On the day before Steve Ballmer took over as head of MSFT, that company’s market capitalization was a tad below $600 billion. If MSFT shares had matched the performance of the S&P 500 since then (about +15%), the company’s stock market value would now be just under $700 billion. Instead, just before the stock spiked on news of Ballmer’s surprise resignation, MSFT was worth barely a third of that figure. Under his stewardship, then, MSFT owners lost a staggering $450 billion in relative stock market performance.
Sometimes the simplest measuring sticks are the best.
(Yes, MSFT management has bought back about 20% of the outstanding shares since 2006, but it’s hard to know what the net effect of the stock purchases would be. Certainly, earnings per share would be lower. Arguably, the stock price would be, as well.)
In late 1999, I sold the MSFT shares I had held for a decade. The price earnings multiple was crazy high and it was clear that MSFT has no internet strategy. But for a while I kept going to the annual analyst meetings in Seattle.
At one of them, Mssrs. Ballmer and Gates were jointly hosting a Q&A session. One analyst raised his hand and observed that the annual earnings growth rate of Microsoft had dropped from 20%+ to mid-single digits. He asked when management thought the company would resume its former rate of growth.
Awkward …especially in a public forum.
I don’t think the questioner had any ill will, though. He just wasn’t a particularly vivid-color crayon.
The response was illuminating.
Gates and Ballmer were both very harsh. They all but called the guy an idiot, and asserted that it was a triumph of management to achieve any earnings growth in a firm of MSFT’s large size. Wow!
What did I take from this? Three things:
–neither Gates nor Ballmer was a very nice person,
–working for them it would be their way or the highway, and
–MSFT wasn’t going to have huge earnings growth because neither of the top people thought it was possible. (The fact they subsequently brought in the head of a forest products company, a mature, cyclical commodity industry, to cut costs as CFO says it all.)
For the record, I thought Steve Ballmer was a bad CEO. Not Carly Fiorina bad, but pretty terrible.
On the other hand, Bill Gates selected Ballmer and kept him as CEO for more than a decade. So until very recently, he clearly approved of what Ballmer was doing.
If we want to lay blame at anyone’s door for MSFT’s weak performance during Ballmer’s tenure, the lion’s share would be delivered to the front of the Gates compound.
During the 90’s, we were a Microsoft partner while I was a CEO of a technology company. They were a great company to partner with, but they have always had the same viewpoint – we are the “Borg”, a play on Star Trek. Their products mature, and then stabilize, which is very unlike most software product companies that innovate and die.
So the very same thing that has made Microsoft DOS and then Windows have longevity have killed innovation as well. Ballmer was nothing more than the extension of that, albeit not as dynamic as Bill Gates, who I respect (he knows his technology better than everyone else, really impressively).
Thanks for your insight.
Looking at Microsoft from another perspective, as people get older and wealthier they tend to become more risk-averse. If you were willing to take one unit of risk in the expectation of two units of reward (whatever “units” may mean) when you were young and poor, it might be that it takes ten units of reward–or a hundred, or…–before you’re willing to take a unit of risk.
You might argue that preserving their existing fortunes became the paramount object of Bill Gates and Syeve Ballmer, rather than growing the company.
While I don’t argue your risk matrix, I would say that Bill Gates had a penchant for producing what business needs but every since 2001 to approximately 2004, it’s been about the consumer. Technology swings all the time…