The Legacy of Windows Phone
ABOUT a month after the online ad firm DoubleClick was bought-up by Google for $3.1 billion, Steve Ballmer’s Microsoft acquired the most similar company out there, aQuantive, for $6.3 billion, more than Microsoft had ever paid to absorb another company. A lot of people at the time thought the price seemed high — maybe excessively high. But Microsoft had the money, and who knew what it planned to do with aQuantive? Let’s wait and see, many thought.
At its next quarterly statement, Microsoft showed a $6.3 billion reduction in cash (of course), but also a new asset, aQuantive, valued at exactly $6.3 billion.
Now, there’s nothing automatically wrong with valuing a just-purchased company at the exact amount you paid for it. In fact, that’s actually a pretty standard corporate practice. The reason is simple: If you list it as less than you paid for it, say $6.0 billion, then investors will say, “Whoa, why did you pay 6.3 if it’s worth only 6.0?” But if you list it as more than you paid for it, say $7.6 billion, then investors will say, “Wait a minute, are you using this purchase to pad your bottom line by $1.3 billion?” So putting it down as exactly 6.3 is considered a normal thing to do.
Re-Evaluation
But for how long? Two quarters? Three? Four? When does it become imperative that an asset be re-valued? For the next twenty quarters, aQuantive continued to appear on Microsoft’s asset sheet with its valuation holding steady at $6.3 billion.
Then one day, a couple weeks before its latest quarterly results, Microsoft issued a press announcement: Going forward, aQuantive would no longer be counted as $6.3 billion. Its new value? $0.1 billion. This near-complete write-off of the aQuantive acquisition reversed Microsoft’s usual $5.7 billion quarterly profit into its first-ever quarterly net loss: about $500 million. While some called for Ballmer’s ejection, others said, that’s not a real loss: that’s money he spent five years ago; it’s water under the bridge. But if throwing $6.2 billion down the toilet didn’t count five years ago when you did it, and it doesn’t count today when you officially recorded it — when does it count?
In any case, Microsoft was far from seriously injured by the loss; the company had wasted much more than that on other, similar boondoggles. If Ballmer’s reign as CEO was marked by anything, it was a feverishly obsessive desire to recreate the copy-’em-and-win magic that Windows’s 1990s victory over Apple’s Mac had seemingly proven to be a viable, long-term strategy. But again and again, it was proving not to be, throughout Ballmer’s incumbency.
We Will Bury You
Case in point: Windows Phone. In early fall of 2010, a month before that product’s release, Microsoft employees held a mock funeral parade around their Redmond campus, in which black-robed pallbearers carried a large effigy of an iPhone, and sported placards bearing the Windows logo. The event was purportedly a grass-roots, spontaneous, employee action — but does anyone really believe that such a thing could be done without management approval? Without Ballmer’s approval? More than likely, I have to suspect, it was Ballmer’s idea, and a message was sent down the chain: don’t admit that you were told by your supervisor to do this; every person below you should think it might have come from just one tier above their own. And the public should think that the ground-level workers were the ones who decided to do it.
Some thought the spectacle was just embarrassing and amateurish, but to anyone savvy to the company’s recent history, it reeked of desperation: If we can just convince the people of the world that we’re about to clobber iPhone, then they’ll stop buying iPhone! And they’ll start buying Windows Phone. And then we will clobber iPhone. That’s what happened with desktop Windows, didn’t it? Why can’t that work again? It has to!
Of course, it already hadn’t worked several times since the end of the ’90s: From PlaysForSure (iPod) and PlaysForSure Music Stores (iTunes), to Zune (iPod) and Zune Marketplace (iTunes), to Bing (Google) and Bing Maps (Google Maps), to Soapbox (YouTube), to Silverlight (Flash), to Microsoft retail (Apple retail), and more — Ballmer’s attempts to recreate Microsoft’s ’90s triumph had fallen flat on their face, each and every time. Strangely, this seemed to make him only more determined that the strategy work. Perhaps to someone whose career and cash had risen to greatness on Windows’s usurpation of the Mac, it was unthinkable or intolerable that the scheme couldn’t be successfully repeated.
Downfall
Straight out of the gate, Windows Phone was a painful flop. At some point in its first few years, it peaked at 3.6% of the smartphone market. Pro-Microsoft prognosticators like IDC dutifully “forecasted” Windows Phone’s market share swooping up to 20% in the near future, but nothing like that ever happened.
