Microsoft CEO Steve Ballmer appears to be planning a major reorganization. The apparent objective is to help the company move toward becoming a "devices and services company" as presented in the company's annual shareholder letter last October.
But, the question for investors is whether this is a crafty move that will help Microsoft launch renewed profitable growth, or is it leadership further confusing customers and analysts while leaving Microsoft languishing in stalled markets? After all, the shares are up some 31% the last 6 months and it is a good time to decide if an investor should buy, hold or sell.
There are a lot of things not going well for Microsoft right now.
Everyone knows PC sales have started dropping. IDC recently lowered its forecast for 2013 from a decline of 1.3% to negative 7.8%. The mobile market is already larger than PC sales, and IDC now expects tablet sales (excluding smartphones) will surpass PCs in 2015. Because the PC is Microsoft's "core" market – producing almost all the company's profitability – declining sales are not a good thing.
Microsoft hoped Windows 8 would reverse the trend. That has not happened. Unfortunately, ever since being launched Windows 8 has underperformed the horrific sales of Vista. Eight months into the new product it is selling at about half the rate Vista did back in 2007 – which was the worst launch in company history. Win8 still has fewer users than Vista, and at 4% share 1/10th the share of market leaders Windows 7 and XP.
Microsoft is launching an update to Windows 8, called Windows 8.1 or "blue." But rather than offering a slew of new features to please an admiring audience the release looks more like an early "fix" of things users simply don't like, such as bringing back the old "start" button. Reviewers aren't talking about how exciting the update is, but rather wondering if these admissions of poor initial design will slow conversion to tablets.
And tablets are still the market where Microsoft isn't – even if it did pioneer the product years before the iPad. Bloomberg reported that Microsoft has been forced to cut the price of RT. So far historical partners such as HP and HTC have shunned Windows tablets, leaving Acer the lone company putting out Windows a mini-tab, and Dell (itself struggling with its efforts to go private) the only company declaring a commitment to future products.
And whether it's too late for mobile Windows is very much a real question. At the last shareholder meeting Nokia's investors cried loud and hard for management to abandon its commitment to Microsoft in favor of returning to old operating systems or moving forward with Android. This many years into the game, and with the Google and Apple ecosystems so far in the lead, Microsoft needed a game changer if it was to grab substantial share. But Win 8 has not proven to be a game changer.
In an effort to develop its own e-reader market Microsoft dumped some $300million into Barnes & Noble's Nook last year. But the e-reader market is fast disappearing as it is overtaken by more general-purpose tablets such as the Kindle Fire. Yet, Microsoft appears to be pushing good money after bad by upping its investment by another $1B to buy the rest of Nook, apparently hoping to obtain enough content to keep the market alive when Barnes & Noble goes the way of Borders. But chasing content this late, behind Amazon, Apple and Google, is going to be much more costly than $1B – and an even lower probability than winning in hardware or software.
Then there's the new Microsoft Office. In late May Microsoft leadership hoped investors would be charmed to hear that 1M $99 subscriptions had been sold in 3.5 months. However, that was to an installed base of hundreds of millions of PCs – a less than thrilling adoption rate for such a widely used product. Companies that reached 1M subscribers from a standing (no installed base) start include Instagram in 2.5 months, Spotify in 5 months, Dropbox in 7 months and Facebook (which pioneered an entire new marketplace in Social) in only 10 months. One could have easily expected a much better launch for a product already so widely used, and offered at about a third the price of previous licenses.
A new xBox was launched on May 21st. Unfortunately, like all digital markets gaming is moving increasingly mobile, and consoles show all the signs of going the way of desktop computers. Microsoft hopes xBox can become the hub of the family room, but we're now in a market where a quarter of homes lead by people under 50 don't really use "the family room" any longer.
xBox might have had a future as an enterprise networking hub, but so far Kinnect has not even been marketed as a tool for business, and it has not yet incorporated the full network functionality (such as Skype) necessary to succeed at creating this new market against competitors like Cisco.
Thankfully, after more than a decade losing money, xBox reached break-even recently. However, margins are only 15%, compared to historical Microsoft margins of 60% in "core" products. It would take a major growth in gaming, plus a big market share gain, for Microsoft to hope to replace lost PC profits with xBox sales. Microsoft has alluded to xBox being the next iTunes, but lacking mobility, or any other game changer, it is very hard to see how that claim holds water.
