Published August 26, 2013
When I was asked to introduce some luminary to be inducted into the Computer Industry Hall of Fame at a Comdex event in 1997, my first reaction was, “I didn’t know there was such a thing.” My PR folks assured me there was, that it was a pretty big deal, and not to worry, there would be cocktails. So I said, “Count me in.”
That luminary turned out to be you. I doubt if you’ll remember that day; you’ve been a little busy since then. To be honest, I don’t remember much about it either. Those Las Vegas trade shows were always a blur of press interviews, customers meetings, and late night after parties. Not to mention that my company, Cyrix, was acquired that week.
In spite of all that, you made an impression on me. I remember you being very excited. I remember you looking me right in the eye and smiling as you firmly shook my hand on stage. Mostly, I remember thinking that you seemed like a regular guy. Big and boisterous, but at the same time genuine and humble, if that makes sense.
I instantly liked you. And not just because your name was Steve, we were about the same age, we both came from working class families, and we were both business guys in an industry full of geeks and propeller heads. I liked you because you’re a likeable guy.
So why reach out now, after all these years? It’s about you retiring. I saw shares of Microsoft (MSFT) shoot up over 7% on the news – the biggest single day gain I can remember. I know, you’ve always said you don’t worry about the stock. You worry about having the best products. That’s as it should be. Good CEOs don’t sweat the stock.
That’s Got To Hurt
Still, you’ve taken an awful lot of flack over the years. And while you may look and sound bigger than life, we both know you’re not. You’re human, just like everyone else. And you’re a passionate guy who poured his heart and soul into a company he loved for 33 years. And that guy has not been judged fairly. Not by Wall Street, not by the media, not by the pundits.
For the past 72 hours, everyone and his brother has come out of the woodwork to take yet another round of potshots blasting your 13-year tenure as Microsoft’s head honcho. I’ve read some of that stuff – all the talk of missed opportunities and failing to compete with Apple (AAPL) and Google (GOOG)– and I just don’t see it that way. In fact, I couldn’t disagree more.
So before you end this chapter of your life and begin the next one, I’d like to set the record straight. And I think you need to hear this as much as anyone, if not more so.
Just to be clear, I’m no Microsoft fan boy, not by any stretch. I have no skin in this game, no mission to accomplish, no axe to grind. I’m just a former senior executive who goes way back in our industry. And, over the years, I’ve been a competitor, a partner, a customer, and a consultant to Microsoft. Perhaps that gives me somewhat of a unique perspective.
One thing that doesn’t get a whole lot of airplay is what life is like inside Microsoft. I’m sure you’ll be gratified to know that everyone I’ve worked with over the decades, from senior executives on down, has loved working there. Everyone. You and Bill Gates built one hell of a company, and you deserve as much credit for that as he does.
Aside from that, I’m not going to get into the role you played for twenty years before becoming Microsoft’s second CEO. Being the number two guy in a company that, along with Intel, brought us the personal computer – a device that changed all of our lives in so many ways – speaks for itself.
So let’s just cut right to the chase: your record as chief executive officer of one of the most important and powerful companies on the planet.
The Buck Stops Here
I’ve actually been a harsh critic of leaders who whine about the cards they were dealt, make excuses for what happens on their watch, or point fingers at their predecessors. I don’t care if you run a company or a nation, that’s not leadership behavior. And I see more and more leaders failing to hold themselves accountable every day. It’s appalling.
But you’ve never done that. Not even once. The buck stops with you. That says quite a lot about your integrity and your character. Besides, everyone I’ve talked to says you’re a great motivator. They say your enthusiasm is contagious. That puts you above many, if not most, of your contemporaries. You’re a true believer in your company. And a true leader.
In terms of operating metrics, Microsoft’s revenues and net income have both tripled to $77 billion and $21 billion, respectively, on your watch. You tripled the number of employees, as well. That puts you on a very short list in terms of effectively scaling what was already a huge company. That speaks volumes about your management ability.
While the stock has underperformed since you took over in January of 2000, that’s a bit misleading. Shares of Microsoft peaked the prior month, along with the rest of the market in the biggest bubble in history. Then it crashed. Four months after you took over, the stock had lost about half its value. Then things got worse.
