Microsoft:  Value Creation Is About New Markets and Growth – Not Defending Your Base

Microsoft: Value Creation Is About New Markets and Growth – Not Defending Your Base

People who follow my speaking and writing – including my over 400 Forbes columns – know that I preach the importance of growth. Successful organizations are agile – and agility is the sum of learning + adaptability. Smart organizations are constantly looking externally, gathering data, learning about markets and shifts – then structured to adopt those learnings into their business model and adapt the organization to new market needs.

Steve Ballmer was the antithesis of agility. For his entire career he knew only that Microsoft stock price post BallmerWindows and Office made all the money at Microsoft. So he kept investing in Windows and Office. He failed at everything else. False starts in phones, tablets, gaming – products came and went like ice cream cones on a hot August day. Ballmer laughed at the very notion of the iPhone ever being successful – while simultaneously throwing away $7.2B buying Nokia. Then there was $8.5B buying Skype. $400M buying the Borders Nook. Those were ridiculous acquisitions that just wasted shareholder money. To Ballmer, Microsoft’s future relied on maintaining Windows and Office.

So as the market went mobile, Ballmer kept over-investing. He spent billions launching Windows 8, which I predicted was obviously going to fail at growing the Windows market as early as 2012. And it was easy to predict that Win8 tablets were going to be a bust when launched in 2012 as well. But Ballmer was “all-in” on Windows and Office. He was completely locked-in, and unwilling to even consider any data indicating that the PC market was dying – effectively driving Microsoft over a cliff.

It was not hard to identify Steve Ballmer as the worst CEO in America in 2012. When Ballmer took over Microsoft it was worth $60/share. He drove that value down to $20. And the company valuation was almost unchanged his entire 14 years as CEO. He remained locked-in to trying to Defend & Extend PC sales, and it did Microsoft no good. But when the Board replaced Ballmer with Nadella the company moved quickly into growth in gaming, and especially cloud services. In just 6 years Nadella has improved the company’s value by 400%!!!

Success is NOT about defending the past. Success IS about growth. Don’t be locked in to what worked before. Focus on what markets want and need – learn how to understand these needs – and then adapt to giving customers new solutions. Don’t make the mistakes of Ballmer – be a Nadella to lead your organization into growth opportunities!

A $7.6B Write-off Plus Layoffs Is Never a Good Sign Microsoft

Microsoft announced today it was going to shut down the Nokia phone unit, take a $7.6B write-off (more than the $7.2B they paid for it,) and lay off another 7,800 employees.  That makes the layoffs since CEO Nadella took the reigns almost 26,000.  Finding any good news in this announcement is a very difficult task.

MSFT_logo_rgb_C-Gray_DUnfortunately, since taking over as Microsoft’s #1 leader, Mr. Nadella has been remarkably predictable.  Like his peer CEOs who take on the new role, he has slashed and burned employment, shut down at least one big business, taken massive write-offs, and undertaken at least one wildly overpriced acquisition (Minecraft) that is supposed to be a game changer for the company.  He apparently picked up the “Turnaround CEO Playbook” after receiving the job and set out on the big tasks!

Yet he still has not put forward a strategy that should encourage investors, employees, customers or suppliers that the company will remain relevant long-term. Amidst all these big tactical actions, it is completely unclear what the strategy is to remain a viable company as customers move, quickly and in droves, to mobile devices using competitive products.

I predicted here in this blog the week Steve Ballmer announced the acquisition of Nokia in September, 2013 that it was “a $7.2B mistake.”  I was off, because in addition to all the losses and restructuring costs Microsoft endured the last 7 quarters, the write off is $7.6B.  Oops.

Why was I so sure it would be a mistake?  Because between 2011 and 2013 Nokia had already lost half its market share.  CEO Elop, who was previously a Microsoft senior executive, had committed Nokia completely to Windows phones, and the results were already catastrophic.  Changing ownership was not going to change the trajectory of Nokia sales.

Microsoft had failed to build any sort of developer community for Windows 8 mobile.  Developers need people holding devices to buy their software.  Nokia had less than 5% share.  Why would any developer build an app for a Windows phone, when almost the entire market was iOS or Android?  In fact, it was clear that developing rev 2, 3, and 4 of an app for the major platforms was far more valuable than even bothering to port an app into Windows 8.