The Microsoft re-org has highlighted 3 new divisions focused on servers and tools, Skype/Lync and xBox. What is to happen with the business which has driven three decades of Microsoft growth – operating systems and office software – is, well, unclear. How upping the focus on these three businesses, so late in the market cycle, and with such low profitability will re-invigorate Microsoft's value is, well, unclear.
In fact, given how Microsoft has historically made money it is wholly unclear what being a "devices and services" company means. And this re-organization does nothing to make it clear.
My past columns on Microsoft have led some commenters to call me a "Microsoft hater." That is not true. More apt would be to say I am a Microsoft bear. Its historical core market is shrinking, and Microsoft's leadership invested far too much developing new products for that market in hopes the decline would be delayed – which did not work. By trying to defend and extend the PC world Microsoft's leaders chose to ignore the growing mobile market (smartphones and tablets) until far too late – and with products which were not game changers.
Although Microsoft's leaders invested heavily in acquisitions and other markets (Skype, Nook, xBox recently) those very large investments came far too late, and did little to change markets in Microsoft's favor. None of these have created much excitement, and recently Rick Sherland at Nomura securities came out with a prediction that Microsoft might well sell the xBox division (a call I made in this column back in January.)
As consumers, suppliers and investors we like the idea of a near-monopoly. It gives us comfort to believe we can trust in a market leader to bring out new products upon which we can rely – and which will continue to make long-term profits. But, good as this feels, it has rarely been successful. Markets shift, and historical leaders fall as new competitors emerge; largely because the old leadership continues investing in what they know rather than shifting investments early into new markets.
This Microsoft reorganization appears to be rearranging the chairs on the Titanic. The mobile iceberg has slashed a huge gash in Microsoft's PC hull. Leadership keeps playing familiar songs, but the boat cannot float without those historical PC profits. Investors would be smart to flee in the lifeboat of recent share price gains.
Microsoft needed a great Christmas season. After years of product stagnation, and a big market shift toward mobile devices from PCs, Microsoft's future relied on the company seeing customers demonstrate they were ready to jump in heavily for Windows8 products – including the new Surface tablet.
Looking deeper, for the 4th quarter PC sales declined by almost 5% according to Gartner research, and by almost 6.5% according to IDC. Both groups no longer expect a rebound in PC shipments, as they believe homes will no longer have more than 1 PC due to the mobile device penetration – the market where Surface and Win8 phones have failed to make any significant impact or move beyond a tiny market share. Users increasingly see the complexity of shifting to Win8 as not worth the effort; and if a switch is to be made consumer and businesses now favor iOS and Android.
These trends mean nothing short of the ruin of Microsoft. Microsoft makes more than 75% of its profits from Windows and Office. Less than 25% comes from its vaunted servers and tools. And Microsoft makes nothing from its xBox/Kinect entertainment division, while losing vast sums on-line (negative $350M-$750M/quarter). No matter how much anyone likes the non-Windows Microsoft products, without the historical Windows/Office sales and profits Microsoft is not sustainable.
So what can we expect at Microsoft:
Ballmer has committed to fight to the death in his effort to defend & extend Windows. So expect death as resources are poured into the unwinnable battle to convert users from iOS and Android.
As resources are poured out of the company in the Quixotic effort to prolong Windows/Office, any hope of future dividends falls to zero.
Expect enormous layoffs over the next 3 years. Something like 50-60%, or more, of employees will go away.
Expect closure of the long-suffering on-line division in order to conserve resources.
The entertainment division will be spun off, sold to someone like Sony or even Barnes & Noble, or dramatically reduced in size. Unable to make a profit it will increasingly be seen as a distraction to the battle for saving Windows – and Microsoft leadership has long shown they have no idea how to profitably grow this business unit.
As more and more of the market shifts to competitive cloud businesses Apple, Amazon and others will grow significantly. Microsoft, losing its user base, will demonstrate its inability to build a new business in the cloud, mimicking its historical experiences with Zune (mobile music) and Microsoft mobile phones. Microsoft server and tool sales will suffer, creating a much more difficult profit environment for the sole remaining profitable division.
