Steve Ballmer Is Retiring: Why Microsoft's Next CEO Won't Matter

The Steve Ballmer era at Microsoft (NASDAQ: MSFT  ) is coming to an end.

Shares of the software giant opened nearly 9% higher on Friday after Ballmer announced that he would be stepping down within the next few months after a suitable replacement is found.

It's never flattering for any departing CEO to see a stock move higher on news like this. The implication is that Ballmer held Microsoft back. However, investors cheering the potential upside of what a new set of eyes can bring to the plodding tech bellwether are missing the point.

Ballmer wasn't the sandbag. Microsoft is the sandbag.

Microsoft kiosk in Miami. Source: Rick Munarriz.

The days of Mr. Softy as the software powerhouse are done, and that's something that even the company itself seems to be conceding. There are three references in the brief press release describing Ballmer's decision to make the "transformation" of Microsoft into a "devices and services" company.

The days of fat margins pushing Windows operating system upgrades to desktop users are toast. Google's (NASDAQ: GOOGL  ) Android is the future. Bulls will rightfully argue that Microsoft makes money off of Android through patent licensing deals, but it will never be as much as it used to make when it was the one calling the shots.

The migration won't be easy, but it will be necessary. Microsoft has thrown billions at mobile, yet it still commands only about 4% of the smartphone and tablet markets. There's little that a new CEO can do to change that.

Yes, the new CEO will have one of the bigger war chests at his disposal, but Apple (NASDAQ: AAPL  ) has even more money and even the class act of Cupertino has struggled to keep pace with Google.

How is a new CEO going to restore Microsoft to its former glory? Is it going to hop into a tricked out DeLorean and go back in time?

Microsoft had a great run, but the days of a closed operating system dominating a thriving market are over. This is a problem for both Apple and Microsoft, but it's more glaring for Ballmer's company since it used to be on top of the world.

A new CEO can't change the evolving marketplace. A new voice at the helm can't halt the movement.

Chipotle makes great burritos, but the day that someone sets up shop next door and starts giving away food it's going to be hard for Chipotle to sustain and much less grow its business. That's reality, and -- let's be frank -- Microsoft is no Chipotle.

Unless Microsoft can get ahead of a new product category before anybody else, we're done here as far as operating systems go. There will be money to be made in devices in services, but largely when Microsoft swallows its pride and starts putting out Android devices of its own.

Don't laugh. See if that doesn't happen in three to five years.

You'll disagree, but let's play things out.

Close your eyes. Picture your ideal candidate to replace Ballmer. It's a nice snapshot, but tell me how Microsoft will be more relevant in the future than it is now?

Ballmer wasn't a bad CEO, and history will vindicate him. It's not the player. It's the cards that are being dealt.

Microsoft's next CEO can't change the future, no matter what that shiny DeLorean in the shopping mall parking lot may have you believe.

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Read/Post Comments (27) | Recommend This Article (36)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 23, 2013, at 12:34 PM, MoreThanMoney wrote:

    The article seems to forget the multitude of lawsuits against Google or how Amazon has taken the free software and used it as its own. That business model is growing. The Google business model is a one trick pony. Both Microsoft and Apple have a more diverse lineup. Mirosoft even more so than Apple. If Google's business model of invading search into everyone's lives is ever shut down, they are over and Apple will survive Job's being gone and Microsoft will be making even more money than they make now. Seems the article is written by someone hoping the next CEO doesn't matter. Seems more than a stretch.

  • Report this Comment On August 23, 2013, at 1:24 PM, KombatKarl wrote:

    Windows still dominates the desktop, and that's not going away anytime soon. Tablets and phones are still a long way off to replacing desktops and laptops. It's still just easier to do things on a "real" computer. Tablets are still in the gadget/toy phase. They're still tough to do any real work on.