Nokia and Windows 8 had the worst kind of tortuous whirlpool – no users, so no developers, and without new (and actually unique) software there was nothing to attract new users.  Microsoft mobile simply wasn’t even in the game – and had no hope of winning.  It was already clear in June, 2012 that the new Windows tablet – Surface – was being launched with a distinct lack of apps to challenge incumbents Apple and Samsung.

By January, 2013 it was also clear that Microsoft was in a huge amount of trouble.  Where just a few years before there were 50 Microsoft-based machines sold for every competitive machine, by 2013 that had shifted to 2 for 1.  People were not buying new PCs, but they were buying mobile devices by the shipload – literally.  And there was no doubt that Windows 8 had missed the mobile market.  Trying too hard to be the old Windows while trying to be something new made the product something few wanted – and certainly not a game changer.

A year ago I wrote that Microsoft has to win the war for developers, or nothing else matters.  When everyone used a PC it seemed that all developers were writing applications for PCs.  But the world shifted.  PC developers still existed, but they were not able to grow sales.  The developers making all the money were the ones writing for iOS and Android.  The growth was all in mobile, and Microsoft had nothing in the game.  Meanwhile, Apple and IBM were joining forces to further displace laptops with iPads in commercial/enterprise uses.

Then we heard Windows 10 would change all of that.  And flocks of people wrote me that a hybrid machine, both PC and tablet, was the tool everyone wanted.  Only we continue to see that the market is wildly indifferent to Windows 10 and hybrids.

Imagine you write with a fountain pen – as most people did 70 years ago.  Then one day you are given a ball point pen.  This is far easier to use, and accomplishes most of what you want.  No, it won’t make the florid lines and majestic sweeps of a fountain pen, but wow it is a whole lot easier and a darn site cheaper.  So you keep the fountain pen for some uses, but mostly start using the ball point pen.

Then the fountain pen manufacturer says “hey, I have a contraption that is a ball point pen, sort of, and a fountain pen, sort of, combined.  It’s the best of all worlds.”  You would likely look at it, but say “why would I want that.  I have a fountain pen for when I need it.  And for 90% of the stuff I write the ball point pen is great.”

That’s the problem with hybrids of anything – and the hybrid tablet is  no different.  The entrenched sellers of old technology always think a hybrid is a good idea.  But once customers try the new thing, all they want are advancements to the new thing. (Just look at the interest in Tesla cars compared to the stagnant sales of hybrid autos.)

And we’re up to Surface 3 now. When I pointed out in January, 2013 that the markets were rapidly moving away from Microsoft I predicted Surface and Surface Pro would never be important products.  Reader outcry at that time from Microsoft devotees was so great that Forbes editors called me on the carpet and told me I lacked the data to make such a bold prediction.  But I stuck by my guns, we changed some language so it was less blunt, and the article ran.

Two and a half years later and we’re up to rev number Surface 3.  And still, almost nobody is using the product.  Less than 5% market share.  Right again.  It wasn’t a technology prediction, it was a market prediction.  Lacking app developers, and a unique use,  the competition was, and remains, simply too far out front.

Windows 10 is, unfortunately, a very expensive launch.  And to get people to use it Microsoft is giving it away for free.  The hope is then users will hook onto the cloud-based Office 365 and Microsoft’s Azure cloud services.  But this is still trying to milk the same old cow.  This approach relies on people being completely unwilling to give up using Windows and/or Office.  And we see every day that millions of people are finding alternatives they like just fine, thank you very much.

Gamers hated me when I recommended Microsoft should give (for free) xBox to Nintendo.  Unfortunately, I learned few gamers know much about P&Ls.  They all assumed Microsoft made a fortune in gaming.  But anyone who’s ever looked at Microsoft’s financial filings knows that the Entertainment Division, including xBox, has been a giant money-sucking hole.  If they gave it away it would save money, and possibly help leadership figure out a strategy for profitable growth.

Unfortunately, Microsoft bought Minecraft, in effect “doubling down” on the bet.  But regardless of how well anyone likes the products, Microsoft is not making money.  Gaming is a bloody war where Sony and Microsoft keep battling, and keep losing billions of dollars. The odds of ever earning back the $2.5B spent on Minecraft is remote.