Initially produced by as many as nine manufacturers, by its second iteration Windows Phone was being made by a comparative handful of companies: HTC, Huawei, Nokia, and Samsung. Microsoft and its lackeys, of course, put on a positive face to the public, talking about how Windows Phone was off to a good start, pointlessly comparing its numbers to iPhone sales from three years prior (the same amount of time since launch), and insisting Windows Phone was “in this for the long haul,” or some such spin. But the OEMs couldn’t have been making any money; in fact, they were probably losing a lot. Microsoft doubtlessly led them on with promises of how they’d be glad they stuck it out, when the product turned profitable and the deserters didn’t get a piece of that. Ballmer himself publicly insisted that the product could only succeed, simply because Microsoft had decided it would:
When people see it [WP7], they fall in love with [it]. The result is very high enthusiasm. 9 out of 10 customers at AT&T say they recommend the product to others. We’re investing aggressively in the future. ... Whatever device you use... Windows will be there. ... Windows PCs will continue to adapt and evolve. Windows will be everywhere on every device without compromise.
But blind positivity doesn’t pay the bills, and by the next year it all came to a head when new data broke, showing Windows Phone slipping badly to about 1% market share. Microsoft’s assurances of imminent growth suddenly became utterly unbelievable. Maybe it’s improper to speculate about what went on behind closed doors, but I have to wonder: At that point, did the remaining Windows Phone makers independently contact Microsoft, and let it know: “After our current production run finishes up, we’re focusing on Android. Just a private heads-up, we won’t be pushing Windows Phones any more.”
If that’s what happened, then Ballmer would have been faced with the prospect of his most heavy-vested, heavy-hyped, pet product (and the one crucially targeted at replacing iPhone, the most influential and successful computer product ever) effectively ceasing to exist, due to simultaneous neglect by the remaining manufacturers. Not just critically embarrassing, such a debacle might end Ballmer’s career, and ruin his legacy. And it would forever cripple the public perception of Microsoft’s ability to get what it wants when it says it’s going to get it — a perception absolutely vital to Ballmer’s vision of copying-and-replacing every successful tech product made.
So Microsoft approached Nokia — a company particularly devastated by the success of iPhone — and made it a sweet offer: We want you to produce a high-quality, new line of premium Windows Phones (Lumia). You’ll be the sole maker of them, and we’ll heavily promote them as the future of Windows Phone. It may be a small piece of the market at first, but you’ll get all of it. And, we’ll throw a billion dollars cash your way just for accepting. Now do you want to stay with Windows Phone?
Indeed Nokia did. Thus the Nokia Lumia was born. And the other manufacturers of Windows Phone quietly faded into the shadows with nary a peep of protest.
The Lumia phones looked nice, and got a lot of positive press. But the public didn’t want them. Even those consumers who for one reason or other were determined not to buy an iPhone, gathered around Android, not Windows Phone, as their anti-Apple savior. For the next couple years, Lumia foundered, and Ballmer became increasingly defensive, publicly proclaiming:
We are in the Windows era — we were, we are, and we always will be.
In a couple years, Nokia found itself back in the same bind as before. And once again (I’m guessing), it quietly told Microsoft, “We’re about to bail on this deal.” Peeved investors had publicly scolded Nokia that it needed to “switch to another road,” and rumors were flying high that the company would soon release new models of Lumia that ran Android, not Windows Phone.
It was around this time that Ballmer reportedly took to carrying a baseball bat as he walked around the buildings where he worked, and bringing it with him to meetings — as if he was Al Capone in The Untouchables, about to beat someone’s head in, if he didn’t get what he wanted. Meanwhile, his public-statement bluster reached new levels:
Not the consumer cloud. Not hardware-software innovation. We are not leaving any of that to Apple by itself. Not going to happen. Not on our watch.
And:
We have unbelievable potential in front of us, we have an unbelievable destiny. Only our company and a handful of others are poised to write the future. We’re going to think big, we’re going to bet big.
No one can say Ballmer didn’t put Microsoft’s money where his mouth was: His next move was to shell out $7.2 billion to buy Nokia’s entire mobile phone division. That, of course, completely killed the Android-plus-Lumia gossip, as well as any possibility that the Lumia product would just be cancelled.
This apparently was too much for the board (or for Bill Gates, who is believed to have effectively controlled the board’s position on Ballmer’s CEO-ship), and about a month before the Nokia acquisition became official, Microsoft announced Ballmer’s impending departure from Microsoft, and the internal search for a new CEO. But the Nokia deal went through: now owned entirely by Microsoft, and securely subsidized by the Windows/Office profit river, Windows Phone was truly “in this for the long haul” — no matter how few consumers wanted to buy it, Microsoft Lumia was totally safe from involuntary termination.
