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Young Tech Sees Itself in Microsoft’s Ballmer

BY QUENTIN HARDY

August 26, 2013

SAN FRAN­CIS­CO — As a young ex­ec­u­tive at Micro­soft, Steven A. Ballmer helped top­ple older, slow­er-mov­ing tech­nol­ogy gi­ants like the Digi­tal Equip­ment Cor­po­ra­tion, Wang and Nov­ell.

These days, it is Micro­soft’s turn to fend off the up­starts as it strug­gles to com­pete in a com­put­ing world that is in­creas­ing­ly mo­bile and based in a “cloud” of In­ter­net-con­nect­ed com­put­ers to which many cus­tomers gain ac­cess at the same time. It’s all part of the in­ev­ita­ble life cy­cle for tech­nol­ogy com­pa­nies.

“Get­ting dis­rupt­ed is the de­fin­ing char­ac­ter­is­tic of this in­dus­try,” said Aaron Levie, the chief ex­ec­u­tive of Box, an on­line da­ta stor­age com­pa­ny. “You can even have a near mo­nop­oly like Micro­soft did, and then ev­ery­thing gets re­de­fined.”

Mr. Ballmer will not have to take Micro­soft in­to the fu­ture; last Fri­day, he an­nounced that he would re­tire with­in a year. But young ex­ec­u­tives like Mr. Levie are not gloat­ing over Mr. Ballmer’s ex­it. They know well that one day — if they are lucky to be as suc­cess­ful as Mr. Ballmer — they could face the same prob­lem.

“It just feeds my al­ready-healthy sense of para­noia,” Mr. Levie said.

The rare tech com­pa­ny man­ages to thrive from one gen­er­a­tion of tech­nol­ogy to the next. On­ly a few of the big ones — I.B.M., In­tel and Ap­ple — have done it. And it is not yet clear if Micro­soft has a clear path to join­ing that list of multi­gen­er­a­tion king­pins.

Mr. Ballmer was close­ly iden­ti­fied with the per­sonal com­puter rev­o­lu­tion, and later with cor­po­rate soft­ware run­ning on com­puter servers. Those in­no­va­tions brought Micro­soft the cash and tal­ent to adapt to the ear­ly In­ter­net with the Ex­plorer brows­er, and di­ver­sify in­to on­line gam­ing.

What it could not buy Mr. Ballmer, the younger gen­er­a­tion in tech says, was a clear vi­sion of the fu­ture. Ap­ple and Google have led de­vel­op­ment of smart­phones and a long list of com­pa­nies like Am­a­zon.com have led the de­vel­op­ment of cloud com­put­ing. Micro­soft, mean­while, has of­ten had to play catch-up.

“All tech­nol­ogy as­pires to be leg­acy,” said Scott Di­et­zen, chief ex­ec­u­tive of Pure Stor­age, a da­ta stor­age start-up. “It’s that or ob­so­les­cence.”

“The most pow­er­ful fac­tor,” he added, “is that the very best tal­ent is drawn to do­ing some­thing dis­rup­tive to the leg­acy, some­thing new and fresh. And in this busi­ness the best are so much more pro­duc­tive than any­one else.”

Dur­ing Mr. Ballmer’s ten­ure as chief ex­ec­u­tive at Micro­soft, the com­pa­ny had con­sid­er­able growth. Mr. Ballmer led the cre­ation of the Win­dows Phone op­er­at­ing sys­tem, which re­ceived good re­views but has strug­gled to gain trac­tion in the mar­ket, and Micro­soft’s ef­forts in cloud com­put­ing. Al­so un­der his lead­er­ship, the com­pa­ny ac­quired Skype, an In­ter­net com­mu­ni­ca­tions serv­ice, for $8.5 bil­lion, and paid $1.2 bil­lion for Yam­mer, a so­cial net­work for busi­ness.

But the break­throughs, whether they were in In­ter­net search, smart­phones or In­ter­net-based soft­ware, have usu­ally hap­pened some­where oth­er than Micro­soft.

Mr. Levie, 28, grew up near Micro­soft’s head­quar­ters in Red­mond, Wash. Sev­eral of his school­mates’ par­ents worked for Micro­soft. Few of his gen­er­a­tion, he said, fol­lowed their par­ents there. Among those who did, he said, few stayed.

“I think about be­ing 40 or 50 and be­ing dis­rupt­ed,” said Mr. Levie, whose com­pa­ny was found­ed in 2005. “You can be a vi­sion­ary, and have a great busi­ness model, but no tech com­pa­ny can avoid it. There is no quick way to tran­si­tion in­to the next thing.”

The clos­est to a safe­guard, he said, is to be “like Am­a­zon: race to the bot­tom on prices ahead of your com­pe­ti­tion, keep profit mar­gins low and make things tough for them.”