The greater likelihood is that as write offs continue to eat away at profits, and as markets continue evolving toward mobile products offered by competitors hurting “core” Microsoft sales, CEO Nadella will eventually have to give up on gaming and undertake another Nokia-like event.

All investors risk looking at current events to drive decision-making.  When Ballmer was sacked and Nadella given the CEO job the stock jumped on euphoria.  But the last 18 months have shown just how bad things are for Microsoft.  It is a near monopolist in a market that is shrinking.  And so far Mr. Nadella has failed to define a strategy that will make Microsoft into a company that does more than try to milk its heritage.

I said the giant retailer Sears Holdings would be a big loser the day Ed Lampert took control of the company.  But hope sprung eternal, and investors jumped on the Sears bandwagon, believing a new CEO would magically improve a worn out, locked-in company.  The stock went up for over 2 years.  But, eventually, it became clear that Sears is irrelevant and the share price increase was unjustified.  And the stock tanked.

Microsoft looks much the same.  The actions we see are attempts to defend & extend a gloried history.  But they don’t add up to a strategy to compete for the future.  HoloLens will not be a product capable of replacing Windows plus Office revenues.  If developers are attracted to it enough to start writing apps.  Cortana is cool, but it is not first.  And competitive products have so much greater usage that developer learning curve gains are wildly faster.  These products are not game changers.  They don’t solve large, unmet needs.

And employees see this.  As I wrote in my last column, it is valuable to listen to employees.  As the bloom fell off the rose, and Nadella started laying people off while freezing pay, employee support of him declined dramatically.  And employee faith in leadership is far lower than at competitors Apple and Google.

As long as Microsoft keeps playing catch up, we should expect more layoffs, cost cutting and asset sales.  And attempts at more “hail Mary” acquisitions intended to change the company.  All of which will do nothing to grow customers, provide better jobs for employees, create value for investors or greater revenue opportunities for suppliers.

 

Five Worst CEOs Revisited – How Many Jobs Did They Create this Labor Day?

Five Worst CEOs Revisited – How Many Jobs Did They Create this Labor Day?

It’s Labor Day, and a time when we naturally think about our jobs.

When it comes to jobs creation, no role is more critical than the CEO.  No company will enter into a growth phase, selling more product and expanding employment, unless the CEO agrees.  Likewise, no company will shrink, incurring job losses due to layoffs and mass firings, unless the CEO agrees.  Both decisions lay at the foot of the CEO, and it is his/her skill that determines whether a company adds jobs, or deletes them.

Ed Lampert, CEO Sears

Over 2 years ago (5 May, 2012) I published “The 5 CEOs Who Should Be Fired.”  Not surprisingly, since then employment at all 5 of these companies has lagged economic growth, and in all but one case employment has shrunk.  Yet, 3 of these CEOs remain in their jobs – despite lackluster (and in some cases dismal) performance. And all 5 companies are facing significant struggles, if not imminent failure.

#5 – John Chambers at Cisco

In 2012 it was clear that the market shift to public networks and cloud computing was forever changing the use of network equipment which had made Cisco a modern growth story under long-term CEO Chambers.  Yet, since that time there has been no clear improvement in Cisco’s fortunes.  Despite 2 controversial reorganizations, and 3 rounds of layoffs, Cisco is no better positioned today to grow than it was before.

Increasingly, CEO Chambers’ actions reorganizations and layoffs look like so many machinations to preserve the company’s legacy rather than a clear vision of where the company will grow next.  Employee morale has declined, sales growth has lagged and although the stock has rebounded from 2012 lows, it is still at least 10% short of 2010 highs – even as the S&P hits record highs.  While his tenure began with a tremendous growth story, today Cisco is at the doorstep of losing relevancy as excitement turns to cloud service providers like Amazon.  And the decline in jobs at Cisco is just one sign of the need for new leadership.

#4 Jeff Immelt at General Electric

When CEO Immelt took over for Jack Welch he had some tough shoes to fill.  Jack Welch’s tenure marked an explosion in value creation for the last remaining original Dow Jones Industrials component company.  Revenues had grown every year, usually in double digits; profits soared, employment grew tremendously and both suppliers and investors gained as the company grew.

