Is It Time Microsoft’s Steve Ballmer Stepped Down?

Should Microsoft CEO Steve Ballmer be shown the door?

Greenlight Capital hedge-fund manager David Einhorn thinks so. “His continued presence is the biggest overhang on Microsoft’s stock,” he told a recent New York investment-research conference, according to Reuters. He also suggested it was time to “give someone else a chance” at the technology giant’s helm.

Ballmer himself shows few signs of wanting to step down. “I’ve got a lot of energy and passion for what I’m doing,” he told the audience at the Gartner Symposium/ITxpo 2010 in Orlando, Florida. “If I ever thought there was a day when the company would be better off without me, I’d leave that day.”

Microsoft’s board also seems to back Ballmer. “If there was any reason to believe the board was not with Steve, it would be a different situation,” McAdams Wright Ragen analyst Sid Parakh told Reuters May 26. “But the board seems to be behind Steve.”

Did Ballmer drop the ball?

Analysts and financial managers have their own reasons for advocating management changes. But Einhorn’s comments neatly illustrate a schism among those in the technology and financial communities: those who think Microsoft would be better without Ballmer, and those who think he should stay at the helm despite a stagnant stock price and some missteps in emerging product areas.

Those wanting Ballmer to depart point to the company’s more-publicised stumbles, including its failure to capitalise early on the smartphone trend. Despite its now-antiquated Windows Mobile franchise at one point holding a substantial portion of the mobile-software market, Microsoft has found itself outpaced in recent years by the Apple iPhone and Google Android. Microsoft’s Kin phones, meant to capture the youth market, died an ignoble death soon after their release in the summer of 2010.

Microsoft has also failed to anticipate and blunt the substantial consumer and business interest in tablet PCs sparked by the Apple iPad. While a handful of tablets run Windows 7, it seems as if Microsoft might wait until Windows 8 — rumored to make its debut in the latter half of 2012 — to make some sort of concerted push into that market.

Dropping the ball in smartphones and tablets would be enough to doom most executives, but Ballmer seems to have persevered. Moreover, he’s taken aggressive steps to change Microsoft’s course: throughout 2010, a series of executive shakeups climaxed with the naming of three new presidents to key divisions within the company.

In October 2010, Ballmer split responsibilities for Microsoft’s mobile and entertainment concerns into two divisions, each with their own presidents: Andy Lees took the top spot of the Mobile Communications Business, while Don Mattrick did the same for the Interactive Entertainment Business. That seemed a signal that Microsoft was giving those product lines new focus — an unsurprising move, considering how important smartphones and the Xbox remain to Microsoft’s overall strategy.

Ballmer also seems intent on an “all in” cloud strategy that will push Microsoft’s products off the desktop and into the online-subscriptions arena. Windows Azure, Office 365 and other cloud platforms represent the vanguard of this effort, which Microsoft doubtlessly hopes will blunt similar efforts from the likes of Google and Oracle.

Microsoft’s mobile strategy

Microsoft under his watch is pushing hundreds of millions of dollars into its renewed smartphone platform, Windows Phone. Sometime this fall, the company will push its “Mango” software update to the platform. Among the update’s 500 new elements: multitasking, a redesigned Xbox Live Hub, visual voicemail, the ability to consolidate friends and colleagues into groups within the “People” Hub, and Local Scout, which offers a view of everything to see and do in a particular neighborhood.

In addition to HTC and Nokia, Samsung and LG Electronics have apparently committed to building new Windows Phone devices preloaded with Mango. Acer, Fujitsu and ZTE are also planning to produce Windows Phone devices for the first time. “We have some Windows Mango phones,” HTC CEO Peter Chou reportedly told Reuters May 25. “We are very committed to Windows phone products.”

But Microsoft also faces the steepest of uphill climbs in convincing consumers to adopt its Windows Phone platform over rivals such as the iPhone and Droid. Research firm Gartner estimated that Windows Phone sold 1.6 million units in the first quarter of 2011, and recent data from comScore suggests that Microsoft’s share of the overall smartphone market continues to erode despite all-new Windows Phone devices and a heavy marketing push.

Will Ballmer’s efforts pay off?

Microsoft has scored some key partnerships with the likes of Nokia, Yahoo and Research In Motion — deals that will allow the company to expand its footprint in search engines (via Microsoft’s Bing powering Yahoo’s backend search) and smartphone software (with Nokia soon to run Windows Phone on its hardware, and Research In Motion providing cross-platform support). Ballmer also arranged for Microsoft to acquire Skype for a hefty $8.5 billion — but the jury’s still out as to whether that was the deal of the century, or merely a massive overpayment for a VoIP (voice over IP) platform that’s had trouble monetising.

Meanwhile, Microsoft’s traditional software lines — including Windows 7 and Office 2010 — continue to sell in stupendous quantity. Revenues from those offerings have managed to cushion Microsoft somewhat from its missteps in mobile and other areas. But with rising interest in the cloud, the question is how long desktop software will remain at the centre of the tech universe. Considering the increasing ubiquity of smartphones, the answer to that question could be, “not much.” And in that case, the onus is on Windows 8 to effectively walk the tightrope between the local-drive and cloud worlds.

In other words, Ballmer seems to be trying everything he can — pouring tons of money and effort into smartphones, signing massive deals and reorganising the company — to keep Microsoft a relevant force in this new century. That might not be enough to quiet calls for his resignation, but you can’t dispute that he’s making decisive moves. But will they work?