October 25, 2012 in Business

Experts say Microsoft CEO’s legacy rests on Windows 8

Michael Liedtke Associated Press
 
Associated Press photo

Steve Ballmer, CEO of Microsoft, is betting on the success of a dramatic overhaul of the Windows operating system.
(Full-size photo)

SAN FRANCISCO – Microsoft CEO Steve Ballmer can’t afford to be wrong about Windows 8.

Today, Microsoft will unveil a dramatic overhaul of its ubiquitous Windows operating system. If it flops, the failure will reinforce perceptions that Microsoft is falling behind competitors such as Apple, Google and Amazon as its stranglehold on personal computers becomes less relevant in an era of smartphones, tablets and other mobile devices.

If Ballmer is right, Windows 8 will prove that the world’s largest software maker still has the technological chops and marketing muscle to shape the future of computing.

“This is going to be his defining moment,” said technology industry analyst Patrick Moorhead of Moor Insights & Strategy. Ballmer’s “legacy will be looked at as what he did or didn’t do with Windows 8. If Windows 8 is not a success, a lot of people will be looking for Microsoft to make a change at the CEO level.”

Windows 8 is designed to run on PCs and tablet computers, heralding the biggest change to the industry’s dominant operating system in at least 17 years. It also marks the first time that Microsoft has made touch-screen control the top priority, though the system can still be switched into the familiar desktop mode that allows for control by keyboard and mouse.

Ballmer sees Windows 8 as the catalyst for a new era at Microsoft. He wants the operating system to ensure the company plays an integral role on all the important screens in people’s lives – PCs, smartphones, tablets and televisions.

“We are trying to re-imagine the world from the ground up with Windows 8,” Ballmer told the Seattle Times. He declined to be interviewed for this story.

Early reaction has been mixed. Some reviewers like the way the system greets users with a mosaic of tiles displaying applications instead of relying on the desktop icons that served as the welcome mat for years. Critics say it’s a confusing jumble that will frustrate users accustomed to the older versions, particularly when they switch to desktop mode and don’t see the familiar “start” button and menu.

Windows 8 will hit the market backed by an estimated $1 billion marketing campaign. The advertising frenzy is just one measure of how important Windows 8 is to Microsoft’s future.

Ballmer’s margin for error is slim after being consistently outpaced by Apple and Google in his nearly 13 years as CEO. During his tenure, Microsoft’s stock has lost nearly half its value, wiping out more than $200 billion in shareholder wealth.

But the company’s board hasn’t expressed any public dissatisfaction with Ballmer, who is Microsoft’s second-largest shareholder with a 4 percent stake worth $9 billion. Only his good friend and predecessor, Microsoft founder Bill Gates, owns more of the company’s stock. Gates has a 5.5 percent stake.

Since Ballmer succeeded Gates as CEO in January 2000, Microsoft’s annual revenue has nearly quadrupled to $74 billion and expanded into lucrative new territory with its popular Xbox 360 video game console, which has given the company a platform for delivering services to television sets. But Microsoft has been slow to respond to technology shifts and has made some costly missteps trying to catch up.

Some of the best-known blunders include the company’s iPod clone, the Zune, and its $6.3 billion acquisition of Internet ad service aQuantive.

Ballmer, 56, has spent most of his life at Microsoft. He was attending Stanford University’s graduate school of business in 1980 when Gates, a former classmate at Harvard University, persuaded him to drop out and become one of the startup’s first 30 employees. He brought more business savvy to the operation just as the company began providing an operating system for IBM Corp.’s first personal computer.

Just two weeks before Ballmer took over, Microsoft’s stock reached its peak price. The dot-com bust quickly deflated that market value, and the company became locked in antitrust battles in the U.S. and Europe that distracted management for years.

The biggest question hovering over Windows 8: Is it innovative and elegant enough to lure consumers who are increasingly fond of smartphones, tablets and other sleek gadgets? Those mobile devices have been setting industry standards while Microsoft engineers have spent two years designing a new operating system.

And Windows 8 must address not only the upheaval in the computing market since Windows 7 came out in 2009, but also have the flexibility to adjust to future shifts in technology before Microsoft releases another version in two or three years.

“It doesn’t seem like Microsoft is really pushing consumers into the future with Windows 8,” said Forrester Research analyst Sarah Rotman Epps. “What Microsoft has done is like buying a pair of shoes for a kid. The shoes may fit exactly right today, but those shoes probably won’t fit six months from now.”

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