) announced that CEO Steve Ballmer would be stepping down as the
head of the company within the next 12 months. That one-year
timetable has led many to believe he was forced out by the
Microsoft has been troubled over the last few years, with the
decline in the PC market, the rise of
), the era of the smartphone, and the disappointing debut of the
company's Surface tablet. Microsoft obviously has a lot riding on
the choice of Ballmer's successor. High-profile names being tossed
around in the media as potential candidates include
) COO Sheryl Sandberg,
) CEO Kevin Johnson,
) CEO Stephen Elop, and Ed Breen, former CEO of
Amid the confusion, we asked five Minyanville writers to weigh in
on the future of Microsoft.
Microsoft Should Look to IBM's Example
By Michael Comeau
So who should replace Steve Ballmer at Microsoft? I actually can't
come up with a single name.
But there is a prototype for a Microsoft turnaround --
(IBM) in the 1990s under Lou Gerstner, who brought an unemotional,
outsider's view to a company entrenched in its own staid culture.
Mr. Gerstner changed IBM compensation and management policies to
reduce infighting and interdivision rivalry, and killed
unprofitable product lines like the OS/2 operating system. He also
set IBM on a fresh path as a highly profitable, acquisitions-driven
IT services company, which, while not particularly sexy, has worked
out pretty well for shareholders over the long term.
This new way of doing business also resulted in a brilliant
strategic move following Mr. Gerstner's departure -- the sale of
IBM's PC business to
(OTCMKTS:LNVGY) in 2005. And that's what Microsoft needs -- an
outsider who can transform its culture from the inside out to forge
a new path forward.
Michael Comeau edits Minyanville's
Buzz & Banter
and is also a regular columnist on Minyanville.com, focusing on
technology and consumer stocks. Read more of his work for
Microsoft Isn't Broken, and It Doesn't Want a
By Andre Mouton
The most important thing Microsoft's new CEO can do is avoid trying
to do too much. Large changes to the corporate culture will be
nearly impossible. Microsoft has 99,000 employees, many of whom
have spent their entire careers in Redmond. With countless product
lines and entrenched camps everywhere, the new chief executive
could spend years fighting the company's legendary inertia, and
still get nowhere.
Cutting-edge innovation is probably off the table as well.
Microsoft has to contend with a large ecosystem of manufacturers,
and an even more diverse customer base. Unlike the smartphone world
where one size (or maybe two) fits all, PCs have to satisfy a wide
range of needs, some of them legacy. Doing many things well often
means doing nothing great. Microsoft has never been a paragon of
creativity, but its conservative, wide-foundation approach works
well in certain markets -- something that is often overlooked by
those who value innovation for innovation's sake.
Microsoft isn't broken, and it doesn't want a savior. The new CEO
should be someone adaptable, who can work with his or her company's
limitations, and who can strike a balance between the desire for
change and the need for stability.
AndrÃ© Mouton is an independent investor who cut his teeth in
the dot-com crash and chewed his lip in the financial crisis. He is
a former writer for Offbeat Magazine in New Orleans and a touring
(but not itinerant) musician, who now lives in New York. Read more
of his work for Minyanville,
Go Back to the Future With Bill Gates
By Justin Sharon
Who to take over at Microsoft? As a wild-card pick, the company
could do worse than choose that clairvoyant Nomura researcher who
presciently upgraded the key
(INDEXDJX:.DJI) component 24 hours before its stock surged 7% on
Steve Ballmer's exit. Such foresight is a rare commodity among Wall
Street's army of after-the-fact ditto-heads. Indeed several former
members of the sell side community have profitably transitioned to
industries they once covered. These include longtime top-ranked
auto analyst Steve Girsky, now an influential executive at
More realistically, the company should go with a known quantity,
for the task ahead is a formidable one. Microsoft, even in its
weakened state, does boast incredible assets. Its balance sheet is
pristine, a $284 billion behemoth that generates $80 billion in
revenue. Cloud services, servers, and tools all offer considerable
promise even as Windows inexorably slows. And Xbox 360 is still a
That said, whoever takes the helm has his or her work cut out.
Microsoft is entering middle age patently ill-equipped for our
Web-based, post-PC era after enduring multiple missteps in mobile
and tablets. The law of large numbers currently bedeviling many
erstwhile technology titans will make it especially hard to effect
meaningful change absent something dramatic such as a breakup.
Step forward, Bill Gates. The company co-founder knows his baby
inside out, remains its largest shareholder, and was clearly
influential in ousting his unloved successor. Gates must take a
measure of blame for the stock being essentially dead money for a
decade, so his return shouldn't be seen as a panacea. Yet he did
accurately foresee the Internet threat, and it is surely no
coincidence that shares topped out December 30, 1999 -- a mere 16
days before the Harvard dropout essentially abandoned his day job
for full-time philanthropy.
