My two weeks away were timed for the part of summer “when nothing happens.” So much for that.
• There’s a school of thought in classical economics that in the long run monopolies always commit suicide. Why? They become so dominant and wedded to the enormous revenues of their monopoly that they are insulated from competitive forces, new ideas and market discipline. Thus, for example, they miss the next new thing, price their products at a disadvantage and fail to see, forgive me, the road ahead. If this is so, whatever the merits of the federal case against Microsoft, it behaved as a classic monopolist and paid the price. It failed to snatch the escape clause of this theory, which enables today’s oligopolies: Capture the government to perpetuate your power.
• Of course Steve Ballmer was forced to walk the plank. His statements, and my sources, made it clear he intended to stay as long as he wanted. Yet according to Kara Swisher of All Things D, “Ballmer’s timeline had been moved up drastically — first by him and then the nine-member board, including his longtime partner and Microsoft co-founder and chairman Bill Gates — after all agreed that it was best if he left sooner than later.” A potential proxy fight was one danger. The recent disappointment in earnings, and the broader washout of Windows 8 and the Surface tablet were likely the final straws. He lost the confidence of Gates, the backbone of his power.
• Microsoft is a very big deal to the Seattle area economy. For one thing, it employs 42,000 here in well-paying jobs. That alone is a rare asset in today’s America. Apple employs only 16,000 in Silicon Valley. In addition, it has been a magnet for software developers and spun off much talent which, in turn, started new companies. Why did Jeff Bezos put Amazon in Seattle? Maybe he likes the weather. But he also had his pick of top technology talent. Microsoft helps explain why Seattle punches so far above its weight class. We lack two world-class universities, one of Silicon Valley’s big advantages (we do have one, badly underfunded). But we have Microsoft. Thus, whatever happens under a new chief executive will have wide consequences for the future of the Puget Sound economy.
• In some ways, Microsoft is a model of good corporate governance. It has a separate chairman (Gates) and chief executive officer (Ballmer). The CEO doesn’t loot the corporate treasury for outlandish compensation. He also is a big shareholder. Yet it is also an example of the astonishing inequality in America that Ballmer’s announcement increased his personal wealth by about $800 million in one day, just on the increased stock price. Meanwhile, most Americans continue to suffer from a long-term stagnation in their wages, and many have seen their wages fall.
• I never understood the deeply personal animosity against Ballmer, especially around Seattle. After all, Gates was chairman and enabler of every move Ballmer made. I think part of it was that Microsoft was mature and not making so many millionaires out of secretaries any more. Part that Ballmer did not have the “Looks Privilege” so necessary for success today; he didn’t look like a tech titan (think Steve Jobs), but like a guy working the assembly line or running a bar in his native Detroit. Most of all, he was not BillG. That said, the repeated high-profile disappointments and stagnant stock price proved fatal, however much he increased Microsoft’s size (partly through 149 acquisitions). Ballmer’s strength was marketing and sales. For whatever reasons, he was unable to consistently leverage the company’s technology talent. And whatever its apologists say, the so-called stack ranking system turned the company against Ballmer and against itself. There are better, healthier ways to evaluate employee performance.
• “Shareholder value” is a pistol cocked at Microsoft’s head. Many playerz would be happy to break the company up into “Baby Bills” — or take more drastic measures — for a quick payoff. That’s the non-creative destruction that has cost so many jobs and wrecked so many companies around America since 1980. So whomever is promoted or is brought in, will have a honeymoon. And then the drumbeat for “shareholder value” will resume. Microsoft makes too much money to be a sick company in the conventional sense. It makes too much money. But too much has blown up in its face, too many projects sidelined, too many key turning points missed for it to be considered healthy. Ballmer’s lessons? Marketing and acquisitions alone won’t work. Neither will playing catch-up. Neither will allowing a huge, and mutually antagonistic, bureaucracy to grow up and strangle one of America’s great corporations. The buck stops at the top.
• Note to new CEO: Put a substantial skunk works in South Lake Union with maximum autonomy. The “creative friction” of the city will be a good antidote to the isolation of Fortress Redmond. It will also send Amazon a message that you intend to fight and be relevant.
Today’s Econ Haiku:
Two weeks off the grid
I was differently informed
Now, girding myself