Windows 8: Make-or-break moment for Microsoft CEO

MICHAEL LIEDTKE

AP Tech­nol­ogy Writer

SAN FRANCISCO — Microsoft CEO Steve Ballmer can’t afford to be wrong about Win­dows 8.

On Thurs­day, Microsoft will unveil a dra­matic over­haul of its ubiq­ui­tous Win­dows oper­at­ing sys­tem. If it flops, the fail­ure will rein­force per­cep­tions that Microsoft is falling behind com­peti­tors such as Apple, Google and Ama­zon as its stran­gle­hold on per­sonal com­put­ers becomes less rel­e­vant in an era of smart­phones, tablets and other mobile devices.

If Ballmer is right, Win­dows 8 will prove that the world’s largest soft­ware maker still has the tech­no­log­i­cal chops and mar­ket­ing mus­cle to shape the future of computing.

“This is going to be his defin­ing moment,” said tech­nol­ogy indus­try ana­lyst Patrick Moor­head of Moor Insights & Strat­egy. Ballmer’s “legacy will be looked at as what he did or didn’t do with Win­dows 8. If Win­dows 8 is not a suc­cess, a lot of peo­ple will be look­ing for Microsoft to make a change at the CEO level.”

Win­dows 8 is designed to run on PCs and tablet com­put­ers, herald­ing the biggest change to the industry’s dom­i­nant oper­at­ing sys­tem in at least 17 years. It also marks the first time that Microsoft has made touch-screen con­trol the top pri­or­ity, though the sys­tem can still be switched into the famil­iar desk­top mode that allows for con­trol by key­board and mouse.

Ballmer sees Win­dows 8 as the cat­a­lyst for a new era at Microsoft. He wants the oper­at­ing sys­tem to ensure the com­pany plays an inte­gral role on all the impor­tant screens in people’s lives — PCs, smart­phones, tablets and televisions.

“We are try­ing to re-imagine the world from the ground up with Win­dows 8,” Ballmer told The Seat­tle Times. He declined to be inter­viewed for this story.

Early reac­tion has been mixed. Some review­ers like the way the sys­tem greets users with a mosaic of tiles dis­play­ing appli­ca­tions instead of rely­ing on the desk­top icons that served as the wel­come mat for years. Crit­ics say it’s a con­fus­ing jum­ble that will frus­trate users accus­tomed to the older ver­sions, par­tic­u­larly when they switch to desk­top mode and don’t see the famil­iar “start” but­ton and menu.

Win­dows 8 will hit the mar­ket backed by an esti­mated $1 bil­lion mar­ket­ing cam­paign. The adver­tis­ing frenzy is just one mea­sure of how impor­tant Win­dows 8 is to Microsoft’s future.

Ballmer’s mar­gin for error is slim after being con­sis­tently out­paced by Apple and Google in his nearly 13 years as CEO. Dur­ing his tenure, Microsoft’s stock has lost nearly half its value, wip­ing out more than $200 bil­lion in share­holder wealth.

But the company’s board hasn’t expressed any pub­lic dis­sat­is­fac­tion with Ballmer, who is Microsoft’s second-largest share­holder with a 4 per­cent stake worth $9 bil­lion. Only his good friend and pre­de­ces­sor, Microsoft founder Bill Gates, owns more of the company’s stock. Gates has a 5.5 per­cent stake.

Since Ballmer suc­ceeded Gates as CEO in Jan­u­ary 2000, Microsoft’s annual rev­enue has nearly quadru­pled to $74 bil­lion and expanded into lucra­tive new ter­ri­tory with its pop­u­lar Xbox 360 video game con­sole, which has given the com­pany a plat­form for deliv­er­ing ser­vices to tele­vi­sion sets. But Microsoft has been slow to respond to tech­nol­ogy shifts and has made some costly mis­steps try­ing to catch up.

Some of the best-known blun­ders include the company’s iPod clone, the Zune, and its $6.3 bil­lion acqui­si­tion of Inter­net ad ser­vice aQuantive.

Ballmer, 56, has spent most of his life at Microsoft. He was attend­ing Stan­ford University’s grad­u­ate school of busi­ness in 1980 when Gates, a for­mer class­mate at Har­vard Uni­ver­sity, per­suaded him to drop out and become one of the startup’s first 30 employ­ees. He brought more busi­ness savvy to the oper­a­tion just as the com­pany began pro­vid­ing an oper­at­ing sys­tem for IBM Corp.’s first per­sonal computer.

Just two weeks before Ballmer took over, Microsoft’s stock reached its peak price. The dot-com bust quickly deflated that mar­ket value, and the com­pany became locked in antitrust bat­tles in the U.S. and Europe that dis­tracted man­age­ment for years.

The biggest ques­tion hov­er­ing over Win­dows 8: Is it inno­v­a­tive and ele­gant enough to lure con­sumers who are increas­ingly fond of smart­phones, tablets and other sleek gad­gets? Those mobile devices have been set­ting indus­try stan­dards while Microsoft engi­neers have spent two years design­ing a new oper­at­ing system.

And Win­dows 8 must address not only the upheaval in the com­put­ing mar­ket since Win­dows 7 came out in 2009, but also have the flex­i­bil­ity to adjust to future shifts in tech­nol­ogy before Microsoft releases another ver­sion in two or three years.