Mr. Ballmer joined Micro­soft in 1980, and its break­through soft­ware, Win­dows 3.0, was re­leased in 1990. Its stock peaked in De­cem­ber 1999, short­ly be­fore Mr. Ballmer re­placed Bill Gates, Micro­soft’s co-founder and his close friend, as chief ex­ec­u­tive. Since then, Micro­soft’s shares have fallen about 33 per­cent.

Micro­soft is 38 years old, three years away from the age at which Digi­tal Equip­ment and Wang dis­ap­peared. Nov­ell, which was found­ed in 1979, was ac­quired in 2011 by the At­tach­mate Cor­po­ra­tion, an in­vest­ment group.

“He took a com­pa­ny with $20 bil­lion in rev­e­nue and turned it in­to a $78 bil­lion com­pa­ny,” Mr. Levie said. “But you can nev­er count on more than a dec­ade on top.”

That feel­ing that re­al suc­cess lasts a dec­ade or so haunts even the most suc­cess­ful of the new breed of tech ex­ec­u­tives.

Aneel Bhus­ri, the co-chief ex­ec­u­tive of Work­day, a cloud-based busi­ness man­age­ment soft­ware com­pa­ny with a mar­ket cap­i­tal­iza­tion of $13 bil­lion, re­called shar­ing a beer a few years back with Marc Be­nioff, the founder and chief of Sales­force, a $25 bil­lion com­pa­ny of­fer­ing sales and mar­ket­ing soft­ware via the cloud.

“It was ear­ly days, but we were con­fi­dent about cloud com­put­ing,” Mr. Bhus­ri said. “Marc said we had about a dozen years, then some­thing else would come along.”

Mr. Bhus­ri didn’t sug­gest what that some­thing else could be. That is the prob­lem: When you’re caught up in run­ning your busi­ness, it’s dif­fi­cult to fore­see the shifts that could up­end it, Mr. Bhus­ri said.

In an e-mail, Mr. Be­nioff rec­ol­lect­ed the con­ver­sa­tion, and added this thought: “Tech­nol­ogy is a con­tin­uum — it is con­stant­ly get­ting low­er-cost and eas­ier to use. The role of the C.E.O. is to ride that con­tin­uum.” The trick is to al­ways re­spond to the bet­ter and cheap­er thing that is com­ing along.

Some say that al­though Mr. Ballmer did try to al­ter Micro­soft’s course and move be­yond the per­sonal com­puter, he failed to fully un­der­stand how broad and deep the changes to cloud and mo­bile would be.

“Micro­soft had phones, Micro­soft had tablets, but they tried to put Win­dows in them,” said Zach Nel­son, chief ex­ec­u­tive of Net­Suite, a mak­er of Web-based busi­ness soft­ware. “They couldn’t leave the PC world be­hind, even though they saw the change com­ing.”

Some Micro­soft ex­ec­u­tives did see the change. Ray Ozzie, Mr. Gates’s suc­ces­sor as chief soft­ware ar­chi­tect at Micro­soft from 2005 to 2010, said in his farewell memo to Micro­soft em­ploy­ees that they had to imag­ine a post-PC world. What, he wrote, would such a world look like?

“How would cus­tomers ac­com­plish the kind of things they do to­day?” he wrote. “In our in­dus­try, if you can imag­ine some­thing, you can build it.” Mr. Ozzie, who was re­port­ed­ly frus­trat­ed by the slow pace at which his in­no­va­tions were turn­ing in­to prod­ucts at Micro­soft, al­so urged the rank and file to act swift­ly.

Late last year, Mr. Ozzie raised $4 mil­lion for Taiko, a start-up that is said to be de­vel­op­ing cloud-based mo­bile ap­pli­ca­tions for so­cial

in­ter­ac­tion.

Among Mr. Ballmer’s gen­er­a­tion of tech ex­ec­u­tives, his post-2000 stock per­form­ance is hard­ly the worst. Shares of Cis­co Sys­tems, the biggest mak­er of com­puter net­work­ing equip­ment, have dropped 54 per­cent. Shares of Or­a­cle, one of the biggest busi­ness soft­ware com­pa­nies in the world, have fallen 30 per­cent.

Dell, which is now try­ing to go pri­vate as part of a turn­around, is off about 70 per­cent. Sun Mi­crosys­tems, once one of the most in­flu­en­tial tech com­pa­nies, was pur­chased by Or­a­cle in 2010 for $5.6 bil­lion, 88 per­cent be­low its value in 2000.

Those kinds of num­bers seem to con­vince the new gen­er­a­tion that they are, in­deed, beat­ing the old in­cum­bents. But the lin­ger­ing ques­tion is, what next?

“You can imag­ine a world with­out Win­dows, but not with­out the net­work, so the cloud feels like it can’t go away,” said Mr. Nel­son of Net­Suite. “We’re in the mid­dle of where the world is go­ing.”

“I can’t say it’s the last com­put­ing ar­chi­tec­ture,” he said. “It’s my last. The PC was Ballmer’s last.”