. Dropbox has grown from zero to 175 million users in five years.”
The outsider imperative
Does Microsoft have anyone in its existing roster who can handle the challenge? Possibly – but analysts aren’t convinced. Microsoft’s growth under Ballmer was undeniable but it did come at the price of innovation and the entry of an outsider just might be the catalyst the company needs.
Right now the list of external candidates leaves no stone untouched. From Facebook COO Sheryl Sandberg to former Apple exec Scott Forstall, it covers all possible bases and no doubt new names will be thrown into the mix.
The biggest hurdle for any outsider will be Microsoft’s corporate culture, a stultifying manifestation of all that is wrong with big incumbents. Breaking down the siloed thinking and methodology will need an executive with sufficient wherewithal to impose their imperative.
Microsoft, like Dell and HP, is facing a tipping point where the role of technology has undergone a change. The competitive landscape has changed – PC sales are slumping, Windows as a platform is losing its shine and the problem for all big vendors is that the fundamentals of selling hardware and software at a premium are weakening. The enterprise side of things still brings in the dough but the consumer-focused business is terminal.
The best an outsider can bring to Microsoft is a much-needed perspective that allows it to reconnect with consumers. This reconnection needs to happen not within the framework of an enterprise-consumer dichotomy but rather as one cohesive pitch to consumers, where innovation is again brought centre stage. The last person to make that happen for Microsoft was Bill Gates and Microsoft has 12 months to find someone who can channel Gates’ chutzpah for combining innovation with engineering and ensure that Microsoft still has a place in our lives, once PCs become a thing of the past.