Microsoft's coming heart-attack moment

The company has become rich, fat and gray, but it's in denial. Isn't it past time for Ballmer to be shown the exit?

I've been saying for a while now, ever since it became clear just how dreadful Vista was going to be, that Microsoft was starting its long, slow decline. Now, others are jumping on the dump-on-Microsoft bandwagon.

Most damning of all, Goldman Sachs has downgraded Microsoft from "buy" to "neutral," spit on the company's feeble mobile computing efforts and suggested that Microsoft divide itself into consumer and enterprise divisions .

It couldn't happen to a nicer company -- well except for Oracle. Microsoft got to the top not by delivering great products -- ever -- but by Bill Gates' white-shark approach to business competition. Even after the Department of Justice slammed it with an antitrust suit, weak enforcement left Microsoft to continue on its way. It was only after Gates left on July 1, 2008, that the company started to lose its mojo.

The first mistake was picking Steve Ballmer as CEO. Ballmer was then, is now and always will be a fine business-to-business salesman. That's it. As I write this story, in early October, Microsoft has a market cap of $206.91 billion. That's well behind Apple's $ 254.56 billion. If you had asked anyone in the summer of 2008 whether Apple would be worth almost $50 billion more than Microsoft, they would have laughed themselves silly. No one, least of all in Redmond, is laughing now.

Ballmer started out by striking out over and over again. Vista was a flop of monumental proportions. The Yahoo deal had just crashed and burned. And Microsoft Office sales had actually declined.

Fast forward to 2010. Microsoft has a worthwhile desktop operating system in Windows 7. Yes, I, a noted Linux supporter, just said something nice about Windows. Mind you, Windows is still as insecure as ever, but other than that, Windows 7 is quite good. So was XP SP3, and over two-thirds of Windows users have continued to stick with it. You don't have to believe me, though. I think Microsoft pulling the Windows 7 Family Pack discount deal out of its pack of sales tricks tells you everything you need to know.

Some of Microsoft is doing quite well. Xbox, for example, continues to make money. Too bad that Bing, Microsoft's search engine, hemorrhages so much cash. And the less said about Microsoft's incredible Kin mobile phone fiasco the better, as far as Microsoft stock owners are concerned.

Kin, though, illuminates a point that Matt Rosoff, an analyst at Directions on Microsoft, made: "For all of Microsoft's talk, none of the synergy between the consumer and enterprise sides has panned out." He's right.

Under Ballmer, Microsoft's lack of coordination between enterprise and consumer keep tripping up the company. As Microsoft's board put it when it didn't give Ballmer his full bonus, problems have included "the unsuccessful launch of the Kin phone; loss of market share in the company's mobile phone business; and the need for the Company to pursue innovations to take advantage of new form factors."

So what has Ballmer done to advance Microsoft in these areas? Well, after announcing that Microsoft was coming out against software patents (yes!), Microsoft announced that it was suing Motorola for violating its software patents in its Android phones (no!). Did I mention that this was about a week before Microsoft announced its latest and much-unanticipated attempt to deliver a mobile phone operating system that anyone will give a damn about?

Excuse me, but this is not the way to win friends, or, more to the point, customers.

I see Microsoft as having several choices. First, it can kick out Ballmer and jettison its current bureaucratic management style and get someone who can lead Microsoft into being a truly innovative company. Nah, that's not going to happen.

OK, so Microsoft could split itself into smaller, more nimble companies that could ... ah ... no, that's not going to happen either, is it?

All companies age and get slower off the mark. Microsoft has moved into its rich, fat and graying stage. People both inside and outside the company know that it's happening, but Microsoft isn't ready to stop eating steak and avoiding exercise yet.

Eventually, a massive failure or two, the corporate equivalent of a heart attack, will either get the company to make necessary changes or it will slowly -- very slowly -- die. Some companies can do this. IBM managed it. General Motors seems to be doing it. Microsoft is still in denial. Its moment of crisis has yet to arrive. It will, though. As Microsoft continues to totter into the future, the day will come when it falls. The question then will be: "Can Microsoft pick itself back up?" We'll see.

Steven J. Vaughan-Nichols has been writing about technology and the business of technology since CP/M-80 was cutting-edge and 300bit/sec. was a fast Internet connection -- and we liked it! He can be reached at sjvn@vna1.com.

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