Missing the market shift to mobile has already forever tarnished the Microsoft brand. No longer is Microsoft seen as a leader, and instead it is rapidly losing market relevancy as people look to Apple, Google, Amazon, Samsung, Facebook and others for leadership. The declining sales, and lack of customer interest will lead to a tailspin at Microsoft not unlike what happened to RIM. Cash will be burned in what Microsoft will consider an "epic" struggle to save the "core of the company."
But failure is already inevitable. At this stage, not even a new CEO can save Microsoft. Steve Ballmer played "Bet the Company" on the long-delayed release of Win8, losing the chance to refocus Microsoft on other growing divisions with greater chance of success. Unfortunately, the other players already had enough chips to simply bid Microsoft out of the mobile game – and Microsoft's ante is now long gone – without holding a hand even remotely able to turn around the product situation.
Game over. Ballmer loses. And if you keep your money invested in Microsoft it will disappear along with the company.
The web lit up yesterday when people started sharing a Fortune quote from Marissa Mayer, CEO of Yahoo, "We are literally moving the company from BlackBerrys to smartphones." Why was this a big deal? Because, in just a few words, Ms. Mayer pointed out that Research In Motion is no longer relevant. The company may have created the smartphone market, but now its products are so irrelevant that it isn't even considered a market participant.
Ouch. But, more importantly, this drove home that no matter how good RIM thinks Blackberry 10 may be, nobody cares. And when nobody cares, nobody buys. And if you weren't convinced RIM was headed for lousy returns and bankruptcy before, you certainly should be now.
But wait, this is certainly a good bit of the pot being derogatory toward the kettle. Because, other than the highly personalized news about Yahoo's new CEO, very few people care about Yahoo these days as well. After being thoroughly trounced in ad placement and search by Google, it is wholly unclear how Yahoo will create its own relevancy. It may likely be soon when a major advertiser says "When placing our major internet ad program we are focused on the split between Google and Facebook," demonstrating that nobody really cares about Yahoo anymore, either.
And how long will Yahoo survive?
The slip into irrelevancy is the inflection point into failure. Very few companies ever return. Once you are no longer relevant, customer quickly stop paying attention to practically anything you do. Even if you were once great, it doesn't take long before the slide into no-growth, cost cutting and lousy financial performance happens.
Consider:
Garmin once led the market for navigation devices. Now practically everyone uses their mobile phone for navigation. The big story is Apple's blunder with maps, while Google dominates the marketplace. You probably even forgot Garmin exists.
Radio Shack once was a consumer electronics powerhouse. They ran superbowl ads, and had major actresses parlaying with professional sports celebrities in major network ads. When was the last time you even thought about Radio Shack, much less visited a store?
Sears was once America's premier, #1 retailer. The place where everyone shopped for brands like Craftsman, DieHard and Kenmore. But when did you last go into a Sears? Or even consider going into one? Do you even know where one is located?
Kodak invented amateur photography. But when that market went digital nobody cared about film any more. Now Kodak is in bankruptcy. Do you care?
Motorola Razr phones dominated the last wave of traditional cell phones. As sales plummeted they flirted with bankruptcy, until Motorola split into 2 pieces and the money losing phone business became Google – and nobody even noticed.
When was the last time you thought about "building your body 12 ways" with Wonder bread? Right. Nobody else did either. Now Hostess is liquidating.
Being relevant is incredibly important, because markets shift quickly today. As they shift, either you are part of the trend going forward – or you are part of the "who cares" past. If you are the former, you are focused on new products that customers want to evaluate. If you are the latter, you can disappear a whole lot faster than anyone expected as customers simply ignore you.
So now take a look at a few other easy-to-spot companies losing relevancy:
HP headlines are dominated by write offs of its investments in services and software, causing people to doubt the viability of its CEO, Meg Whitman. Who wants to buy products from a company that would spend billions on Palm, business services and Autonomy ERP software only to decide they overspent and can never make any money on those investments? Once a great market leader, HP is rapidly becoming a company nobody cares about; except for what appears to be a bloody train wreck in the making. In tech – lose customesr and you have a short half-life.
Similarly Dell. A leader in supply chain management, what Dell product now excites you? As you think about the money you will spend this holiday, or in 2013, on tech products you're thinking about mobile devices — and where is Dell?
