Steve Ballmer’s Microsoft

May 15, 2012. You can call Steve Ballmer many things, but you cannot call him the “the worst CEO of a large publicly traded American company today,” as Forbes’ Adam Hartung did in a recent article. It’s easy to see Microsoft as a bumbling fool of the tech world, but when you look closely at its business, the company’s core competencies, and Ballmer’s decisions, a coherent picture begins to form. It’s a picture of a company being run from a very rational and respectable set of philosophies.

While Microsoft is no disruptive force in tech today, the truth is that it has never been. The company’s core competency is a process it uses for entering and consuming existing industries. After it enters a market, it rides off the innovations of its competitors, uses its existing brand power and sheer size to tackle a large surface area at the bottom of the market, and then, finally, it develops a valuable platform on top of the new market. As the platform grows, it slowly squeezes out the existing players.

The results speak for themselves: Windows, Office, Windows Mobile, servers, business solutions, and Xbox. The process works.

Microsoft’s talent is in understanding the power of platforms. Before anyone was talking about the Facebook Platform or the App Store, the biggest ecosystem of all was quietly running the world’s computers: the operating system. Microsoft knows how important it is to own the platform. Their attempts to secure control of it in each industry is a recurring theme in everything they do, including their three most important business units: Entertainment & Devices (mobile and gaming), Business/Server & Tools (enterprise solutions), and Windows.

Mobile #

Microsoft’s execution in mobile has been excellent. I know that probably sounds ridiculous, but here’s what I’m thinking: in 2007, the company found itself in the middle of a crowded street with its pants pulled down; Windows Mobile was a piece of junk and there was nothing good in the pipeline. After the iPhone, Microsoft apparently had an epiphany and made the difficult decision to start over. Kudos to them for doing that, because starting fresh is the only true way to win when you’re competing against a new, totally disruptive force.

Shockingly, Windows Phone 7 is really good. It’s genuinely good software, which is more than I can say about other things Microsoft has shipped. That’s a good sign, isn’t it? More than that, though, the company has managed to realize that the most important pieces of Apple’s iOS ecosystem–including the exclusivity of apps and the strict platform design constraints on users, manufacturers, and developers–are far more important than the raw software approach Microsoft is used to taking. Microsoft deserves more credit for identifying these potential advantages, adopting them, and making them work.

Long term, assuming Microsoft can use its 600lbs to force adoption, I think Windows Phone 7 will be a better platform experience than Android. With Nokia as a close partner, WP7’s chances are even better. (Update Aug 2013: this was written a while ago, and, obviously, Windows Phone will not succeed in the market, even with Nokia’s help.)

How could Microsoft have executed better in mobile? I can’t think of many ways, even in hindsight. They were slow. But everyone was.

The Enterprise #

Microsoft is not a PC company. It’s not a mobile company. It’s not a gaming company. It’s not even really a software company. When it comes to making money, Microsoft is an enterprise services company. It provides a nebulous “solution” to the enterprise which is difficult to comprehend as a single cohesive product. Microsoft offers large businesses things not many others can: reliability, consistency, and end-to-end solutions.

Microsoft makes an endless quantity of software that is alluring to big businesses, like Office, SQL Server, Exchange, SharePoint, etc… The list goes on and on, and each of the pieces fit together like a beautiful profit-building puzzle.

Unfortunately, people tend to discount enterprise software as unimportant fluff, especially when compared to the sexiness of products from other companies and industries. But the numbers do not lie.

The Numbers #

Here’s operating income by business unit from Microsoft’s last quarter:

3,770 M Business Division

2,952 M Windows

1,738 M Server & Tools Division

(229) M Entertainment and Devices

(479) M Online Services

6,374 M Total income

If you compare Microsoft’s earnings history to these recent numbers, the trend is clear: solving problems for companies that have a lot of money is very lucrative. Microsoft’s strategy, smartly, has been to focus on them. Most new consumer-focused initiatives lose money, and those failings are disproportionately public, hence the negative sentiment toward Microsoft as a company.

Good enough and better #

Ballmer has led Microsoft through an insanely tumultuous twelve years. The entire technology industry has dramatically changed at least three times. Some companies are lucky to last through one major industry change. Ballmer and Microsoft have identified each of these shifts and then doubled down on owning the platforms of the future. The strategy often fails. But sometimes it succeeds, and the successes more than make up for the failures.

I don’t think it’s fair nor constructive to hold Microsoft to a standard very much higher than the one it currently adheres to. Microsoft, as an enterprise services company that also builds occasionally successful consumer products, is undeniably successful. While the future for Microsoft is not so clearly defined, the past has grown out of a series of rational decisions.

Unfortunately, while fiscally rational decisions have been good enough to get Microsoft to where it is today, such decisions have never and will never catapult a company into the top of the future. It’s the difference between a CEO who is good enough and one who is better. Ballmer, I think, is firmly in the good enough camp.

He might even be slightly better, because we should not forget this very consistently true fact: Microsoft makes around $5.5 billion every three months. In pure profit.


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