  • Report this Comment On August 23, 2013, at 2:09 PM, XXF wrote:

    SELL SELL SELL. Bid MSFT down to nothing, good luck with that Fool. AOL is still bringing in $600MM a year in dial up services, which has been replaced comprehensively. No phone or tablet or phablet or watch is going to be the primary device at P&M or JPM and ever one of those computers runs Windows with Office installed and will for a long time to come.

  • Report this Comment On August 23, 2013, at 2:10 PM, XXF wrote:

    P&G*

  • Report this Comment On August 23, 2013, at 2:29 PM, uberz wrote:

    This is such a "sizzle headline" article. MSFT makes a growing and substantial portion of their revenue from B2B software and services. Office is still doing really well. Yes, they really screwed up with mobile and tablet, but are clawing their way back to relevancy there. I'm not convinced they will do it, but this article seems to suggest their revenue only comes from one source and Google is threatening that so badly the company is going to disappear tomorrow.

  • Report this Comment On August 23, 2013, at 2:30 PM, AmcnFndrs wrote:

    I vote for Elon Musk to take over and gut out the old guard staff and their arrogance that has kept alive the ugly underbelly that is the holdback. Steve fueled that but in the end, there are so many of them everywhere internally that already "have theirs" and have lost the ability to be objective and evolve in the new era. There is no hunger or fire left or even the ability to infuse the culture with the right people to drive necessary changes - evidenced by bringing in old industry or "walmart" people - really, Walmart to Microsoft? what was he thinking. That's just the attractant you need for the young talent that will choose Facebook, LinkedIn, Google, Netflix, Saleforce, Tesla, anything cooler than Mr Softy with his Walmart Friends.

    This will be a sad and painful fall to watch if they don't get the new CEO pick right.

  • Report this Comment On August 23, 2013, at 4:00 PM, kyleleeh wrote:

    I have yet to see anyone who found a mobile device to be so versatile and useful they didn't need a laptop or desktop anymore. I've never seen a business where the employees had tablets in their cubicles rather then PCs. Unless Android becomes an operating system for something other then mobile devices Microsoft will continue to make billions of dollars a year...as they have been for the whole time mobile, and android have been around. One of the best ways for a company to ruin itself is to try to be all things to all people.

  • Report this Comment On August 23, 2013, at 4:11 PM, TheDumbMoney wrote:

    "Unless Microsoft can get ahead of a new product category before anybody else, we're done here..."

    Rick, that's the key. The reaction to his departure has no relationship to what is going on in Windows, for example. This is about Microsoft's inability to innovate in new areas under Ballmer's tenure. This is about his mockery of iPhones when they came out, his blundering with tablets, his statement that he wouldn't even let his kids touch the products of "those" other companies. This is about the fact that Surface glitched up at its debut presentation, and that it was wildly overpriced from the get-go and everyone knew it (except Microsoft, apparently). The future of Microsoft, if there is one, is in new product and software categories. The market simply thinks that future is more likely to exist without Ballmer, nothing more. There is good reason for such a conclusion, even if there are no guarantees as to the future CEO. A diligent 'caretaker' CEO is never a recipe for strong growth, but it is a recipe for disaster in the tech industry.

  • Report this Comment On August 23, 2013, at 4:13 PM, ryanalexanderson wrote:

    Linux on the desktop is getting better and better every year, and Microsoft is getting worse. I don't see it only as a mobile vs. desktop question. Windows 8 Metro interface on a non-touch screen is, frankly, awful. Linux is free, stable, and secure.

  • Report this Comment On August 23, 2013, at 5:14 PM, xetn wrote:

    Good riddance Steve.

    Ryanalexanderson: I have been a Linux user since 1998 when I first heard about in on Microsoft's web site. Your analysis is spot on. Why pay for somethin g that keeps getting worse when you can get Linux (along with all the applications you could ever want) for free?

