If Steve Ballmer’s decision to step down from the board of Microsoft was sudden, it wasn’t a surprise.
Once Satya Nadella stepped in as CEO and started changing Microsoft from a devices and services company to one focused on productivity and platforms, Ballmer had to go. "Cloud first, mobile first," became the new mantra.
In an open letter to Nadella, Ballmer explained that he thinks it would be impractical for him to stay on the board. Ballmer's commitment to Microsoft is clear. “I bleed Microsoft — have for 34 years and I always will,” he said in the letter. Microsoft, though, doesn’t really care. It's already ancient history.
He's Got Plans
If Ballmer is sorry to go, it doesn’t really show. He’s going to be busy, but you’d expect that, given that he just took over the Los Angeles Clippers. "I see a combination of the Clippers, civic contribution, teaching and study taking a lot of time,” he wrote.
Neither the company nor the man will be short on bucks. At current market value, his holding in Microsoft is about 4 percent, worth in the region of $15.1 billion.
In fact, since he announced he was stepping down from the position of CEO this time last year, the price of Microsoft shares has jumped 39 percent following almost a decade of stagnation. If Ballmer was ready to go, the markets were clearly ready for him to go, too.
Open Board Seat
The reactions to yesterday’s announcement have been pretty much positive and no one seems concerned about the new leadership. His departure continues the reshaping of Microsoft’s board that included the appointment of technology executive John Thompson as chairman when Bill Gates stepped down in February as well as the appointment of an outside director from ValueAct Capital Management to keep shareholders happy.
The departure of Ballmer, in fact, effectively ends the active role of Microsoft's two most important figures — Gates and Ballmer — and not a minute too soon. The world of technology is changing and Ballmer didn’t seem to be able to push Microsoft into a universe of cloud computing, services, mobile and, in the near future, the Internet of Things.
In fact, earlier this year, Thompson suggested he was moving too slowly to redirect the company in the current climate. During a conference call about mobile, Thompson even quipped : "Hey, dude, let's get on with it... We're in suspended animation."
So along came Nadella. During the search for a new CEO, there was talk that, even with Ballmer out of the CEO’s chair, the new leader would work under Ballmer's shadow as long as he was on the board. That was true especially because the road that Nadella chose marked a shift in direction from the old Microsoft.
Nadella has only been in there six months and his daring — daring for Microsoft, that is — is breathtaking. He has released Office for iPad, which rumor has it was developed under Ballmer, but kept in storage for fear that it would impact on Microsoft’s Office business. Nadella also oversaw the release of a free version of Windows for devices that had screens less than nine inches.
On top of this he changed the entire release cycle for Windows by announcing regular upgrades as soon as they are developed, and not as a single major release once a year. Office 365 has also been opened up and he has made its roadmap transparent, enabling enterprises plan where their productivity spending will go.
Less positive, but probably inevitable given the money shelved out for Nokia phones, he announced last month that 18,000 Microsoft employees will be let go over the coming year — about 14 percent of its workforce — which will also include a rethink of the whole Windows division, something that was absolutely unimaginable under Ballmer.
Leaving Ballmer Behind
When Ballmer took over from Gates as CEO in 2000, Microsoft’s business was focused on desktop software. During the Ballmer years, Microsoft made a lot of progress in the enterprise market with a strong focus on server software and tools. However, over this period, mobile started to emerge as a potent enterprise business and Microsoft was caught like a rabbit in the headlights — blind and reaching in all directions.
The result is that much of the last three years of Ballmer’s reign were focused on turning the company around and shifting from its licensed software model. That's not all that attractive in a world where Google, Apple and Amazon are selling services heavily into the enterprise space, and where Salesforce and Amazon are providing enterprise users with easy steps to the cloud.
Forrester’s Ted Schadler pointed out when Ballmer stepped down as CEO that Microsoft had three major enterprise challenges ahead. Those challenges remain the same today:
Home and Work: Microsoft needs to merge the worlds of work and home computing. With Windows and Office 365, it is in a strong position to do this, particularly with such a good performance around Office 365, but there’s competition out there from Google among others.
Software vs. Services: This may be easier said than done, but Microsoft needs to either dump, or drastically slim down, the software licensing model and focus on services. Current cloud technologies ensure that cloud-based apps are largely secure and up-to-date with initial capital outlay considerably less than software licensing. This will require not just a new business model, but also a change in mindset.
Mobile: Microsoft has to ensure that all its applications are available on all devices, which could pose problems for the company. With people working daily on Apple's iOS and Google's Android, Windows is no longer the platform that people use most in their lives. This should push Microsoft into the services camp faster than it might want, but if Office, or Skype, for example, don’t run equally well on all devices, consumers will dump them as quick as it takes to download a different app.
Ballmer’s final exit from Microsoft has been a low key affair, largely because once he had stepped down as CEO, his final departure was pretty much a fait accompli. Behind him, he leaves a Microsoft at a crossroads, but pointing in the direction of cloud, services and mobile.
While Nadealla has made a strong start over the past months, he still really hasn’t been tested, at least not in the way he will be when he leads Microsoft down a road that is, for it, untried.
Ballmer is only shuffling off to the sidelines though and has promised to help Nadella every way he can — after all, he bleeds Microsoft — and will retain his stock in Microsoft:
I hold more Microsoft shares than anyone other than index funds and love the mix of profits, investments and dividends returned in our stock. I expect to continue holding that position for the foreseeable future."
Neither is he letting go of his vision for Microsoft:
I have confidence in our approach of mobile-first, cloud-first, and in our primary innovation emphasis on platforms and productivity and the building of capability in devices and services as core business drivers."
Could there be a subtle threat in there? Only time will tell. At the press conference that Ballmer held to inaugurate his reign as owner of the Clippers basketball team, he told an almost hysterical audience that everything is about the future. “From here on it's about going forward;” he said. For Microsoft it definitely is, and without Ballmer in an executive position.
Where this goes from here is anyone’s guess, but it does leave Nadella firmly with his hands on the tiller. He takes Microsoft into the choppy waters of a mobile world filled with smaller, agile sharks happy to take a chunk of Microsoft business anytime they can.
The forecast is good, but it won’t be easy sailing.
Title Image: Los Angeles Clippers; Nadella: Microsoft