Steve Ballmer Is Not Going Anywhere

Microsoft’s (NASDAQ: MSFT) CEO Steve Ballmer is not going anywhere. Some analysts say that the company’s performance at CES was poor. The world’s largest software firm said sales of its Kinect video game device exceeded expectations. But, its presentations and claims about the Window mobile product were roundly criticized. There is no evidence that Microsoft has software that consumers or handset companies prefer to Google’s (NASDAQ: GOOG) Android.

Microsoft’s largest problem remains that the market share of Windows has been hurt by new operating systems and that it is only a matter of time before this undermines the company’s financial results.

Ballmer pushed out the head of the firm’s profitable servers and tools division. Robert Muglia has been at Microsoft for 23 years. The operation has not been growing quickly, but its shares common problems with the larger Microsoft divisions. It becomes harder and harder to defend a huge franchise like servers and tools when competition increases every day. That level of innovation simply did not exist three decades ago.

Muglia’s departure raised the question again of whether Ballmer would be next. Microsoft’s share price has done very poorly since Ballmer replaced founder Bill Gates eleven years ago. Some analysts believe that if Gates returned Microsoft could recapture its primacy in the software sectors it ruled. That is not true. Microsoft’s problems run deeper than even Gates can address.

The other argument against Ballmer is that an outside CEO could turn the company around. This theory is based on examples like the move of Boeing (NYSE: BA) executive Alan Mulally to Ford Motor (NYSE: F). Ford’s problems were based on the recession, balance sheet problems, and a poor product line. The car industry does not face change which occurs at light speed like Microsoft does. There is no Mulally for Microsoft. Even Eric Schmidt of Google (NASDAQ: GOOG) or Steve Jobs of Apple (NASDAQ: AAPL) could not solve the majority of Microsoft’s problems.

Microsoft is an old company in the world of technology. It was founded in the early 1980s. Most of its competition is barely a decade old. Industry war horse Oracle (NASDAQ: ORCL) is much less than half of Microsoft’s size. Oracle does not have to defend nearly as many businesses against competition.

Ballmer’s problem is that Microsoft has to play defense in too many of its divisions. That is the nature of its  large market share. It is also the nature of a tech world in which innovation and successful new products do not usually come with a multi-billion price tag.

The board at Microsoft will not force Ballmer out. One reason is that he is the equivalent of a founder. His ouster would be an admission that Microsoft is deeply flawed. The other reason is that Ballmer is adroit on defense, and the board really cannot ask him to do much more than that.

Douglas A. McIntyre