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BE Corporation
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Steve, You just went too Soft there!
Ever since it began, Microsoft was Globally hailed for its Innovations, and even feared, Hated & Fined for its Anti-Competitive practices. But especially since Steve Ballmer took The Helm, Microsoft has only Moved Downhill, becoming a Pale shadow of its former self
Issue Date - 17/03/2011
Two childhood friends Bill Gates and Paul Allen, who had a strong passion for computer programming, started a company in 1975, which preliminarily developed interpreters for microcomputers. Since then, Microsoft has been the temple of innovation and a clear market leader under the leadership of Bill Gates. Great empires are built on foundations laid by great visionaries, and it is undeniable that Bill Gates and Microsoft were right up there among the harbingers of the software industry as we know it today. The magnitude of their contribution can be gauged from the fact that global IT spending touched $1.5 trillion in 2010 according to IDC.

But the true test of visionaries is the ability to create empires that last beyond them. In 2008, Bill Gates had declared, “We have achieved the ideal of what Microsoft wanted to become.” By this statement of Bill Gates, who stepped down as Microsoft CEO in 2000 (and Steve Ballmer took over) and as executive Chairman in 2006, one would like to believe that he crossed that rubicon as well. But is Bill’s statement a statement of achievement, or still one of wishful thinking? Well, they do say that time will tell. And to be frank, it has been doing so for quite a while, though we do not believe that Bill would exactly like to hear its verdict so far! To understand that, we need to look at what transpired since the time Gates stepped down and Ballmer stepped in.

It took Steve Ballmer 20 long years to become the top man at Microsoft, ever since he dropped out from Harvard to join the company. Incidentally, even his joining heralded a turning point of the IT industry with the dot com bubble bust, and ironically, the relations between Steve and Bill were also hardly the kind you would expect between a CEO and his succèssor. The Wall Street Journal reported the same and an internal source in the board clarified the entire issue. Steve was reported as having said, “Once Gates leaves, I am not going to need him for anything”. And he even reportedly added, “Use him, yes, need him, no.” In fact, Gates even stormed out of that meeting, according to sources. Two camps had been built since then, with respective allegiance to Ballmer and Gates.

With a start like that, the signs seemed quite ominous. In 2000, the company’s M-cap was recorded at a mammoth $586.2 billion, and was leading the list of top companies in the world. Even the conglomerate GE, which stood at second place was way behind with an estimate of $474,956 million. It’s almost a decade since then, and Ballmer’s leadership has come under scrutiny not once but on many occasions. The company’s M-cap in the fourth quarter of 2010 was only recorded at $238,784.5 million, almost one third of what it was in 2000 as reported by Financial Times Global 500. The decline is a clear indication of the pessimism of investors in the company. IT analyst Jeff Kagan comments to B&E on the company’s major problem, “Microsoft has happy customers and it is a natural for them to transform and lead the new industry. They have just not done that over the last decade”.

One common logic given is that those valuations were unfair as they were at the peak of the dotcom bust. But consider Apple, which did not even manage to grab a place in the top 500 list based on M-cap in 2000. It has immensely grown over the decade and even surpassed Microsoft with an M-cap of $295.89 billion in 2010. Apple’s growth can be attributed to its innovative approach and its ability to deliver unique products to the market. Over the past decade in particular, Microsoft failed to create that effect, even though it had all optimal resources to leverage. Microsoft’s core business is still the Windows & Window’s division, where 80% of sales are obtained by partnering with OEM’s and 20% by independent selling. This is the bread & butter of Microsoft, contributing the maximum profits.

They call it the phenomenon of the one trick pony. Microsoft reported $18.49 billion in revenues in 2010, compared to $14.97 billion in 2009. The revenue increase in the segment was because of the overall demand in the PC and laptop segment. Interestingly, Microsoft’s major revenue in this segment is because of its OEM partners, who provide Windows as the operating system. Another reason for the growth of this segment is the lack of competition and the general tendency towards using Windows. It is argued that things could have been very different if Apple would have partnered with OEM’s to only sell the MAC as the operating system. However, that’s one rare area where Steve Jobs truly missed the bus. Though there have been competitors like Linux, which have offered operating systems like Ubuntu, but they were not able to create a buzz with them. While the software division of the company remains strong, its other divisions remain weak. While Microsoft may remain relevant today, a serious question with respect to its ability to sustain itself, say, ten years down the line, still persists. One learns to have a better appreciation of this point when one learns that Microsoft’s consolidated revenues grew by only 7% in 2010 yoy, whereas Google booked 26% and Apple grew by a mammoth 70% in revenues. It’s a clear indication of poor leadership at Microsoft. Nearly all the verticals have been booking low growth.


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