“Google’s not a real company. It’s a house of cards.”
– Steve Ballmer
Transition times
In 2000, Microsoft was at the peak. Windows was everything and the new version, Windows 2000, was the first 32 bit implementation, bringing stability to an operating system notorious for the “blue screen of death” that had harrowed the earlier 16-bit versions.
Windows had changed to a modern, bold user interface with Windows 98 and Windows 2000 and the platform was set to continue to build the success of Microsoft Office and third party applications that changed the way we work and play.
Microsoft marketed Windows 2000 as the most secure Windows version ever at the time, however, it became the target of a number of high-profile virus attacks. For ten years after its release, it continued to receive patches for security vulnerabilities nearly every month until reaching the end of its lifecycle on July 13, 2010.
The dual success and failure with Windows 2000 is a telling allegory for the overall success and failure of Microsoft since the turn of the millennium. The same year Bill Gates retired. He was succeeded by Steve Ballmer, who had joined Microsoft in 1980, as Microsoft’s 30th employee, the first business manager hired by Gates.
Ballmer has been a highly energetic and sales focused Chief Executive. In the video below is one of his classic stage appearances, well worth watching.
Stagnations rules
“In History, stagnant waters, whether they be stagnant waters of custom or those of despotism, harbour no life; life is dependent on the ripples created by a few eccentric individuals. In homage to that life and vitality, the community has to brave certain perils and must countenance a measure of heresy. One must live dangerously if one wants to live at all.”
– Herbert Read, English anarchist, poet and critic
The quote above is important and the message was well understood by Bill Gates, however it is not clear if it was equally well understood by Steve Ballmer and his new executive team. Being a salesperson by heart and mind, Ballmer had been instated to ensure that Microsoft would cash in.
Microsoft emerged as the undisputed leader in the technology sector, and became the world’s largest company by market value. With the new look and technology of the company’s core product, the modern operating system, as envisioned by Bill Gates and launched with Windows 98 – 2000 and XP, it was thought that Microsoft’s growth would be unstoppable for the decade to come.
However this is not what happened, as can be seen in the table below.
The table shows the market value of some well known companies in 2000 and in March 2013, in billions of USD.
Microsoft shrank threefold from its market valuation peak during the dot-com boom. This despite Microsoft spending more than 115 billion USD over the last decade to buy back stock, with the intention that fewer shares in the market would push up valuation.
It can be difficult to see the long term trends in the short perspective, but now as Steve Ballmer has announced yesterday that he will retire within 12 months, I think some conclusions can be made.
Over the past ten years, Microsoft has struggled as both private and business consumers lost interest in desktops and laptops in favour of first simple netbooks and then more tablets and mobile smartphones and other devices. Whereas Microsoft Windows ruled the world in 2000, Microsoft failed to develop operating systems for the new world of connectivity and online based applications. Microsoft failed to innovate.
In fact, since 2000, Microsoft has successfully launched a series of incremental innovations, developing its core technology for ease of use, portability and technical stability, but it has failed to launch ANY radical or disruptive innovation. What makes things worse, it has also failed to counter the disruptive innovations from Apple and Google that has taken over both the business and consumer market. At the same time Office and Windows have clearly become less relevant.
“There’s no chance that the iPhone is going to get any significant market share. No chance.”
– Steve Ballmer in 2007, thinking that the iPhone was overpriced.
Why could Microsoft not make the iPad, iPod, BlackBerry or Kindle? After all, it was America’s most famous and profitable technology company, the company that made PCs an affordable must-have. it was the company that used to bring us the future.
Well, as with many other companies, Microsoft never developed a true culture of innovation, but instead focused on destructive competition. They settled for competing in the “red ocean”.
The company had a brilliant, innovative CEO in Bill Gates who took the key decisions to bring risky innovations to the market in the 1980s and 1990s, but after he retired the innovative risk-taking was gone. I have seen the same development in many companies that we work with as consultants. It is very common, and dangerous in todays world of fierce hyper competition.