  • Report this Comment On August 23, 2013, at 5:14 PM, sharpx2 wrote:

    I'm an Apple user when it comes to computers, pads, phones . . . but I have to admit that Microsoft is on to something big with Windows 8, despite its lukewarm reception. Integrating a touch interface across platforms and devices is ingenious and makes me a bit jealous, wishing that at times I could reach out and poke the screen of my laptop instead of pushing a cursor around on a trackpad.

    Now if only they could execute crisply instead of doing what they typically do, namely, fall on their faces once or twice before doing something (pretty) good. There is a lot of slop in MSFT that was never tolerated at Apple, which may be why the whole Apple ecosystem meshes so smoothly; why their customer service is so brilliant; and why I will continue to be a consumer and user of their products until something better comes along, if ever. Google is guilty of many of the same practices as MSFT, but because they give away big parts of their package, they are held to a lower standard. And they seem genuinely better at fixing their mistakes, or simply abandoning their efforts in certain areas.

    Microsoft has a lot to learn from both Google and Apple. Hopefully the end of the Ballmer era will get this rolling. Win8 proves, if nothing else, that the company is capable of innovation. Now they just need to get people to believe in them again. As others have pointed out, their B2B and desktop business will keep their profits fat for quite some time, which means they have the staying power if they have the will to change.

  • Report this Comment On August 23, 2013, at 5:38 PM, Momoneypls wrote:

    Recalling how Microsoft stomped on Netscape and drove it out of business, the irony of Google knocking Microsoft out of the box by "giving away" products competitive to Microsoft's is just so incredible. Whenever I hear or read of people lamenting the power of "big corporations", I'm always reminded that they are only big and powerful as long as they are meeting or exceeding the powers of the marketplace. Whether they are GM, IBM or Microsoft - they all must change to meet the evolving marketplace. Google will run into that same situation at some point and likely they won't see it coming.

  • Report this Comment On August 23, 2013, at 5:43 PM, celem wrote:

    Good riddance to Ballmer and Microsoft as well. I no longer use MicroSoft products. Years ago I switched to desktop Linux and I have never regretted the decision. Currently I use Mint Linux on both desktop and laptop and Android (which is Linux at heart) on my phone and tablet.

  • Report this Comment On August 23, 2013, at 6:02 PM, djtetsu wrote:

    This is such a prudent viewpoint. A more intelligent assessment would be "a rock star CEO needed at MS" or something along those lines..

    Marisa Mayer for Yahoo is inspiring and just recently beat Google for page views.

    The desktop user core will always remain, as stated, and I will also add, after extensively using Google Docs, it is no replacement for Office.

    And, with the Xbox factor, who knows what things a genius can stitch together.

    Simply put, the story is far from over, and it's an interesting one. They will start with a focused vision and yes, be willing to absorb their pride.

  • Report this Comment On August 23, 2013, at 7:10 PM, cmalek wrote:

    @sharpx2:

    "Win8 proves, if nothing else, that the company is capable of innovation. "

    It does no such thing. Microsoft has never been an innovator, they've always been an imitator. Even the product that gave Microsoft its start, MS-DOS, was a re-write (some would say a rip-off) of an existing operating system. When Apple came out with a Graphic User Interface for the original Mac, MS was close behind with the first version of Windows. Ever since then they have been falling further and further behind in introducing their version of somebody else's innovation. How many years after Apple introduced the iPhone did MS introduce the Windows Phone? And Apple was not the one to invent or innovate the smart phone.

    A touch screen interface for computers was tried by Compaq about 15 years ago. It failed. It will fail again. It is great for mobile devices like phones, tablets and phablets, and maybe laptops. For desktops it is not ergonomic. For a touch screen to be useful, it has to be within an arm's length or closer. Most of today's desktops have monitors that are 21 inches and larger. Unless you are virtually blind, a 21" screen arm's length away is overwhelming; a guaranteed headache in 5 minutes.