Best Buy was the big winner when Circuit City went bankrupt. But Best Guy didn't change, and now margins have cratered as people showroom Amazon while in their store to negotiate prices. How long can Best Buy survive when all TVs are the same, and price is all that matters? And you download all your music and movies?
Wal-Mart has built a huge on-line business. Did you know that? Do you care? Regardless of Wal-mart's on-line efforts, the company is known for cheap looking stores with cheap merchandise and customers that can't maintain credit cards. When you look at trends in retailing, is Wal-Mart ever the leader – in anything – anymore? If not, Wal-mart becomes a "default" store location when all you care about is price, and you can't wait for an on-line delivery. Unless you decide to go to the even cheaper Dollar General or Aldi.
And, the best for last, is Microsoft. Steve Ballmer announced that Microsoft phone sales quadrupled! Only, at 4 million units last quarter that is about 10% of Apple or Android. Truth is, despite 3 years of development, a huge amount of pre-release PR and ad spending, nobody much cares about Win8, Surface or new Microsoft-based mobile phones. People want an iPhone or Samsung product.
After its "lost decade" when Microsoft simply missed every major technology shift, people now don't really care about Microsoft. Yes, it has a few stores – but they dwarfed in number and customers by the Apple stores. Yes, the shifting tiles and touch screen PCs are new – but nobody real talks about them; other than to say they take a lot of new training. When it comes to "game changers" that are pushing trends, nobody is putting Microsoft in that category.
So the bad news about a $6 billion write-down of aQuantive adds to the sense of "the gang that can't shoot straight" after the string of failures like Zune, Vista and early Microsoft phones and tablets. Not to mention the lack of interest in Skype, while Internet Explorer falls to #2 in browser market share behind Chrome.
When a company is seen as never able to take the lead amidst changing
trends, investors see accquisitions like $1.2B for Yammer as a likely future write down. Customers lose interest and simply spend money elsewhere.
As investors we often hear about companies that were once great brands, but selling at low multiples, and therefore "value plays." But the truth is these are death traps that wipe out returns. Why? These companies have lost relevancy, and that puts them one short step from failure.
As company managers, where are you investing? Are you struggling to be relevant as other competitors – maybe "fringe" companies that use "voodoo solutions" you don't consider "enterprise ready" or understand – are obtaining a lot more interest and media excitment? You can work all you want to defend & extend your past glory, but as markets shift it is amazingly easy to lose relevancy. And it's a very, very tough job to play catch- up.
Just look at the money being spent trying at RIM, Microsoft, HP, Dell, Yahoo…………
Game changers meet newly emerging, unmet needs, in new ways. People are usually happy enough, until they see the new product/solution and realize "hey, this helps me do something I couldn't do before" or "this helps me solve my problem a lot better." Game changers aren't a simple improvement, they allow customers to do something radically different. And although at first they may well appear to not work too well, or appear too expensive, they meet needs so uniquely, and better, that they cause people to change their behavior.
Motorola invented the smart phone. But Motorola thought it was too expensive to be a cell phone, and not powerful enough to be a PC. Believing it didn't fit existing markets well, Motorola shelved the product.
Apple realized people wanted to be mobile. Cell phones did talk and text OK – and RIM had pretty good email. But it was limited use. Laptops had great use, but were too big, heavy and cumbersome to be really mobile. So Apple figured out how to add apps to the phone, and use cloud services support, in order to make the smart phone fill some pretty useful needs – like navigation, being a flashlight, picking up tweets – and a few hundred thousand other things – like doctors checking x-rays or MRI results. Not as good as a PC, and somewhat on the expensive side for the device and the AT&T connection, but a whole lot more convenient. And that was a game changer.
The problem with trying to extend old products into new markets is it rarely works. Take for example Windows 7. It was designed to replace Windows Vista, which was quite unpopular as an upgrade from Windows XP. By most accounts, Windows 7 is a lot better. But, it didn't offer users anything that that made them excited to buy Windows 7. It didn't solve any unmet needs, or offer any radically better solutions. It was just Windows better and faster (some just said "fixed.")
