Last week I identified seven ways Microsoft can save itself in 2011. One of the most important, I wrote, was that CEO Steve Ballmer must bring management stability back to Redmond: "In the past 18 months, the entrance to Microsoft's corporate headquarters has revolved faster than the judge's panel on American Idol."
I guess Ballmer sings to his own beat. Exactly one week later, he's decided to remove Bob Muglia, a 22-year company veteran, from his role as head of Microsoft’s Server and Tools Business unit, which includes Windows Server and related products.
Ballmer was vague about the reasons. "This is simply recognition that all businesses go through cycles and need new and different talent to manage through those cycles," said Ballmer, in an e-mail Monday to Microsoft employees. Then came the inevitable follow-up. "In conjunction with this leadership change, Bob has decided to leave Microsoft this summer," wrote Ballmer. "He will continue to actively run STB as I conduct an internal and external search for a new leader.”
If Ballmer's e-mail is to be taken at face value, it raises big questions about his management style. After all, Ballmer is saying he asked the head of one of Microsoft's most strategic units to step down even though he's got no immediate replacement lined up. It also means STB will have a lame duck at the helm for as long as six months, a very long time in the tech business.
But there are bigger questions about Ballmer's leadership.
Can it be coincidence that Muglia now joins former Business Division president Stephen Elop, former Windows strategy VP Mike Nash, former Entertainment & Devices president Robbie Bach, former Genuine Software program director Alex Kochis, former Windows group senior VP Bill Veghte, and chief software architect Ray Ozzie on the list of senior executives who have left, or announced their intentions to leave, Microsoft in recent months.
In the words of a former New York University professor of mine, the late, great Edwin Diamond, "No sparrow falls by accident." It's apparent to me that the company's top talent has lost confidence in Microsoft's ability to thrive and innovate in the post-PC era. As a group, they're realizing that stagnation is bad for their careers, and wallets.
Microsoft stock traded at about $28 five years ago; today it still goes for 28 bucks. Over the same half decade, Google shares have increased from about $465 per share to $600 per while Apple shares have jumped from $85 to $341.
What's most disconcerting, to the extent that market caps reflect investors' faith in a company's growth prospects, is that the defections indicate that those with the most to gain from a run-up in Microsoft's share price—top managers who hold millions of dollars in stock options—don't believe any such thing is going to happen.
And why should they? Another point I raised in last week's column, which was published prior to Ballmer's keynote speech at the Consumer Electronics Show, was that the company must develop a tablet-specific operating systtem to compete with the iPad and Google Android in tech's hottest market. I fully expected Ballmer to announce something to that effect during his keynote in Las Vegas. After all, signs indicate that 2011 is the year of the tablet.
No such words were issued. Instead, Microsoft now says it will have an operating system for ARM-based tablets with Windows 8. Windows 8? That's more than a year away. In the meantime, Apple and Google will be carving up the tablet market like Belgium and France divvied up the Congo.
Here's what Goldman Sachs' Laura Friar, in a Jan. 5 research note, had to say about Microsoft's tablet timing. "We still believe that the success of the iPad demonstrates that a full OS is not required for the major usage cases of a tablet. In addition, allowing another full year for other OSes to gain momentum could further hinder Microsoft's ability to gain significant market share," wrote Friar, whose 12-month price target for MSFT is a whopping $29.
So here we are in the second week of January, and it's already looking like 2011 could be a repeat of 2010 for Microsoft. A confused, belated, and underwhelming mobile strategy? Check. More top-level defections? Check. Languid stock price? Check.
At some point, it all comes back to Ballmer, the CEO. The question now is how long Microsoft's institutional shareholders, and its board (which cut Ballmer's bonus in half last year following the KIN debacle) will let this go on.