“It doesn’t seem like Microsoft is really push­ing con­sumers into the future with Win­dows 8,” said For­rester Research ana­lyst Sarah Rot­man Epps. “What Microsoft has done is like buy­ing a pair of shoes for a kid. The shoes may fit exactly right today, but those shoes prob­a­bly won’t fit six months from now.”

Pre­vi­ous ver­sions of Win­dows and other Microsoft prod­ucts such as Office are so deeply embed­ded in com­pa­nies and gov­ern­ment agen­cies that Microsoft is still assured a steady stream of rev­enue from that seg­ment of the mar­ket. That loyal base of cus­tomers is one of the rea­sons that Microsoft is expected to earn $25 bil­lion on rev­enue of $80 bil­lion in its cur­rent fis­cal year end­ing next June.

“This isn’t a com­pany that is on the edge of extinc­tion, like some peo­ple would have you think,” said BGC Finan­cial ana­lyst Colin Gillis. “What we are see­ing with Win­dows 8 is clas­sic Microsoft. They let the (tech­nol­ogy) mar­ket lead and then they follow.”

But investors want to see Microsoft do some­thing more. The nag­ging fear on Wall Street is that the PC indus­try is past its prime and head­ing into a grad­ual decline that will pull down Microsoft, too.

The signs of decay have been pro­lif­er­at­ing since Apple released the iPad in 2010, hatch­ing a tablet com­puter mar­ket that has com­bined with an already vibrant smart­phone mar­ket to siphon away tech­nol­ogy spend­ing that used to go toward the lat­est PCs.

World­wide PC sales year are expected to decline this year for the first time since 2001, accord­ing to the research firm ISH iSup­pli. It’s a drop of just 1 per­cent, but it under­scores a trou­bling trend that has been hurt­ing Microsoft.

The shift to mobile devices has whit­tled Microsoft’s world­wide share of the com­put­ing device mar­ket from 67 per­cent in 2008 to about 30 per­cent today, esti­mates For­rester Research ana­lyst Frank Gillett. Thanks to its Android soft­ware for phones and tablets, Google is now the leader with a 40 per­cent share of the com­put­ing device mar­ket. Apple stands at 20 percent.

Ana­lysts don’t expect Microsoft’s cor­po­rate and gov­ern­ment cus­tomers to imme­di­ately embrace the new sys­tem, no mat­ter how much it’s hyped. About half of this tra­di­tion­ally cau­tious group of cus­tomers still haven’t upgraded to Win­dows 7. Most ana­lysts expect com­pa­nies and gov­ern­ment to hold off on switch­ing to Win­dows 8 for at least another year.

Ballmer hopes to accel­er­ate the changeover by mak­ing Microsoft’s Office soft­ware suite more com­pelling, with the help of two major acquisitions.

Microsoft bought the video chat ser­vice Skype for $8.5 bil­lion last year and in June agreed to pay $1.2 bil­lion for Yam­mer, a ser­vice the builds social net­work­ing ser­vices within com­pa­nies. Both are expected to become key fea­tures within Office to make it eas­ier for work­ers to con­nect and col­lab­o­rate with their peers and customers.

Ballmer also has won praise from ana­lysts for strik­ing poten­tially fruit­ful part­ner­ships with Yahoo Inc. and Nokia. Microsoft now pro­vides Yahoo with much of the same tech­nol­ogy that runs its Bing search engine. The Yahoo deal pro­vides Microsoft with 12 per­cent of the rev­enue from the ads shown along­side search results on Yahoo’s website.

The Nokia alliance ensured Win­dows 8 would be the oper­at­ing sys­tem on that company’s lat­est line of smart­phones, a poten­tially valu­able plat­form if Nokia is able to regain some of the mar­ket share it has lost in mobile phones dur­ing the past five years.

(Microsoft has also joined with The Asso­ci­ated Press to use AP con­tent in Win­dows 8 news applications.)

But none of that has yet restored the lus­ter Microsoft had on Wall Street when Gates was in charge.

Ballmer’s ini­tially dis­missed emerg­ing threats from Google and Apple. He con­sis­tently pooh-poohed Google as a one-trick com­pany dur­ing its early years and in 2007 declared: “No chance that the iPhone is going to get any sig­nif­i­cant mar­ket share.”

Those were some of his biggest mis­takes, detrac­tors say. Google quickly made impor­tant inroads in Inter­net video, online maps, email and mobile com­put­ing and con­tributed to the dam­age that the iPhone and iPad have done to Microsoft and its part­ners in the PC market.

Apple’s mete­oric rise has been espe­cially painful for Microsoft. When Steve Jobs returned to run Apple in 1997, the com­pany was so bad off that it needed a $150 mil­lion infu­sion from Microsoft to stay afloat. Now Apple has a mar­ket value of $570 bil­lion — more than dou­ble Microsoft’s $250 billion.

On Tues­day, Apple got a chance to upstage Microsoft when CEO Tim Cook showed off the iPad Mini, a smaller and less expen­sive ver­sion of its top-selling tablet.

On Thurs­day in New York, Ballmer will her­ald the arrival of the most impor­tant prod­uct of his reign. The market’s response to Win­dows 8 may deter­mine whether it turns out to be the open­ing act in his vin­di­ca­tion or one of his final moments in the spotlight.

Posted by AP News on Oct 24 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.