Nothing wrong with that, except Windows 7 did not address the most critical issue in the personal technology marketplace. Windows 7 did not stop the transition from using PCs to using mobile devices. As a result, while sales of app-enabled smartphones and tablets exploded, sales of PCs stalled:
People are moving to the mobility provided by apps, cloud services and the really easy to use interface on modern mobile devices. Market leading cell phone maker, Nokia, decided it needed to enter smartphones, and did so by wholesale committing to Windows7. But now the CEO, Mr. Elop (formerly a Microsoft executive,) is admitting Windows phones simply don't sell well. Nobody cares about Microsoft, or Windows, now that the game has changed to mobility – and Windows 7 simply doesn't offer the solutions that Apple and Android does. Not even Nokia's massive brand image, distribution or ad spending can help when a product is late, and doesn't greatly exceed the market leader's performance. Just last week Nokia announced it was laying off another 10,000 employees.
Reviews of Win8 have been mixed. And that should not be surprising. Microsoft has made the mistake of trying to make Win8 something nobody really wants. On the one hand it has a new interface called Metro that is supposed to be more iOS/Android "like" by using tiles, touch screen, etc. But it's not a breakthrough, just an effort to be like the existing competition. Maybe a little better, but everyone believes the leaders will be better still with new updates soon. By definition, that is not game changing.
Simultaneously, with Win8 users can find their way into a more historical Windows inteface. But this is not obvious, or intuitive. And it has some pretty "clunky" features for those who like Windows. So it's not a "great" Windows solution that would attract developers today focused on other platforms.
Win8 tries to be the old, and the new, without being great at either, and without offering anything that solves new problems, or creates breakthroughs in simplicity or performance.
By focusing on playing catch up, and trying to defend & extend the Windows history, Microsoft missed what was most important about mobility – and that is the thousands of apps. The product line is years late to market, short on apps, short on app developers and short on giving anyone a reason to really create apps for Win8.
Some think it is good if Microsoft makes its own tablet – like it has done with xBox. But that really doesn't matter. What matters is whether Microsoft gives users and developers something that causes them to really, really want a new platform that is late and doesn't have the app base, or the app store, or the interfaces to social media or all the other great thinks they already have come to expect and like about their tablet (or smartphone.)
When iOS came out it was new, unique and had people flocking to buy it. Developers could only be mobile by joining with Apple, and users could only be mobile by buying Apple. That made it a game changer by leading the trend toward mobility.
Google soon joined the competition, built a very large, respectable following by chasing Apple and offering manufacturers an option for competing with Apple.
But Microsoft's new entry gives nobody a reason to develop for, or buy, a Win8 tablet – regardless of who manufactures it. Microsoft does not deliver a huge, untapped market. Microsoft doesn't solve some large, unmet need. Microsoft doesn't promise to change the game to some new, major trend that would drive early adopters to change platforms and bring along the rest of the market.
Microsoft is playing catch up. Catch up with the user interface. Catch up with the format. Catch up with the device size and portability. Catch up with the usability (apps). Just catch up.
Microsoft's problem is that it did not accept the PC market was going to stall back in 2008 or 2009. When it should have seen that mobility was a game changing trend, and required retooling the Microsoft solution suite. Microsoft dabbled with music mobility with Zune, but quickly dropped the effort as it refocused on its "core" Windows. Microsoft dabbled with mobile phones across different solutions including Kin – which it dropped along with Microsoft Mobility. Back again to focusing on operating systems. By maintaining its focus on Windows Microsoft hoped it could stop the trend, and refused to accept the market shift that was destined to stall its sales.
Microsoft stock has been flat for a decade. It's recent value improvement as Win8 approaches launch indicates that hope beats eternally in some investors' breasts for a return of Microsoft software dominance. But those days are long past. PC sales have stalled, and Windows is a product headed toward obsolescence as competitors make ever better, more powerful mobile platforms and ecosystems. If you haven't sold Microsoft yet, this may well be your last chance above $30. Ever.
This has been quite the week for CEO mistakes. First was all the hubbub about Scott Thompson, CEO of Yahoo, inflating his resume to include a computer science degree he did not actually receive. According to Mr. Thompson someone at a recruiting firm added that degree claim in 2005, he didn't know it and he's never read his bio since. A simple oversight, if you can believe he hasn't once read his bio in 7 years, and he didn't think it was ever important to correct someone who introduced him or mentioned it. OOPS – the easy answer for someone making several million dollars per year, and trying to guide a very troubled company from the brink of failure. Hopefully he is more persistent about checking company facts.