But that all stalled under Immelt.  GE has failed to develop even one large new market, or position itself as the kind of leading company it was under Welch.  Revenues exceeded $150B in 2009 and 2010, yet have declined since.  In 2013 revenues dropped to $142B from $145B in 2012.  To maintain revenues the company has been forced to continue selling businesses and downsizing employees every year.  Total employment in 2014 is now less than in 2012.

Yet, Mr. Immelt continues to keep his job, even though the stock has been a laggard.  From the near $60 it peaked at his arrival, the stock faltered.  It regained to $40 in 2007, only to plunge to under $10 as the CEO’s over-reliance on financial services nearly bankrupted the once great manufacturing company in the banking crash of 2009.  As the company ponders selling its long-standing trademark appliance business, the stock is still less than half its 2007 value, and under 1/3 its all time high.  Where are the jobs?  Not GE.

#3 Mike Duke at Wal-Mart

Mr. Duke has left Wal-Mart, but not in great shape.  Since 2012 the company has been rocked by scandals, as it came to light the company was most likely bribing government officials in Mexico.  Meanwhile, it has failed to defend its work practices at the National Labor Relations Board, and remains embattled regarding alleged discrimination of female employees.  The company’s employment practices are regularly the target of unions and those supporting a higher minimum wage.

The company has had 6 consecutive quarters of declining traffic, as sales per store continue to lag – demonstrating leadership’s inability to excite people to shop in their stores as growth shifts to dollar stores.  The stock was $70 in 2012, and is now only $75.60, even though the S&P 500 is up about 50%.  So far smaller format city stores have not generated much attention, and the company remains far behind leader Amazon in on-line sales.  WalMart increasingly looks like a giant trapped in its historical house, which is rapidly delapidating.

One big question to ask is who wants to work for WalMart?  In 2013 the company threatened to close all its D.C. stores if the city council put through a higher minimum wage.  Yet, since then major cities (San Francisco, Chicago, Los Angeles, Seattle, etc.) have either passed, or in the process of passing, local legislation increasing the minimum wage to anywhere from $12.50-$15.00/hour.  But there seems no response from WalMart on how it will create profits as its costs rise.

#2 Ed Lampert at Sears

Nine straight quarterly losses.  That about says it all for struggling Sears.  Since the 5/2012 column the CEO has shuttered several stores, and sales continue dropping at those that remain open.  Industry pundits now call Sears irrelevant, and the question is looming whether it will follow Radio Shack into oblivion soon.

CEO Lampert has singlehandedly destroyed the Sears brand, as well as that of its namesake products such as Kenmore and Diehard.  He has laid off thousands of employees as he consolidated stores, yet he has been unable to capture any value from the unused real estate.  Meanwhile, the leadership team has been the quintessential example of “a revolving door at headquarters.”  From about $50/share 5/2012 (well off the peak of $190 in 2007,) the stock has dropped to the mid-$30s which is about where it was in its first year of Lampert leadership (2004.)

Without a doubt, Mr. Lampert has overtaken the reigns as the worst CEO of a large, publicly traded corporation in America (now that Steve Ballmer has resigned – see next item.)

#1 Steve Ballmer at Microsoft

In 2013 Steve Ballmer resigned as CEO of Microsoft.  After being replaced, within a year he resigned as a Board member.  Both events triggered analyst enthusiasm, and the stock rose.

However, Mr. Ballmer left Microsoft in far worse condition after his decade of leadership.  Microsoft missed the market shift to mobile, over-investing in Windows 8 to shore up PC sales and buying Nokia at a premium to try and catch the market.  Unfortunately Windows 8 has not been a success, especially in mobile where it has less than 5% shareSurface tablets were written down, and now console sales are declining as gamers go mobile.

As a result the new CEO has been forced to make layoffs in all divisions – most substantially in the mobile handset (formerly Nokia) business – since I positioned Mr. Ballmer as America’s worst CEO in 2012.  Job growth appears highly unlikely at Microsoft.

CEOs – From Makers to Takers

Forbes colleague Steve Denning has written an excellent column on the transformation of CEOs from those who make businesses, to those who take from businesses.  Far too many CEOs focus on personal net worth building, making enormous compensation regardless of company performance.  Money is spent on inflated pay, stock buybacks and managing short-term earnings to maximize bonuses.  Too often immediate cost savings, such as from outsourcing, drive bad long-term decisions.

