After 13 years at the helm and facing increasing shareholder pressure to step down, Microsoft Chief Executive Steve Ballmer announced Friday that he would be retiring once a successor has been chosen within the next 12 months.
Ballmer, who has said in the past that he would retire when his youngest son left for college, pushed up that timeline by a few years.
“There is never a perfect time for this type of transition, but now is the right time,” Ballmer said in a statement. “My original thoughts on timing would have had my retirement happen in the middle of our company’s transformation to a devices and services company. We need a CEO who will be here longer term for this new direction.”
Ballmer, 57, said in an interview after the announcement that his decision had nothing to do with shareholder pressure to step down, including a reported move recently by activist investor ValueAct Holdings to gain a board seat and push for changes.
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For years, some investors have called for Ballmer to step aside, citing Microsoft’s stagnant share price and the company’s having missed the boat or fallen behind on the most sweeping changes in the tech industry: search, mobile, consumerization and the cloud.
“My retirement has everything to do with what I think is the right long-term timing for Microsoft,” Ballmer said.
After Ballmer’s retirement announcement, Microsoft’s share price jumped, closing Friday at $34.75, up 7 percent.
Microsoft’s board has appointed a special committee, chaired by lead independent board member John Thompson, to choose the next CEO.
The committee also includes Bill Gates, Microsoft co-founder and chairman; Chuck Noski, chairman of the audit committee; and Steve Luczo, chairman of the compensation committee.
The special committee is working with executive-recruiting firm Heidrick & Struggles International, and will consider both external and internal candidates.
Ballmer’s announcement was “a bit of a surprise, but not much of a shock,” said Norman Young, an analyst with investment research firm Morningstar.
The timing seemed odd, since Redmond-based Microsoft had, just last month, announced a major reorganization geared toward increasing its pace and agility and facilitating its transformation into a devices-and-services company.
“You don’t usually see a CEO leave right after that happens,” Young said.
But he suspects there were several catalysts. “People have been calling for his head for a few years now,” Young said.
Ballmer is leaving a mixed legacy.
On the one hand, revenue has more than tripled under his tenure, profits have doubled and earnings per share has grown. He also instituted regular dividends to shareholders.
On the other hand, Microsoft’s once-soaring stock has remained stubbornly stagnant, even as share prices of other tech companies have surged. Many pinned the blame for that squarely on Ballmer, saying he lacked vision and a sense of what technologies would take off or how to make them popular.
Some also said his management style, including his support of the controversial “stack ranking” review system in which employees are ranked against each other, led to fierce internal politicking and battles, rather than concentrating employees’ energies on innovations and shared goals.
Ballmer’s announcement garnered plenty of reaction.
Microsoft co-founder and Vulcan founder Paul Allen said: “The CEO position at Microsoft is one of the most challenging executive positions in the world due to the competitive landscape of technology, and Steve gave it everything he had. … With this change at the top, there is a watershed opportunity to find someone who will bring a fresh approach to lead the company into the future.”
Jeff Raikes, a former Microsoft president and current CEO of the Bill & Melinda Gates Foundation, said: “Steve had incredible passion for software and what it could do for people. He really led with that at Microsoft. He represented that heart of what the company was about. I think that inspired a lot of people in the company, myself included.”
Others were less laudatory.
At Mini-Microsoft, a blog written anonymously by a Microsoft employee and well read by company employees, the blogger called the retirement decision a “glorious circumstance.” Commenters shared sentiments such as: “There will be dancing in the hallways” and “About time, I’ve been hoping [for] this for years.”
Under Ballmer’s tenure, the company went from revenue of nearly $23 billion a year to nearly $78 billion last fiscal year.
“That’s a very good performance for a mature company,” said J.P. Gownder, an analyst with research firm Forrester.
In addition, under Ballmer, Microsoft built or maintained a lead in many products and services geared toward corporations, including Office, SQL Server and Exchange.
In several areas, such as gaming and cloud computing, Microsoft identified an opening in the market and built a viable challenger, such as the Xbox game console and the Windows Azure cloud platform and infrastructure.
Still, in those areas, as with the browser wars years ago, Microsoft relied on a strategy that had worked for it in the past: being patient, coming in from behind, and then dominating.
“That’s not as easy as it used to be,” Gownder said.
Exhibit A: How Microsoft fell far behind in the smartphone market, where it’s finally inching up, and in tablets, where it still has a minuscule presence.
In this new, mobile world “consumers and enterprises and, most critically, developers were not on board with a third platform,” Gownder said. “What they needed to do was to get developers on board and move first. The next CEO needs to be a fast mover.”
In addition to being late in mobile, Microsoft missed the growing importance of consumers using their own personal devices for work — the consumerization of information technology.
“Microsoft lost its connection with consumers just as consumerization was becoming a force in IT,” Gownder said.
“When Windows 95 came out, it was a rock-star release. It was like the Rolling Stones,” he said. “You haven’t seen anything like that since from Microsoft. Now it’s Apple and, increasingly, Samsung, that’s having those kinds of events.”
And even in cloud computing, where Microsoft has some strength but is again coming in behind competitors such as VMware and Amazon Web Services, Microsoft needs to pick up its pace, Gownder said.
Board member Thompson, who is leading the board committee searching for Ballmer’s successor, declined to say what committee members are looking for in the ideal candidate.
“I think it would be a bit premature to put that in the marketplace, to say ‘this is the specific profile that we want to see,’ because there are many candidates out there,” said Thompson, who is CEO of Virtual Instruments and former CEO of Symantec. “But not many of them will be able to run a company of this size and scale or have the kind of experiences that we are looking for.”
Ballmer, also a member of Microsoft’s nine-member board, will have a say in the choice of his successor.
The big question for Microsoft’s board is whether it wants to continue on its current path or wants to bring in an “outsider with a visionary perspective, who can sort through the Microsoft portfolio and match products with opportunities going forward,” Al Gillen, an analyst with research firm IDC, wrote in a note. “The company has a tendency to drink its own Kool-Aid, making it difficult for longtime Microsoft employees to put competitive challenges and opportunities into a truly objective perspective.”
Pride and regret
Ballmer, who has been with Microsoft since its earliest days, said his proudest accomplishment during that time was taking part in its growth — from about 30 employees and $7 million in revenue to almost 100,000 employees and $78 billion revenue — and in “giving birth to the notion that people are going to use intelligent devices for their own personal usage.”
His single biggest disappointment during his tenure as CEO, he said, was the Longhorn and Windows Vista saga.
Longhorn was the code name for what became Windows Vista, which was bug-ridden at launch.
“We took an incredibly talented team of engineers and we tied them up for a long period of time, only to ship a product that was probably, net, a step back, not a step forward,” Ballmer said. “We had people tied up working on something that didn’t matter when they could’ve been working on defining the future. That was, to me, the biggest mistake. You can’t let your development team work on the wrong stuff.
“One more chapter”
Ballmer, who is married, has three sons and lives in Hunts Point, said he intends to stay in the Seattle area after retiring.
Beyond that, he hasn’t made any plans yet, he said.
“I always knew I’d want to have one more chapter of my life beyond Microsoft,” he said. “I think anybody who actually knows me knows I’m pretty all-consumed by my family and Microsoft. Other than the fact I like playing golf every now and then, I don’t have other passions.
“But maybe that’s precisely why I say I wanted another chapter in my life — to get to experience something that’s not just those two things,” Ballmer said. “I relish the opportunity while I have my health, my energy. That’s part of the magic of life, and I’m excited about it.”
Janet I. Tu: 206-464-2272 or email@example.com. On Twitter @janettu.