Interesting "little" mistake from a guy who paid himself some $50M a few years ago, and benefitted greatly from the government TARP program. He said this would be "fodder for pundits," as if we all should simply overlook losing $2B? He also said this was "unfortunate timing." As if there's a good time to lose $2B?
But neither of these problems will likely result in the CEOs losing their jobs. As obviously damaging as both mistakes are, which would naturally have caused us mere employees to instantly lose our jobs – and potentially be prosecuted – CEOs are a rare breed who are allowed wide lattitude in their behavior. These are "one off" events that gain a lot of attention, but the media will have forgotten within a few days, and everyone else within a few months.
By comparison, there are at least 5 CEOs that make these 2 mistakes appear pretty small. For these 5, frequently honored for their position, control of resources and personal wealth, they are doing horrific damage to their companies, hurting investors, employees, suppliers and the communities that rely on their organizations. They should have been fired long before this week.
#5 – John Chambers, Cisco Systems. Mr. Chambers is the longest serving CEO on this list, having led Cisco since 1995 and championed much of its rapid growth as corporations around the world began installing networks. Cisco's stock reached $70/share in 2001. But since then a combination of recessions that cut corporate IT budgets and a market shift to cloud computing has left Cisco scrambling for a strategy, and growth.
Mr. Chambers appears to have been great at operating Cisco as long as he was in a growth market. But since customers turned to cloud computing and greater use of mobile telephony networks Cisco has been unable to innovate, launch and grow new markets for cloud storage, services or applications. Mr. Chambers has reorganized the company 3 times – but it has been much like rearranging the deck chairs on the Titanic. Lots of confusion, but no improvement in results.
Between 2001 and 2007 the stock lost half its value, falling to $35. Continuing its slide, since 2007 the stock has halved again, now trading around $17. And there is no sign of new life for Cisco – as each earnings call reinforces a company lacking a strategy in a shifting market. If ever there was a need for replacing a stayed-in-the-job too long CEO it would be Cisco.
#4 – Jeffrey Immelt, General Electric (GE). GE has only had 9 CEOs in its 100+ year life. But this last one has been a doozy. After more than a decade of rapid growth in revenue, profits and valuation under the disruptive "neutron" Jack Welch, GE stock reached $60 in 2000. Which turns out to have been the peak, as GE's value has gone nowhere but down since Mr. Immelt took the top job.
GE was once known for entering and changing markets, unafraid to disrupt how the market performed with innovation in products, supply chain and operations. There was no market too distant, or too locked-in for GE to not find a way to change to its advantage – and profit. But what was the last market we saw GE develop? What has Mr. Immelt, in his decade at the top of GE, done to keep GE as one of the world's most innovative, high growth companies? He has steered the ship away from trouble, but it's only gone in circles as it's used up fuel.
From that high in 2001, GE fell to a low of $8 in 2009 as the financial crisis revealed that under Mr. Immelt GE had largely transitioned from a manufacturing and products company into a financial house. He had taken what was then the easy road to managing money, rather than managing a products and services company. Saved from bankruptcy by a lucrative Berkshire Hathaway, GE lived on. But it's stock is still only $19, down 2/3 from when Mr. Immelt took the CEO position.
"Stewardship" is insufficient leadership in 2012. Today markets shift rapidly, incur intensive global competition and require constant innovation. Mr. Immelt has no vision to propel GE's growth, and should have been gone by 2010, rather than allowed to muddle along with middling performance.
#3 – Mike Duke, WalMart. Mr. Duke has been CEO since 2009, but prior to that he was head of WalMart International. We now know Mr. Duke's business unit saw no problems with bribing foreign officials to grow its business. Just on the basis of knowing about illegal activity, not doing anything about it (and probably condoning and recommending more,) and then trying to change U.S. law to diminish the legal repurcussions, Mr. Duke should have long ago been fired.
It's clear that internally the company and its Board new Mr. Duke was willing to do anything to try and grow WalMart, even if unethical and potentially illegal. Recollections of Enron's Jeff Skilling, Worldcom's Bernie Ebbers and Hollinger's Conrdad Black should be in our heads. How far do we allow leaders to go before holding them accountable?
