One day in 1983, my dad asked me a question over dinner after a long day at work.
He wanted to know what I knew about a little computer company called Microsoft. It was the brainchild of the son of one of his partners at Bogle & Gates, William H. Gates, Sr.
“Not much,” I replied.
But I did tell my dad that I loved using MS-DOS in the computer lab with my friends. I was a card-carrying member of the nerd herd back in the day, so I spent a lot of time there and knew Microsoft’s fledgling PC-based software pretty well.
My grandmother Mimi, though, had a different point of view. You’ve heard me mention her before.
She’s the one who was widowed at an early age and became a savvy global investor long before people ever thought to look at the bigger picture.
Mimi didn’t care that the buzz was about the MS-DOS language or even about computers. Having grown up in the Depression, she believed that what people would do with the technology was far more valuable.
She said she had confidence that Sr.’s son, Bill Gates Jr., understood this – which is why she invested heavily in the Microsoft IPO in 1986. Enough said.
Today, though, I think she’d voice an equally strong opinion about Microsoft (Nasdaq: MSFT) CEO Steve Ballmer. In fact, I think she’d fire him. Here’s why…
1. Ballmer took over Microsoft 12 years ago when Microsoft shares were $60. Now it struggles to maintain a $30 share price. Microsoft has $58.16 billion in cash and this is the best Steve Ballmer can do?
2. Office and Windows are dying. Once the business world’s de facto standard, both are being replaced by cheap, easy-to-operate software, much of which is actually free as well as compatible. This is a big problem considering that, according to the Wall Street Journal, roughly 85% of Microsoft’s revenue is coming from just two products: Windows and Office.
3. The company isn’t innovating fast enough or aggressively enough. What’s more, it’s attempting to compensate for its own shortcomings with increasingly ill-conceived acquisitions. For instance, Microsoft forked over $605 million for 18% of the Barnes and Noble Nook e-reader and still has no real ability to compete with Amazon’s Kindle. It also couldn’t seal the deal with Yahoo. Despite a sizable head start using Yahoo’s core search technology, Bing has a mere 15% of the search market today.
Ballmer waited nearly four years to respond to the iPad and his “Surface” tablet was ho-hum when it could have been jaw dropping. One more: Microsoft paid $8.5 billion in cash for Skype. Apparently the fact that Skype was not profitable didn’t matter. Ballmer’s track record suggests to me that he buys businesses that nobody else “must have.”
4. Microsoft’s Internet offerings remain wannabes and are highly priced at that. Take Yammer. Microsoft just paid $1.2 billion through the nose to acquire a company that was valued at $600 million last fall when it raised $85 million in a venture offering.
Team Ballmer plans to integrate it into Office on the assumption that somehow the Microsoft marriage will endear the brand to customers anxious to socialize business. I think they’re delusional. Most Microsoft users I know, including myself, are actively planning to move away from the legacy software we’ve used for years the first instant we can in favor of software we actually like to use!
5. Microsoft spent $26 billion on research over the last three years. Meanwhile, Apple spent $5.54 billion and managed to crank out products light years better than anything Microsoft has come up with. No question which group of shareholders is getting the most bang for the buck.
6. Windows 8 is a wreck. Versions I have played with are so unintuitive as to defy belief. There is neither a Control Panel nor a Start menu. It seems to me that very few people actually love their Windows anymore the way Apple users love their Mac OS.
7. Ballmer can’t do a product launch without jumping around the stage like a Planet of the Apes extra according to Joel Hruska of ExtremeTech. No doubt an apt description if you’ve ever seen him do his thing– albeit not a very flattering one.
That’s a problem. Ballmer doesn’t appear to do anything without appearing sweaty and uncomposed. His competitors look calm, cool and collected. The late Steve Jobs wrote the book on creating real excitement for users, not just inwardly-focused developers who give birth to successive generations of questionable products.
8. Spellbound nerds, once the company’s backbone, appear to be an endangered species. If you want to see the future, look at what teens are using and writing. Apple now allows teens as young as 13 to participate in its developer’s conference, where thousands of people learn about upcoming offerings (and help take the company to new heights).
A child of the Depression, Mimi knew how to cut to the chase. She was acutely aware of the need to identify companies that did too.
Those who weren’t acting in the best interests of their shareholders and maximizing their investments had no place in her portfolio.
Nor mine…which is why I don’t own Microsoft today and haven’t for years.
Keith Fitz-Gerald
Contributing Editor, Money Morning
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