Microsoft Corp. can’t seem to avoid drama, and this past week had plenty of it.
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There was an executive shuffle, an appearance by former CEO Steve Baller where he conceded he missed the mobile telecom revolution and a blow-by-blow account of Ballmer’s struggle to convince his board to spend $7.2 billion buying the mobile business of Nokia. The debate was so loud, Bloomberg BusinessWeek said, that Ballmer could be heard yelling from outside the board room.
And for all that, the stock didn’t move much. It finished down 1.1% for the week at $37.90. For the year, the sock is up 1.3%. And that comes off 2013, when the stock jumped 40%.
But some important realities about Microsoft emerged.
First, new CEO Satya Nadella has some huge challenges ahead. He has to articulate a vision of what Microsoft is in the context of what it makes and sells. He has forge a management cadre who embrace the vision and can communicate it in real terms — not just using the usual corporate babble.
And he has started to clean up a lot of messes left with Ballmer’s retirement.
Some of the clean-up came with the executive changes.
Tony Bates, who came to Microsoft when the company acquired the Skype messaging surface, resigned. He was supposedly a top internal candidate to succeed Ballmer. When Bates lost out to Nadella, he decided to leave. That should not have been a surprise. Reportedly, a number of companies are interested in hiring him as CEO.
There was a shakeup in the leadership of the company’s marketing and advertising team. Tami Reller decided to quit as executive vice president for marketing, a job she’d held only since July. This was probably a thankless job. She had to share it with Mark Penn, a one-time political pollster for both former President Bill Clinton and former Secretary of State Hillary Clinton during her 2008 presidential campaign.
Penn, recruited personally by Ballmer, was moved to a new job: executive vice president and chief strategy officer. That seems tailored to maximize his talents for polling and data analysis. And Penn has a reputation as aggressive and combative. The question is how much influence he’ll have in a company where software engineers tend to hold tremendous sway.
Succeeding both Reller and Penn as chief marketing officer is Chris Caposella, a 20-year Microsoft veteran. And that may be more important than Penn becoming the strategy chief. Having one leader in marketing will important as Microsoft works to build on its One Microsoft concept and convince investors and customers (not just jaded media) that it is serious about a future built on the cloud and mobile and devices and services.
The vision thing will take some time, but the shuffles in what Microsoft calls its senior leadership team suggest Nadella will embrace change sooner rather than later.
The Ballmer messes are Penn, as noted, but also the Nokia acquisition. Ballmer wanted it badly. If he could change any decision in the last 10 year, he admitted in his Oxford appearance, it would be that Microsoft “had a stronger position in the phone market.” (See Steve Ballmer’s Oxford appearance.)
The problem with the Nokia deal was its size and risk and impact on the definition of what Microsoft is. And all that in the context that, when proposed, Ballmer himself realized he might not be around much longer. His board, including Bill Gates, didn’t like the deal at first. Nadella didn’t like the deal either. But after all the shouting — no one is denying it occurred — the board finally acquiesced.
It does get Microsoft a big global mobile company, but the question is whether Nokia has the expertise — and can retain them and keep them motivated — to mount a real challenge to Samsung and others using Google’s Android technology and, of course, Apple and its iPhone.
There’s one other question. If the Nokia deal works, will it work because Microsoft is able to develop its Windows Phone operating system to be a strong enough competitor against Android and Apple? Or, as many people think, would be it simpler to work with Android.
This question cuts close to a reality about Microsoft. Not only is it hugely profitable and in no danger of collapsing, it always has been a fairly insular company. One reason is the relative isolation of its headquarters — a two-hour plane ride from the Silicon Valley. And its culture is relatively closed, no matter if you work in the United Kingdom, Redmond, or Hyderabad. Some of that is due to the desire to protect intellectual property.
Nadella knows, however, the company has powerful competitive assets. Even if the personal computer business has weakened with the emergence of tablet devices, it isn’t going away. Its Office software, whether sold to live on a computer hard drive or marketed as a subscription service, is ubiquitous. Apple might not exist if Microsoft hadn’t agreed to continue to developing a Macintosh-compatible version of Office.
And its Enterprise software business is growing strongly. SQL Server is the most-used database in the world. Its Windows Azure cloud-computing and related offerings are competitive and growing.
There is huge debate about whether Microsoft can survive and prosper in its current form. Some of that debate was reflected in the battle over whether to do the Nokia deal and in what looked like an endless search for a new CEO who could drive the company forward with Gates and Ballmer still involved.
Some of it was reflected in all the commentary about the shakeup in the executive suite.
Nadella has been CEO for barely a month. The stock is up a bit more than 4% since he took over. For all the noise, all the speculation, all the arguments that Microsoft is done or a great new future is begun, investors seem willing to be patient.