Every Nasdaq stock performed erratically from 1999 to 2001, shooting straight up and straight down like a speed freak. But if you wait until things settled down a bit and look at Microsoft’s stock from say January 2001 to the present, it’s up over 40%, consistent with the Nasdaq and S&P 500. Over the past 5 years, it’s also on par with the S&P 500.
I’m not saying it’s been a rocket ship ride like the early days. I’m just pointing out how misleading comparisons can be. Regardless, I concede that the stock has defied the company’s excellent fundamentals for the better part of a decade. Clearly the street is concerned that you haven’t kept up with Apple and Google in taking Microsoft beyond the PC. So, let’s talk about that.
In the high-tech industry, innovation happens. Breakthroughs happen. Technology disrupts markets. Killer apps arise out of thin air. Websites go viral. Products become category killers overnight. And, as you know all too well, nobody knows what’s going to be a dud and what’s going to change the world until after the fact. Nobody.
So, when Steve Jobs returned to Apple, rejuvenated a dead company, and launched that remarkable string of category killing products from iPod and iTunes to iPhone and iPad, that was stunning. It was far and away the most extraordinary series of breakthroughs the technology world has ever seen by one company in such a short period of time.
And while that indeed began right about the time you took the reins at Microsoft, I’m just not seeing the missed opportunities everyone talks about. I mean, how is a software company, however big and powerful, supposed to match that kind of innovation, that kind of iconic integration of hardware, chips, operating system, applications, services, marketing, and sales channel?
Maybe there’s one answer to that question. Google did it, at least in part. Okay, so let’s talk about Google.
Google is an internet search and advertising company. That’s how it began. That’s its DNA. It launched AdWords – the product from which it derives virtually all of its revenues and profits – the year you took charge at Microsoft. And it used the cash flow from that extraordinary product to fund the development of operating systems and cloud-based applications to give away for free so it could sell more search ads.
So what’s the missed opportunity for Microsoft there? It’s remarkable to think that people who cover this industry for a living don’t get that one of the largest, most profitable, and most important technology companies on the planet can’t just drop everything, pivot, and somehow match a new innovation that nobody saw coming.
That’s right, dozens of famous companies and big name VCs told Google founders Larry Page and Sergey Brin to take a hike. Excite CEO George Bell could have bought Google for $1 million. Yahoo’s founders had a shot at it too and passed. Now it’s worth $290 billion. That’s what I call a missed opportunity. Those guys were actually in the internet search business and couldn’t see what Google had.
As for the cloud, it’s one thing to cannibalize your own products so your competitors don’t. It’s another thing entirely to cannibalize one of your two biggest products – Microsoft Office – by giving it away for free. That was Google’s strategy and it was brilliant. But you couldn’t follow. You didn’t have the ad revenue to subsidize the free software.
That’s why we call that sort of thing disruptive technology. It changes the landscape. And there was really nothing you could do about it one way or the other. Not a thing.
The truth is that Microsoft is not a consumer device company, an internet search advertising company, or a social media company. At its core, Microsoft is a PC operating systems and productivity applications company. That’s its DNA.
And yet, you’re still competing in those other markets. You’ve got Xbox and Skype. You have Bing, Windows Phone, Surface, MSN, and Azure. If anything, that’s what concerns me. You’ve got your hands in everything. You can’t try to be all things to all people. That’s a recipe for disaster.
I realize that’s what you were trying to get at with your recent rebranding, repositioning, and restructuring of the company. I applaud the effort to simplify the organizational structure. That was definitely needed for any cultural change to occur. And the attempt to remake Microsoft as a devices and services company is a bold move.
In fact, I had wondered how you planned to implement a new strategy that to me seemed much too vague. Now I understand. It actually makes sense. You removed much of the legacy complexity, the barriers to change. You created a new foundation. Now it’ll be up to your successor to fully build it out. There’s plenty of room there for someone with vision, someone who wants to rebuild a great company.
Before I let you go, there’s one more thing we have in common. In last week’s Seattle Times interview, you said something about your biggest flop being Vista. You’re not kidding. What a disaster. Aside from that, I think you’ve done a remarkable job with a remarkable company. I hope the next chapter of your life is just as fun, rewarding, and fulfilling.