    "There is a lot of slop in MSFT that was never tolerated at Apple, which may be why the whole Apple ecosystem meshes so smoothly"

    In defense of MSFT, Apple does not have to deal with hundreds of different hardware manufacturers. Apple controls the entire ecosystem with an iron fist. If MSFT was the only one to manufacture the hardware on which Windows software ran, there would be no "slop" and their "ecosystem would mesh so smoothly." If MSFT made its own hardware, Apple would have died under the leadership of Gil Amelio and John Sculley.

  • Report this Comment On August 23, 2013, at 7:24 PM, cmalek wrote:

    It does not matter who is chosen as the next MSFT CEO because for Microsoft to return to anything resembling its days of glory, along with the CEO, their corporate culture must be changed. The days of "when MSFT sneezes, the computer world catches a cold" are long gone. There are now other companies that move and shake the universe that once used to be Microsoft's. Microsoft must learn how to play nice with the others or it will marginalize itself.

  • Report this Comment On August 23, 2013, at 7:37 PM, sigman58 wrote:

    @cmalek

    Ever seen a Xerox Star? I have. Don't claim the GUI for Apple because that's a fraudulent claim. The point being that Apple is every bit as derivative as Microsoft...

    Popularizing it? That, Apple certainly deserves credit for.

  • Report this Comment On August 23, 2013, at 7:59 PM, naivenerd wrote:

    This is one of the few articles from Motley Fool that I completely disagree with. I this Steve B. has been the big problem with MSFT and all of it's failures recently (Latest...Windows 8)

  • Report this Comment On August 23, 2013, at 8:38 PM, ryanalexanderson wrote:

    Xetn:

    Yeah - I think I started with Linux around then too. Man, it was tough back then. Now, it's polished, and a basic user could do almost everything without a terminal.

    If they could only a) perfect OpenOffice or LibreOffice, b) get a dominant flavour, and c) get game support, I think they'd be there. b)'s probably the toughest one...

  • Report this Comment On August 23, 2013, at 8:51 PM, chris293 wrote:

    You could say a lot of stocks are overvalued

    these days unless their P/E justifies their stock

    price. Unless the stocks return something of

    value to their shareholders on some sort of basis

    the real worth of a stock is easily lost over time.

    It seem that a 100% gain spread over any long

    period can become a mere 5% to 10% gain if

    there are no returns given to shareholders. Of

    course, this means that no capital gains were

    taken beforehand.

  • Report this Comment On August 23, 2013, at 11:16 PM, jaarsrep wrote:

    Wow! Microsoft cool-aid drinkers unite! About 8-9 years ago I started moving away from the MSFT world, and I've never really looked back--except when, as a technician/help-desk person, I help people still caught in that world.

    Then, just 2 weeks ago, the non-profit organization I work in (28 years) announced they are moving away from MSFT to Google. So you can count another 4000-5000 users that won't be using Office any more! And that doesn't count all the third-world people that we help with computer technology. The MSFT model just doesn't work any more folks: Face it!! From where I sit, it's clear that it's fading away (does the stock price say NOTHING to you?)

    Then this week, I ordered an Ubuntu laptop. Wow! Now I don't even have to kowtow to Windows any more. Rejoice!!!!

  • Report this Comment On August 24, 2013, at 12:29 AM, PMTP wrote:

    I am disappointed by this article. The author seems to have an opinion of what will happen in the future and he appears to be trying to deny that any other outcome is possible. He would be well served by looking at how far Apple fell before it came back and became the most valuable corporation in the world. Microsoft's current position is far better than the dark days were for Apple. The future for Microsoft is not set. I don't know what will happen but I reject the assertion that their fate is sealed as this article asserts. Any company with a fraction of the resources and cashflow that Microsoft has can change the game through innovation, creativity and being willing to take risk. Their new CEO will succeed or fail based on how they measure up to these criteria.

  • Report this Comment On August 24, 2013, at 3:47 AM, grabyaz wrote:

    The author clearly never heard of the IBM in the 90s story.