But worse, not even bribes will save WalMart as Mr. Duke follows a worn-out strategy unfit for competition in 2012. The entire retail market is shifting, with much lower cost on-line companies offering more selection at lower prices. And increasingly these companies are pioneering new technologies to accelerate on-line shopping with easy to use mobile devices, and new apps that make shopping, paying and tracking deliveries easier all the time. But WalMart has largely eschewed the on-line world as its CEO has doggedly sticks with WalMart doing more of the same. That pursuit has limited WalMart's growth, and margins, while the company files further behind competitively.
Unfortunately, WalMart peaked at about $70 in 2000, and has been flat ever since. Investors have gained nothing from this strategy, while employees often work for wages that leave them on the poverty line and without benefits. Scandals across all management layers are embarrassing. Communities find Walmart a mixed bag, initially lowering prices on some goods, but inevitably gutting the local retailers and leaving the community with no local market suppliers. WalMart needs an entirely new strategy to remain viable – and that will not come from Mr. Duke. He should have been gone long before the recent scandal, and surely now.
#2 Edward Lampert, Sears Holdings. OK, Mr. Lampert is the Chairman and not the CEO – but there is no doubt who calls the shots at Sears. And as Mr. Lampert has called the shots, nobody has gained.
Once the most critical force in retailing, since Mr. Lampert took over Sears has become wholly irrelevant. Hoping that Mr. Lampert could make hay out of the vast real estate holdings, and once glorious brands Craftsman, Kenmore and Diehard to turn around the struggling giant, the stock initially took off rising from $30 in 2004 to $170 in 2007 as Jim Cramer of "Mad Money" fame flogged the stock over and over on his rant-a-thon show. But when it was clear results were constantly worsening, as revenues and same-store-sales kept declining, the stock fell out of bed dropping into the $30s in 2009 and again in 2012.
Hope springs eternal in the micro-managing Mr. Lampert. Everyone knows of his personal fortune (#367 on Forbes list of billionaires.) But Mr. Lampert has destroyed Sears. The company may already be so far gone as to be unsavable. The stock price is based upon speculation of asset sales. Mr. Lampert had no idea, from the beginning, how to create value from Sears and he surely should have been gone many months ago as the hyped expectations demonstrably never happened.
#1 – Steve Ballmer, Microsoft. Without a doubt, Mr. Ballmer is the worst CEO of a large publicly traded American company. Not only has he singlehandedly steered Microsoft out of some of the fastest growing and most lucrative tech markets (mobile music, handsets and tablets) but in the process he has sacrificed the growth and profits of not only his company but "ecosystem" companies such as Dell, Hewlett Packard and even Nokia. The reach of his bad leadership has extended far beyond Microsoft when it comes to destroying shareholder value – and jobs.
Microsoft peaked at $60/share in 2000, just as Mr. Ballmer took the reigns. By 2002 it had fallen into the $20s, and has only rarely made it back to its current low $30s value. And no wonder, since execution of new rollouts were constantly delayed, and ended up with products so lacking in any enhanced value that they left customers scrambling to find ways to avoid upgrades. By Mr. Ballmer's own admission Vista had over 200 man-years too much cost, and its launch still, years late, has users avoiding upgrades. Microsoft 7 and Office 2012 did nothing to excite tech users, in corporations or at home, as Apple took the leadership position in personal technology.
So today Microsoft, after dumping Zune, dumping its tablet, dumping Windows CE and other mobile products, is still the same company Mr. Ballmer took control over a decade ago. Microsoft is PC company, nothing more, as demand for PCs shifts to mobile. Years late to market, he has bet the company on Windows 8 – as well as the future of Dell, HP, Nokia and others. An insane bet for any CEO – and one that would have been avoided entirely had the Microsoft Board replaced Mr. Ballmer years ago with a CEO that understands the fast pace of technology shifts and would have kept Microsoft current with market trends.
Although he's #19 on Forbes list of billionaires, Mr. Ballmer should not be allowed to take such incredible risks with investor money and employee jobs. Best he be retired to enjoy his fortune rather than deprive investors and employees of building theirs.
There were a lot of notable CEO changes already in 2012. Research in Motion, Best Buy and American Airlines are just three examples. But the 5 CEOs in this column are well on the way to leading their companies into the kind of problems those 3 have already discovered. Hopefully the Boards will start to pay closer attention, and take action before things worsen.