CEOs are the ones who determine how our collective national resources are invested.  The private economy, which they control, is vastly larger than any spending by the government. Harvard professor William Lazonick details how between 2003 and 2012 CEOs gave back 54% of all earnings in share buybacks (to drive up stock prices short term) and handed out another 37% in dividends.  Investors may have gained, but it’s hard to create jobs (and for a nation to prosper) when only 9% of all earnings for a decade go into building new businesses!

There are great CEOs out there.  Steve Jobs and his replacement Tim Cook increased revenues and employment dramatically at Apple.  Jeff Bezos made Amazon into an enviable growth machine, producing revenues and jobs.  These leaders are focused on doing what it takes to grow their companies, and as a result the jobs in America.

It’s just too bad the 5 fellows profiled above have done more to destroy value than create it.

Microsoft’s Last Stand

Microsoft’s Last Stand

Over the last couple of weeks big announcements from Apple, IBM and Microsoft have set the stage for what is likely to be Microsoft’s last stand to maintain any sense of personal technology leadership.

Custer Tries Holding Off An Unstoppable Native American Force

Custer Tries Holding Off An Unstoppable Native American Force

To many consumers the IBM and Apple partnership probably sounded semi-interesting.  An app for airplane fuel management by commercial pilots is not something most people want.  But what this announcement really amounted to was a full assault on regaining dominance in the channel of Value Added Resellers (VARs) and Value Added Dealers (VADs) that still sell computer “solutions” to thousands of businesses.  Which is the last remaining historical Microsoft stronghold.

Think about all those businesses that use personal technology tools for things like retail point of purchase, inventory control, loan analysis in small banks, restaurant management, customer data collection, fluid control tracking, hotel check-in, truck routing and management, sales force management, production line control, project management — there is a never-ending list of business-to-business applications which drive the purchase of literally millions of devices and applications.  Used by companies as small as a mom-and-pop store to as large  as WalMart and JPMorganChase.  And these solutions are bundled, sold, delivered and serviced by what is collectively called “the channel” for personal technology.

This “channel” emerged after Apple introduced the Apple II running VisiCalc, and businesses wanted hundreds of these machines. Later, bundling educational software with the Apple II created a near-monopoly for Apple channel partners who bundled solutions for school systems.

But, as the PC emerged this channel shifted.  IBM pioneered the Microsoft-based PC, but IBM had long used a direct sales force. So its foray into personal computing did a very poor job of building a powerful sales channel.  Even though the IBM PC was Time magazine’s “Man of the Year” in 1982, IBM lost its premier position largely because Microsoft took advantage of the channel opportunity to move well beyond IBM as a supplier.

Microsoft focused on building a very large network of developers creating an enormous variety of business-to-business applications on the Windows+Intel (Wintel) platform.  Microsoft created training programs for developers to use its operating system and tools, while simultaneously cultivating manufacturers (such as Dell and Compaq) to build low cost machines to run the software.  “Solution selling” was where VARs bundled what small businesses – and even many large businesses – needed by bringing together developer applications with manufacturer hardware.

It only took a few years for Microsoft to overtake Apple and IBM by dominating and growing the VAR channel.  Apple did a poor job of creating a powerful developer network, preferring to develop everything users should want itself, so quickly it lacked a sufficient application base.  IBM constantly tried to maintain its direct sales model (and upsell clients from PCs to more expensive hardware) rather than support the channel for developing applications or selling solutions based on PCs.

But, over the last several years Microsoft played “bet the company” on its launch of Windows 8.  As mobile grew in hardware sales exponentially, and PC sales flattened (then declined,) Microsoft was tepid regarding any mobile offering.  Under former CEO Steve Ballmer, Microsoft preferred creating an “all-in-one” solution via Win8 that it hoped would keep PC sales moving forward while slowly allowing its legions of Microsoft developers to build Win8 apps for mobile Surface devices — and what it further hoped would be other manufacturer’s tablets and phones running Win8.

This flopped.  Horribly. Apple already had the “installed base” of users and mobile developers, working diligently to create new apps which could be released via its iTunes distribution platform.  As a competitive offering, Google had several years previously launched the Android operating system, and companies such as HTC and Samsung had already begun building devices. Developers who wanted to move beyond Apple were already committed to Android.  Microsoft was simply far too late to market with a Win8 product which gave developers and manufacturers little reason to invest.

