In his last appearance at a Microsoft shareholder meeting as CEO, Steve Ballmer said he’s completely certain the company is in very good shape to succeed in the next decade under someone else’s captainship.
Ballmer, who has gotten emotional in some public appearances since announcing his intention to retire in August, spoke with conviction but stayed composed throughout the meeting, which was webcast. “There is a tremendous amount of opportunity ahead for Microsoft,” he said.
Ironically, Bill Gates, who is viewed as more cerebral, did choke up at the end of his prepared remarks when he addressed Ballmer’s retirement and the ongoing search for his replacement.
Microsoft’s CEO search
Both he and Ballmer are committed to making sure that the next CEO “is the right person at the right time for this company” and that this person will guide Microsoft to success, Gates said, as his voice broke.
He didn’t provide a timeline for when the replacement will be chosen, but said the search committee, of which he’s part, has been meeting with external and internal candidates. “We’re pleased with the progress,” Gates said.
Gates, the company’s co-founder and first CEO, was replaced by Ballmer in 2000. Gates is now the company’s chairman.
Among the candidates rumored to be in the running are Ford President and CEO Alan Mulally, Satya Nadella, executive vice president of Microsoft’s Cloud and Enterprise Division, Kevin Turner, the company’s COO, who was CIO at Walmart and CEO of Sam’s Club, and Stephen Elop, Nokia CEO and former division president at Microsoft, who is due to return to Redmond when Microsoft’s acquisition of Nokia’s smartphone business is completed.
In a recent Wall Street Journal article, Ballmer, Microsoft director and search committee chief John Thompson and other company executives said Ballmer wasn’t pushed out but that he decided to retire after becoming convinced only a new leader will be able to accelerate the pace of change in the company.
“Devices and services”
At the heart of that change is Microsoft’s ongoing transformation from a provider of packaged software to a provider of hardware devices and cloud services, a strategy Ballmer reiterated is the right one during Tuesday’s meeting.
The so-called “devices and services” emphasis will help Microsoft succeed both among consumers and among business customers as software moves to the cloud and mobile devices like tablets and smartphones take on more and more tasks previously handled by desktop and laptop PCs.
Concrete examples of this strategy include the Xbox gaming console, whose new Xbox One version will ship this week, the Office 365 cloud suite of collaboration and productivity apps, the Azure enterprise cloud infrastructure platform and the Surface tablets, Ballmer said.
Once the Nokia deal closes, Nokia smartphones running the Windows Phone OS will be further improved, boosting Microsoft’s stable of devices, he said. Microsoft expects the deal, estimated at around $7.2 billion, to be finalized in the first calendar quarter of next year.
“We have a big upside opportunity in devices,” Ballmer said.
Windows’ small share in the smartphone and tablet markets is one of the biggest criticisms leveled at Ballmer in recent years, as Apple’s iOS and Google’s Android seized market opportunities. Microsoft’s attempts to recover lost ground in this sector includes the decision to make its own tablet, the Surface, and to radically redesign its flagship OS with an interface optimized for touch screens in Windows 8.
The first generation of both Windows 8 and the Surface tablets, launched about a year ago, failed to deliver the success Microsoft had expected, but the company isn’t giving up, hoping that the Surface 2 line of tablets and the Windows 8.1 update—both released recently—will address customers’ main complaints.
Ballmer also said the broad corporate restructuring he unveiled in July is “under way … we’re operating with a single strategy and starting to work as a single team,” he said.
That reorganization, referred to as One Microsoft, is intended to make Microsoft function more cohesively and stamp out in-fighting among the different product teams.
As part of the restructuring, Microsoft dissolved its five business units—the Business Division, which housed Office; Server & Tools, which included SQL Server and System Center; the Windows Division; Online Services, which included Bing; and Entertainment and Devices, whose main product was the Xbox console. It replaced them with four engineering groups organized by function, around operating systems, applications, cloud computing and devices, and by centralized groups for marketing, business development, strategy and research, finance, human resources, legal and operations.
Ballmer is bullish
Ten years from now, people will look back amazed at how “primitive” technology was in 2013 and how Microsoft went on to lead the way and achieve greatness, he said.
“I’m optimistic. I treasure my Microsoft stock,” Ballmer said. “I’m confident we have the right strategy in place.”
Ballmer also said the company plans to complete its integration of Skype and Lync in the next three to six months. Skype is Microsoft’s unified communications product for consumers and small businesses, while Lync is its enterprise counterpart. Microsoft wants to make them fully interoperable.
The question-and-answer period with investors wasn’t a lovefest but it was civil.
One shareholder expressed skepticism about recent big acquisitions, and said he wasn’t enthusiastic about the Nokia deal, because in his view the phone maker has struggled against competitors in recent years and isn’t in good financial shape.
Ballmer acknowledged that some big acquisitions have been failures, like the $6 billion deal for the aQuantive ad network in 2007, but said Microsoft can’t shy away from pursuing these large deals if it deems them necessary to remain competitive and go after new opportunities. The Nokia deal makes absolute sense as part of the “devices and services” push and also because the two companies have been working together on smartphones and the teams know how to collaborate, he said.
Another shareholder questioned Microsoft’s marketing strategy for Windows 8, saying it doesn’t do a good job of letting people know the compelling new features it has. Ballmer said he welcomed suggestions on how to improve the business, in particular Windows 8 sales.
When the issue of the company’s stock price was raised—a sore point for many shareholders because it has fallen during Ballmer’s tenure—Ballmer said the focus needs to be on the company’s competitiveness and on its financial health, and that the share price will reflect those two elements.
All of the ballot questions posed to shareholders were approved according to the board’s recommendations, including the re-election of all nine board members.