Or was it? Throughout Windows Phone’s history, another ugly problem had festered beneath the surface: The mobile service providers didn’t like the thing. They didn’t want to carry it. While iPhone, and the most popular models of Android phone, enjoyed eager participation by all major carriers, Windows Phone never found such willing support, and had bounced from one carrier to another, based on who-knows-what kind of behind-the-scenes deals.
So allow me to speculate a bit more: What if Microsoft’s success at negotiating such deals ran dry, and the new CEO, Satya Nadella, faced the involuntary death of Windows Phone, this time by zero carrier support? Does he do a Ballmer and try to buy a carrier, so Windows Phone can function forever? Is it even his decision, or do Gates and the board tell him what to do?
What we know for sure is that Microsoft did not buy a carrier. In early 2016 it became apparent that Windows Phone was being quietly terminated (officially scaled back or something like that — but everyone knew it was over).
Legacy
Ballmer’s defenders tried hard to spin his legacy as something positive. A month after his removal, fellow Harvardian and Clay Christensen sidekick James Allworth, and co-host Ben Thompson, launched their podcast, Exponent, with the inaugural episode delivering high praise of Ballmer as a fine CEO who performed well financially — without the slightest mention that all that financial performance was built-in from the moment Ballmer took the reins, and would’ve netted a whole lot higher if he hadn’t spent so much of it on an enormously expensive line of copycat failures. (And that doesn’t even count the ruinous expenditures of Microsoft’s trusting OEMs.)
Four years post-Ballmer, CNBC’s Eric Jackson did his best yes-sir-may-I-please-have-another, in his “Steve Ballmer deserves his due as a great CEO”:
The day Ballmer said he’d leave Microsoft in 2013, the company’s market cap was $245 billion. It’s now $700 billion. That doesn’t happen simply because a new CEO is more charismatic. A lot of these gains in market cap are because of Ballmer’s stewardship.
ZDNet’s Ed Bott similarly made sure no one could possibly be confused about where his undying allegiance lies:
Steve [Ballmer]’s done a pretty good job. There aren’t too many CEOs in the tech industry today that are capable of continuing to make a profit. I mean, by that same logic [Apple CEO] Tim Cook should have been fired three months ago.
And ever-faithful Windows cheerleader Paul Thurrott gushed:
Ballmer was one of the good guys. Though he was relentlessly mocked for his over-the-top public appearances in years past, Ballmer was also relentlessly pro-Microsoft ... While many called for his ouster for many years, I never saw a single leader emerge at Microsoft who could fill his shoes or the needs of this lofty position. Looking at the available options today, I still don’t.
Ballmer’s true legacy at Microsoft speaks for itself, and is most likely the reason for his dismissal.
Legacy, Continued
Post-Microsoft? After a few months, Ballmer bought the L.A. Clippers basketball team for $2 billion, almost as much as anyone’s ever paid for a sports team. A year and a half later, Bill Simmons, long-time sports analyst of ESPN and HBO, commented, “Ballmer has shown zero evidence that he knows what he’s doing. And it’s been the best kept secret in the NBA for 15-16 months.” Just this past month, Ballmer ended a legal dispute with Madison Square Garden Co. over his plan to build a new arena near the Forum — by buying the Forum for $400 million.
The same year as Ballmer’s firing, he and Gates — long-time friends from back at Harvard in the 1970s — were reported to be no longer on speaking terms, and more recent reports indicate that their relationship is not recovering.
The year after Ballmer’s departure, and a few months before beginning to phase out Windows Phone, Microsoft wrote-off the $7.2 billion Nokia purchase as an $8.4 billion loss. In early fall of 2017, when Microsoft made it official that Windows Phone would no longer be supported, Bill Gates switched to Android, and Ballmer’s eight-years-running, ghost-town, retail stores started carrying Android phones.
End of An Era
The legacy of Ballmer and Windows Phone is that Microsoft’s IBM-FUD-like mystique of being able to take over anything (especially anything from Apple) is now totally destroyed. It was never true, but now it doesn’t even appear to be, and current and future CEOs of Microsoft will never again behave as if it is. Or if they do, we can expect the board to act a lot more swiftly than it did with Ballmer.
Update 2020.07.01 — After eleven years of money-losing failure, Microsoft’s Apple-alike retail stores are shutting down. During the same period, the installed base of users of Apple’s products has increased ten-fold: from about 100 million people, to about 1 billion people.
Update 2021.12.21 — Now revealed: On his way out the door, Ballmer tried to rename his Siri-alike from “Cortana” to “Bingo” (to tie-in with his “Bing” Google-alike). Last March, after seven years of market indifference, Cortana was completely discontinued.
Illustration: composite of three internet PR photos, used without permission.
© 2024 Darel Rex Finley 
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