Now Microsoft is in a very weak position.  Despite much fanfare at launch, Microsoft was forced to take a nearly $1B write-off on its unsellable Surface devices.  In an effort to gain a position in mobile, Microsoft previously bought phone maker Nokia, but it was simply far too late and without a good plan for how to change the Apple juggernaut.

Apple is now the dominant player in mobile, with the most users, developers and the most apps.  Apple has upended the former Microsoft channel leadership position, as solution sellers are now offering Apple solutions to their mobile-hungry business customers.  The merger with IBM brings even greater skill, and huge resources, to augmenting the base of business apps running on iOS and its devices (presently and in the future.)  It provides encouragement to the VARs that a future stream of great products will be coming for them to sell to small, medium and even large businesses.

Caught in a situation of diminishing resources, after betting the company’s future on Windows 8 development and launch, and then seeing PC sales falter, Microsoft has now been forced to announce it is laying off 18,000 employees.  Representing 14% of total staff, this is Microsoft’s largest reduction ever. Costs for the downsizing will be a massive loss of $1.1-$1.6B – just one year (almost to the day) after the huge Surface write-off.

Recognizing its extraordinarily weak market position, and that it’s acquisition of Nokia did little to build strength with developers while putting it at odds with manufacturers of other mobile devices, the company is taking some 12,000 jobs out of its Nokia division – ostensibly the acquisition made at a cost of $7.2B to blunt iPhone sales.  Every other division is also suffering headcount reductions as Microsoft is forced to “circle the wagons” in an effort to find some way to “hold its ground” with historical business customers.

Today Apple is very strong in the developer community, already has a distribution capability with iTunes to which it is adding mobile payments, and is building a strong channel of VARs seeking mobile solutions.  The IBM partnership strengthens this position, adds to Apple’s iOS developers, guarantees a string of new solutions for business customers and positions iOS as the platform of choice for VARs and VADs who will use iBeacon and other devices to help businesses become more capable by utilizing mobile/cloud technology.

Meanwhile, Microsoft is looking like the 7th Cavalry at the Little Bighorn.  Microsoft is surrounded by competitors augmenting iOS and Android (and serious cloud service suppliers like Amazon,) resources are depleting as sales of “core” products stagnate and decline and write-offs mount, and watching as its “supply line” developer channel abandons Windows 8 for the competitive alternatives.

CEO Nadella keeps saying that that cloud solutions are Microsoft’s future, but how it will effectively compete at this late date is as unclear as the email announcement on layoffs Nokia’s head Stephen Elop sent to employees.  Keeping its channel, long the source of market success for Microsoft, from leaving is Microsoft’s last stand.  Unfortunately, Nadella’s challenge puts him in a position that looks a lot like General Custer.

 

Will Steve Ballmer Be a Good LA Clippers Leader?

Will Steve Ballmer Be a Good LA Clippers Leader?

Anyone who reads my column knows I’ve been no fan of Steve Ballmer as CEO of Microsoft.  On multiple occasions I chastised him for bad decisions around investing corporate funds in products that are unlikely to succeed.  I even called him the worst CEO in America The Washington Post even had difficulty finding reputable folks to disagree with my argument.

Unfortunately, Microsoft suffered under Mr. Ballmer.  And Windows 8, as well as the Surface tablet, have come nowhere close to what was expected for their sales – and their ability to keep Microsoft relevant in a fast changing personal technology marketplace.  In almost all regards, Mr. Ballmer was simply a terrible leader, largely because he had no understanding of business/product lifecycles.

lifecycle slide  Microsoft was founded by Bill Gates, who did a remarkable job of taking a start-up company from the Wellspring of an idea into one of the fastest growing adolescents of any American company.

Under Mr. Gates leadership Microsoft single-handedly overtook the original PC innovator – Apple – and left it a niche company on the edge of bankruptcy in little over a decade.

Mr. Gates kept Microsoft’s growth constantly in the double digits by not only making superior operating system software, but by pushing the company into application software which dominated the desktop (MS Office.)  And when the internet came along he had the vision to be out front with Internet Explorer which crushed early innovator, and market maker, Netscape.

