Steve Ballmer Bullies Microsoft CEO Satya Nadella with Visions of the Past

Steve BallmerFormer Microsoft CEO Steve Ballmer

Former Microsoft CEO Steve Ballmer is cranky about the how his successor is handling some aspects of the business. During Microsoft's annual shareholder meeting Wednesday, Mr. Ballmer was critical of the company's accounting methods for his cloud and hardware businesses, as well as current CEO Satya Nadella's plan to bring more apps to Windows Phone.

In addition to being the previous CEO and the guy who drove Microsoft to an era of stagnation, Steve Ballmer is Microsoft's largest shareholder. That gives him the effective right to speak up during shareholder meetings, and it apparently lets him feel like he is just the guy to backseat drive Mr. Nadella's corporate car.

That said, there are two issues here. The first are the accounting methods Microsoft is currently using for its cloud services. Microsoft is using a method that isolates revenues in a moment of time and then projects them forward as if that's representational of the full fiscal year. The financial world calls this a "run rate." Steve Ballmer called it "bullshit," according to Bloomberg.

Mr. Ballmer probably has the right of on this one, but there's more to it that makes the situation a tad more complicated. Mr. Ballmer seems to have an agenda behind behind that criticism, because Satya Nadella has made cloud services and hardware cornerstones of Microsoft's future operations, a departure from the Windows/Office hegemony that made Microsoft what it is (for good and ill. Mostly ill).

"It's sort of a key metric," Mr. Ballmer said. "If they talk about it as key to the company, they should report it."

Cloud services and hardware have lower margins than software, generally speaking, and that's part of Mr. Ballmer's point. Microsoft reported margins for those businesses at 44 percent, but didn't disclose specifics and used the "run rate" method to determine those margins. Microsoft's margins on software were often as high as 90 percent.


The second issue is the lack of apps on Windows Phone. Mr. Ballmer wants his former company to make it possible for Windows Phone to run Android apps on their devices. This would essentially open up Windows Phone to the umpteen gillion Android apps and assorted malware out there, solving the lack-of-apps problem in one fell swoop.

Under CEO Satya Nadella, Microsoft put those plans on hold and began pursuing a "universal app" strategy that would allow developers to deploy their apps for Windows on the desktop, Windows on tablets, and Windows Phone with the same app. The company is also working on tools to make it easy(ier) for iOS and Android developers to port their apps to Windows Phone. When Mr. Nadella was saying as much during the shareholder meeting, Mr. Ballmer spoke over him saying, "That won't work."

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Such behavior is rude, but shareholder meetings often have cranky shareholders—especially large shareholders—who are looking to assert their rights, their vision, or various kinds of activism. When it's the previous CEO, however, there are added dynamics.

For instance, if that CEO was great, girlfriend better step back and listen. But that's not the case here. Steve Ballmer wasn't a great CEO. He made lots of money by doubling down on Microsoft's cash cows of Windows and Office, but in the process he sucked what little innovation Microsoft had into the ether. Windows Phone (and the purchase of Nokia) was a failure under Mr. Ballmer. Windows on tablets were a failure under Mr. Ballmer. Windows on the desktop was backed into a horrible quagmire under Mr. Ballmer.

That he would have the cojones to presume to criticise his successor is at least premature and at most astounding.


It seems that Microsoft itself feels the same. In a statement, Chris Suh, Microsoft’s general manager for investor relations, said, "We enjoy a regular dialogue with Steve, and welcome his input and feedback, as we do from our other investors."

I read that as corporate speak for, "We just got rid of this guy, but the reality is he owns a lot of Microsoft shares. What're you gonna do?"

Perhaps I'm projecting there.

The bottom line is that the last thing a CEO trying to turn a large company around needs is for the old guy to be looking over his shoulder criticizing his decisions, especially when he's doing so publicly.