He is still only 57, which may be Methuselah in tech terms but
provides ample time for a dramatic last hurrah. And who says you
can't go home again? The history of corporate America is replete
with prodigal sons returning, most recently with A.G. Lafley at
fellow blue chip
Procter & Gamble
(PG). Occasionally it ends in tears (see: Lay, Kenneth at Enron),
but boomeranging back often succeeds spectacularly -- witness the
inspiring examples of Steve Jobs at Apple and
' (SBUX) Howard Schulz.
Gates brings instant credibility, and his comeback would also
provide an immediate morale boost on the Redmond, Washington,
campus. He can then begin the process of grooming a long-term
successor. Here, Tony Bates ultimately looks like the in-house
standout. The 46-yearold former Skype CEO embodies the continuity
and promoting-from-within ethos Microsoft has historically prized.
However, he also has crucial outside executive experience gleaned
(CSCO), and as such, is able to offer badly-needed new ideas.
As we saw with the unfortunate example of beer-swilling ex-
(GRPN) chief Andrew Mason, Silicon Valley's boy wonders sometimes
need adult supervision. No one can better provide that than Bill
Gates, who positively revels in being boring. He could teach Bates
the ropes before handing over his multibillion-dollar creation on a
permanent basis a couple of years hence. The trick for the software
legend will of course be learning to let go at the right time,
without becoming a meddling Svengali type hovering in the
background in the manner of Banquo's ghost.
Justin Sharon authors Minyanville's stock upgrades and
downgrades articles every morning. He has extensive experience on
Wall Street, most recently at the Private Client unit of Merrill
Lynch. A 12-year spell in its research department encompassed the
eras of Blodget, boom, bust, and Bank of America. Read more of his
work for Minyanville,
Someone Quieter, Someone Saner
By Vincent Trivett
First, let's just point out the bittersweet situation for Ballmer
on Friday. He became significantly richer because the market
swiftly decided that whoever runs Microsoft next will be better
The latest earnings blowup aside, we have to acknowledge that
Ballmer did in fact run Microsoft as a very profitable company, and
even though the stock has barely moved since 2000, it delivers a
lot of cash to shareholders and still has enough to do copious
But the problem, of course, is keeping that up. The big cash cows
have free alternatives. Essentially, Microsoft has made a ton of
money convincing businesses that they can't get any work done
without it. And I can't think of any product of Microsoft that
didn't have some kind of precursor.
Just anecdotally, I can say that newer businesses that I've seen
and worked with over the years balk at paying massive licensing
fees in exchange for software with free alternatives. True, Excel
is amazing, but Word? Google Docs. Windows Server? It's a hard sell
when you can install Linux servers on as many machines as you want
for no licensing fees. Outlook? Some people are just used to it,
but there is no reason for Outlook to exist.
Windows is a big money maker, but the reality is that people just
don't buy it. Very few people, including security-conscious (more
on that in a minute) companies ever bother to update their
operating systems. They get a new one when they buy a new computer.
Some folks are in the habit of using Windows, but Windows 8 changed
all that. I recently got a sweet new laptop with a touchscreen and
Windows 8. I liked it for a few minutes before it started to get
really irritating. I installed the free option, Linux, that very
day and sped up the computer's performance drastically. Of course,
I am a geek. Non-geeks are going to stick with Windows unless they
go join the Apple family. But if people aren't buying Windows
licenses, Microsoft's fortune is tied to the slumping PC industry.
Just last quarter, Windows sales were down 6% on the quarter.
So who can blame Microsoft for diversifying into all of these crazy
things like web services that nobody needs? It was worth a try. And
making their own hardware was a fine idea. They know that they lose
customers because using Windows on cheap hardware is no picnic. But
if they want to sell anything, they had to deal with suppliers'
shortcomings, even bending on hardware recommendations to help them
unload aging products. And of course, everyone has awful malware on
their systems, too, because of Microsoft's strange insistence of
patching exploits on the second Tuesday of the month rather than
ASAP. This gives exploiters up to a month of intrusion into the
millions of computers and servers running Windows. And since so
many people don't even download the patches, everyone can examine
the patches and exploit the users who didn't download the update.
Making their own hardware to make the Windows experience good is
definitely a plus.
But the direction Microsoft has been in for a while with the web
services, and the irretrievable bomb that is the Surface, isn't
working. It reminds me of a guy at a carnival game who blows $100
trying to knock down some pins, and figures that if he quits now,
he wasted that money, so he sinks the rest of his savings into
acquiring a $15 plush toy. That plush toy is Bing's sliver of
traffic (much due to its privileged position in Win 8). It cost
Microsoft about $3 billion. And who can forget the near $1 billion
write down on the Surface RT, which nobody seems to want. Xbox is
not a huge business for them, but the much nicer, cheaper
(SNE) that doesn't watch you in the privacy of your home seems to
be giving them a run for their money.