  • Report this Comment On August 24, 2013, at 5:27 PM, TheCommodore wrote:

    A bunch of commenters have said it, and it bears repeating: MS does not rely on Windows to survive. They could cut Windows from the company and still survive easily at this point (not that I am by any means saying they should do that). SQL Server is huge and growing it's market share. Visual Studio, business tools and services, etc. are what MS has really been about for 20 years now. And Windows Server, yes. But that's a different beast altogether, and not going anywhere. Yes Win made them a fortune, but it hasn't been the crux of their existence for a long time now. I honestly don't understand how writers can keep tapping this tired fallacy.

    As far as there being no CEO who could right the ship, what if Bill came back for a few years? It won't happen, but people would definitely start doing an EF Hutton if it did.

    As to MS being innovative and relevant, and the real cause of their descent from the throne, Kurt Eichenwald wrote an article a few months ago about the surprising culprit behind their current corporate culture and seeming malaise: their employee review policy. It was instituted before Gates left, but kept in place and endorsed by Ballmer. They use stack ranking of their employees. For those unfamiliar with it, stack ranking is one of the worst, most destructive "tools" a company can use. If you have 10 employees, they'll get ranked 1 to 10, with the top 1 or 2 getting above average marks, down to the last 1 or 2 getting not-so-good marks. And raises/bonuses/etc. are based on that. But what if you have 10 people who all worked hard and did great jobs? what happens is that some people are going to get screwed. This killed MS at the middle management level, because department and division heads learned that they would increase their chances of doing better in the rankings if they sabotaged the efforts of other departments. They had Windows CE in the 90s for programming devices like phones and "smart" devices. They had ideas geared towards portable phones and tablets well before Apple and others, along with a lot of other great ideas. Almost all of them got destroyed in the long run by managers who didn't want others succeeding over them. It's a fascinating but sad story, considering how much farther they could have gone compared to where they are now. They legitimately could have been their current selves plus much of what Apple and Google are today.

    Not that they didn't also make huge mistakes, especially internet-wise. And that buck stops with Ballmer also.

    Of course, for all the Apple fanatics out there, the one thing they did do in the very late 90s? Gave Apple a bridge loan that very likely kept them from going bankrupt...

  • Report this Comment On August 24, 2013, at 5:42 PM, TheCommodore wrote:

    And one more thing: to fix to bring Win8 back to mainstream acceptance? It's ridiculously simple and already in existence, albeit from small, not well known app companies. Bring back the start menu on the desktop screen. Yes it cuts into the attempt to force everybody into one interface, but it allows people to use the old and the new, whichever they prefer. That is a big part of the reason Android has been eating iOS's lunch the last few years - more freedom. MS wants to be unique and tie everything together. That's great, and they should do it, despite what detractors say. But don't cut off the tried-and-true aspect of the system that many prefer. ESPECIALLY at the business level. The Metro interface is simply not right for the workplace, at least as it is now.

  • Report this Comment On August 30, 2013, at 6:14 PM, cmalek wrote:

    @jaarsrep:

    "Then this week, I ordered an Ubuntu laptop. Wow! Now I don't even have to kowtow to Windows any more. Rejoice!!!!"

    Sorry to rain on your rejoicing but Mark Shuttleworth has been making his company, Canonical, into Linux world's copy of Microsoft. Ubuntu is as closed up as Windows. Instead of kowtowing to MSFT, you'll have to kowtow to Canonical.

    If you really want to rejoice about your freedom and know something about Linux, switch to Debian, Mageia, openSUSE or CentOS (or a distribution based on any of those four).

  • Report this Comment On August 30, 2013, at 11:36 PM, gwatsof195577 wrote:

    I have not bought a phone or PC or music player from anyone but apple for 16 years. I see the potential of Android, so I'm going to but a Chromebook, and start teaching myself a new OS. I'm keeping my Macs too!

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