But then Mr. Gates turned the company over to Mr. Ballmer.  And Mr. Ballmer was a leader lacking vision, or innovation.  Instead of pushing Microsoft into new markets, as had Mr. Gates, he allowed the company to fixate on constant upgrades to the products which made it dominant – Windows and Office.  Instead of keeping Microsoft in the Rapids of growth, he offered up a leadership designed to simply keep the company from going backward.  He felt that Microsoft was a company that was “mature” and thus in need of ongoing enhancement, but not much in the way of real innovation.  He trusted the market to keep growing, indefinitely, if he merely kept improving the products handed him.

As a result Microsoft stagnated.  A “Reinvention Gap” developed as Vista, Windows 7, then Windows 8 and one after another Office updates did nothing to develop new customers, or new markets.  Microsoft was resting on its old laurels – monopolistic control over desktop/laptop markets – without doing anything to create new markets which would keep it on the old growth trajectory of the Gates era.

Things didn’t look too bad for several years because people kept buying traditional PCs.  And Ballmer famously laughed at products like Linux or Unix – and then later at entertainment devices, smart phones and tablets – as Microsoft launched, but then abandoned products like Zune, Windows CE phones and its own tablet.  Ballmer kept thinking that all the market wanted was a faster, cheaper PC.  Not anything really new.

And he was dead wrong.  The Reinvention Gap emerged to the public when Apple came along with the iPod, iTunes, iPhone and iPad.  These changed the game on Microsoft, and no longer was it good enough to simply have a better edition of an outdated technology.  As PC sales began declining it was clear that Ballmer’s leadership had left the company in the Swamp, fighting off alligators and swatting at mosquitos with no strategy for how it would regain relevance against all these new competitors.

So the Board pushed him out, and demoted Gates off the Chairman’s throne.  A big move, but likely too late.  Fewer than 7% of companies that wander into the Swamp avoid the Whirlpool of demise.  Think Univac, Wang, Lanier, DEC, Cray, Sun Microsystems (or Circuit City, Montgomery Wards, Sears.)  The new CEO, Satya Nadella, has a much, much more difficult job than almost anyone thinks.  Changing the trajectory of Microsoft now, after more than a decade creating the Reinvention Gap, is a task rarely accomplished.  So rare we make heros of leaders who do it (Steve Jobs, Lou Gerstner, Lee Iacocca.)

So what will happen at the Clippers?

Critically, owning an NBA team is nothing like competing in the real business world.  It is a closed marketplace.  New competitors are not allowed, unless the current owners decide to bring in a new team.  Your revenues are not just dependent upon you, but are even shared amongst the other teams.  In fact your revenues aren’t even that closely tied to winning and losing.  Season tickets are bought in advance, and with so many games away from home a team can do quite poorly and still generate revenue – and profit – for the owner.  And this season the Indiana Pacers demonstrated that even while losing, fans will come to games.  And the Philadelphia 76ers drew crowds to see if they would set a new record for the most consecutive games lost.

In America the major sports only modestly overlap, so you have a clear season to appeal to fans.  And even if you don’t make it into the playoffs, you still share in the profits from games played by other teams.  As a business, a team doesn’t need to win a championship to generate revenue – or make a profit.  In fact, the opposite can be true as Wayne Huizenga learned owning the Championship winning Florida Marlins baseball team.  He payed so much for the top players that he lost money, and ended up busting up the team and selling the franchise!

In short, owning a sports franchise doesn’t require the owner to understand lifecycles. You don’t have to understand much about business, or about business competition. You are protected from competitors, and as one of a select few in the club everyone actually works together – in a wholly uncompetitive way – to insure that everyone makes as much money as possible.  You don’t even have to know anything about managing people, because you hire coaches to deal with players, and PR folks to deal with fans and media.  And as said before whether or not you win games really doesn’t have much to do with how much money you make.

Most sports franchise owners are known more for their idiosyncrasies than their business acumen.  They can be loud and obnoxious all they want (with very few limits.)  And now that Mr. Ballmer has no investors to deal with – or for that matter vendors or cooperative parties in a complex ecosystem like personal technology – he doesn’t have to fret about understanding where markets are headed or how to compete in the future.

When it comes to acting like a person who knows little about business, but has a huge ego, fiery temper and loves to be obnoxious there is no better job than being a sports franchise owner.  Mr. Ballmer should fit right in.