• Steve Ballmer received only half his maximum bonus for last year
  • But Microsoft has failed at almost every new product initiative the last several years
  • Microsoft's R&D costs are wildly out of control, and yielding little new revenue
  • Microsoft is lagging in all new growth markets – without competitive products
  • Microsoft's efforts at developing new markets have created enormous losses
  • Cloud computing could obsolete Microsoft's "core" products
  • Why didn't the Board fire Mr. Ballmer?

Reports are out, including at that "Failures in Mobile Space Cost Steve Ballmer Half his Bonus." Apparently the Board has been disappointed that under Mr. Ballmer's leadership Microsoft has missed the move to high growth markets for smartphones and tablets.  Product failures, like Kin, have not made them too happy. But the more critical question is — why didn't the Board fire Mr. Ballmer?

A decade ago Microsoft was the undisputed king of personal software. Its near monopoly on operating systems and office automation software assured it a high cash flow.  But over the last 10 years, Microsoft has done nothing for its shareholders or customers.  The XBox has been a yawn, far from breaking even on the massive investments.  All computer users have received for massive R&D investments are Vista, Windows 7 and Office 2007 followed by Office 2010 — the definition of technology "yawners."  None of the new products have created new demand for Microsoft, brought in any new customers or expanded revenue.  Meanwhile, the 45% market share Microsoft had in smartphones has shrunk to single digits, at best, as Apple and Google are cleaning up the marketplace.  Early editions of tablets were dropped, and developers such as HP have abandoned Microsoft projects. 

Yet, other tech companies have done quite well.  Even though Apple was 45 days from bankruptcy in 2000, and Google was a fledgling young company, both Apple and Google have launched new products in smartphones, mobile computing and entertainment.  And Apple has sold over 4 million tablets already in 2010 – while investors and customers wait for Microsoft to maybe get one to market in 2011.

Despite its market domination, Microsoft's revenues have gone nowhere.  And are projected to continue going relatively nowhere.  While Apple has developed new growth markets, Microsoft has invested in defending its historical revenue base. 

MSFT vs AAPL revenue forecast 4.10

Yet, Microsoft spent 8 times as much on R&D in 2009 to accomplish this much lower revenue growth.  At a recent conference Mr. Ballmer admitted he thought as much as 200 man years of effort was wasted on Vista development in recent years.  That Microsoft has hit declining rates of return on its investment in "defending the base" is quite obvious.  Equally obvious is its clear willingness to throw money at projects even though it has no skill for understanding market needs sin order for development to yield anything commercially successful!

RD cost MSFT and others 2009

Source: Business

And investments in opportunities outside the "core" business have not only failed to produce significant revenue, they've created vast losses.  Such as the horrible costs incurred in on-line markets.  Trying to launch Bing and compete with Google in ad sales far too late and with weak products has literally created losses that exceed revenues!



And the result has been a disaster for Microsoft shareholders – literally no gain the last several years.  This has allowed Apple to create a market value that actually exceeds Microsoft's.  An idea that seemed impossible during most of the decade!

Apple v msft mkt cap 05.24.10


Under Mr. Ballmer's leadership Microsoft has done nothing more than protect market share in its original business – and at a huge cost that has not benefited shareholders with dividends or growth.  No profitable expansion into new businesses, despite several newly emerging markets.  And now late in practically every category.  Costs for business development that are wildly out of control, despite producing little incremental revenue.  And sitting on a business in operating systems and office software that is coming under more critical attack daily by the shift toward cloud computing. A shift that could make its "core" products entirely obsolete before 2020.

Given this performance, giving Mr. Ballmer his "target" bonus for last year seems ridiculous – even if half the maximum.  The proper question should be why does he still have his job? And if you still own Microsoft stock — why as well?