Aug 27, 2013

    How will next CEO reboot Microsoft?

    THE next CEO of Microsoft has one big decision to make: press on with retiring chief executive Steve Ballmer's ambitious plan to transform the software giant into a broad-based devices and services company, or jettison that idea and rally resources around its proven strength in business software.

    Mr Ballmer's grand design - unveiled just six weeks before Friday's surprise announcement that he would retire within a year - calls for "One Microsoft" to pull together and forge a future based on hardware and cloud-based services.

    But poor sales of the new Surface tablet, on top of Microsoft's years-long failure to make money out of online search or smartphones, have cast doubt on that approach.

    For years, investors have called on Microsoft to redirect cash spent on money-losing or peripheral projects to shareholders, while limiting its focus to the vastly profitable Windows, Office and server franchises.

    Activist investor ValueAct Capital Management, whose recent lobbying of the company may have played a role in Mr Ballmer's decision to retire earlier than he planned, is thought to favour such an approach.

    In the last two years alone, Microsoft has lost almost US$3 billion (S$3.8 billion) on its Bing search engine and other Internet projects, not counting a US$6-billion write-off for its failed purchase of online advertising agency aQuantive. It took a US$900-million charge for its poor-selling Surface tablet last quarter.

    For now at least, Microsoft seems intent on pursuing Mr Ballmer's vision. Mr John Thompson, Microsoft's lead independent director who is heading the committee to appoint a new CEO, said on Friday the board is "committed" to Mr Ballmer's transformation plan.

    The eventual choice of that committee - which has given itself a year to do its work - should provide a clue to how committed the board really is, and how open it is to outside advice.

    "Taking an internal candidate like Satya Nadella - the guy nurturing servers - or some of the other people on the Windows team, that makes sense to keep a steady hand through this reorganisation and strategic shift," said Mr Norman Young, an analyst at Morningstar.

    "But a strong case could be made that the company needs a breath of fresh air, someone who can execute on the strategy but also bring an outsider's perspective," he added.

    That could mean selling the Xbox and abandoning Bing, or cutting short efforts to make tablets or other computers.

    The impending exit of Mr Ballmer leaves a difficult and perhaps impossible choice to his successor - pushing a large and insular behemoth through a highly risky transformation to the mobile world, or clinging to an island of profitable but PC-centric businesses.

    "I'm not sure there is someone who can do Steve's job 'better'. It's an incredibly difficult job, perhaps intractable," said Mr Brad Silverberg, a former senior Windows executive and co-founder of Seattle venture-capital firm Ignition Partners.