This is the biggest challenge that Microsoft's next CEO faces. You
can't just tell shareholders that you give up trying to be a major
player on the web, mobile, hardware, e-readers, tablets, etc after
sinking so much of their money into it. What they are good at,
obviously, is enterprise. This is what the folks at Venture Act, a
major shareholder wants them to focus on. But as I said earlier,
their competitive advantage in enterprise software is eroding. What
I'd say that it's probably smart to try and sell the losers like
Bing. So promoting their cloud and enterprise head Satya Nadella is
one way to go. I'd wager that Venture Act and company would be
pleased. I hope they don't double down and go further off the
consumer, internet, or hardware deep end. I wouldn't be surprised
if Stephen Sinofsky, who was apparently a bad personality, but a
guy that got things done, was brought back. Would they bring in an
outsider? Acqui-hire a new and brilliant CEO? I wish I knew.
I hope some fresh blood can liven up that company, get a more
reasonable patch schedule, and for god's sake get rid of the stack
ranking system. It does you no good to pit your employees against
their fellow team members. I'm certainly glad that there will be a
new sheriff in town soon.
One thing is certain: the next Microsoft CEO will be much quieter
and saner than Steve Ballmer. And he won't
dance like a monkey
with pit stains.
Vincent Trivett is a journalist and photographer who has
written for Business Insider, City Limits, WNYC, the Atlantic's
Business blog, Yokohama Seasider Magazine, Koe Magazine, the Japan
Beer Times, and of course, Minyanville. Read more of his work for
It's Simple: Quit Wasting So Much Money
By Sean Udall
So who should lead Microsoft into the next chapter -- a chapter
that should be one filled with imagination, renewed growth, better
financial engineering, and massive improvement in what has been a
terrible M&A strategy?
These are things I believe Microsoft needs, and I believe needs
will dictate who the board should pick. And this is an area of some
debate. Many just think Microsoft needs to increase the divvy and
buy back more stock. This hasn't worked for the last decade, so why
would a little bit more of it work now?
Again, Microsoft has been terrible at strategic M&A and a poor
steward of its cash stockpile, which could have been used as a
weapon to generate market-beating investment returns. Thus, in my
view, Microsoft should just copy successful playbooks -- which are
Oracle's, IBM's and
(NYSE:BRK.A). Or said another way, it should do what Google has
been doing with its cash and M&A: acting strategically.
The very best choice could easily be Eric Schmidt, the leader who
spearheaded the Googster to much of its best growth days and the
person who set up the framework for strategic M&A, venture
investing, and equity-based return expectations. He set up a great
use of balance sheet strength and future cash flow. I don't think
Microsoft has a chance of pulling him, but his role at GOOG has
been greatly reduced, so there might be an opening.
Larry Ellison would be great, but he's taken. The other Google
gents, Larry Page and Sergey Brin, are taken. Warren Buffet has a
full-time job and is a bit up in years.
There are some other choices like Mark Hurd and Mitt Romney, but
I'm not sure anyone else would be as good as Google's Schmidt.
My next choices would be Joseph M. Tucci, the CEO of
(EMC), and the chairman of
(VMW), or another young leader from the EMC/VMW contingent. I think
EMC has had a ton of challenges similar to those that MSFT has
faced, but has done a tremendous job with innovation and by
spinning off pieces of EMC as separate companies, thereby creating
a lot of long-term shareholder value. This strategy would be
another strong alternative for Microsoft and likely produce a lot
of unlocked and future value for shareholders.
Heck, I'll throw it out there. Microsoft, I'm available for the
right price. I'd also probably come a little cheaper than Schmidt!!
Though I'm quite sure the search committee wouldn't be thrilled by
my street smart/tough attitude or my "pedigree." But I wouldn't
have bought aQuantive ($6 billion), nor Skype ($8.5 billion), nor
Danger, nor Yammer (a billion), nor would I have created Bing, nor
would I have spent a ton of money on Windows Phone. And that is a
short list of what I wouldn't have done.
What I would have done is invested a lot of money in great startups
and a substantial chunk in select tech equities when they were
cheap. I would have bought or tried to buy Business Objects and
Applix TM/1, both of which were bought by IBM. I would have
(NASDAQ:APKT), the last of which was bought by
Bottom line, and joking aside, the key for Microsoft is to simply
quit wasting money on poor past investments and R&D
deployments. Once the waste is contained, a ton of improvement can
be created by just solid block-and-tackle investing. Then the focus
can return to enhanced ROI on the balance sheet via strategic
M&A and innovation for future growth. Given that recipe and
just moderate success of implementation, it wouldn't be hard to
double Microsoft's market cap in a few shorts years.
Sean Udall is an investment strategist, portfolio manager and
proprietary trader with extensive experience across a wide variety
of asset classes, including equities, fixed income, currencies, and
derivatives. He's a recognized trader, prolific writer, and the
founder of the
, a technology-focused investment newsletter from Minyanville. Read
more of Sean's commentary,
Sean Udall has positions in MSFT, AAPL, GOOG, and VMW.
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