In announcing his sudden retirement Friday after more than three decades at Microsoft[3] Corp., Chief Executive Steve Ballmer[4] will leave his successor with the enormous task of reviving one of the world's largest technology companies that finds itself beset by competitors on all fronts.
Mr. Ballmer, 57 years old, along with his college buddy and Microsoft founder Bill Gates[5] , built the company into a profit machine whose Windows operating system will still power nearly all the 305 million personal computers expected to be sold globally this year, according to research firm Gartner[6] Inc. But it will run just 15% of all computing devices, if PCs, smartphones, tablet computers and other gadgets connected to the Internet are lumped together, given the rise of rivals such as Apple[7] Inc. and Google[8] Inc.
Steve Ballmer, shown in March, worked three decades at Microsoft.
Investors cheered the news of Mr. Ballmer's departure, sending Microsoft shares up 7% to $34.75 on the Nasdaq Stock Market.
Microsoft remains a behemoth financially. It generated nearly $78 billion in revenue in the year ended June 30—an average pace of $150,000 worth of sales every minute. The company's fat profit, amounting to $21.86 billion last year, remains the envy of most industries.
Under Mr. Ballmer's watch, the company succeeded in limiting many threats, including the open software standard called Linux that Mr. Ballmer once described as a "cancer." He also helped Microsoft recover from the shock of the U.S. government's effort to break the company apart.
But Microsoft generates nearly all of its profit from a trio of products—Windows, Microsoft Office and related software to run companies' back-end computing gear—that are deeply dependent on the sales of Windows-powered PCs. Other products, such as the Xbox videogame machine and the Bing search engine, are either unprofitable or only marginally so.
Executives inside and outside Microsoft said change at the top of the company was long overdue. People briefed on Microsoft board deliberations said directors have scouted potential successors to Mr. Ballmer for years.
But those people said it has been tough to find the right replacement to lead a sprawling company that has only had two CEOs in its history. Mr. Gates has sold much of his stake in Microsoft, but still wields more influence on the company's shape than anyone else.
Microsoft said it would look both inside and outside the company for a replacement as Mr. Ballmer remains CEO for up to 12 months. The surprise announcement suggests there was no planned succession, coming only about six weeks after Mr. Ballmer shuffled his entire executive suite without naming a clear No. 2.
Whether Microsoft will draw from its once-deep executive bench or bring in an outsider is unclear. The company has lost a number of top candidates over the past several years as various missteps allowed Apple, Google and Facebook[9] Inc. to become the new tech titans.
The executives expected to get a close examination for the post include Paul Maritz, a former Microsoft executive who is now running business-technology firm GoPivotal Inc., and Stephen Elop[10] , the Nokia[11] Corp. chief who previously led the Microsoft Office business. Microsoft officials seen as potential candidates include Tony Bates, the former CEO of video-calling service Skype, and Satya Nadella, who has won plaudits for making Microsoft's back-office software more compatible with the Web.
A spokeswoman for Mr. Elop declined to comment Friday, as did Messrs. Maritz and Bates. Mr. Nadella didn't respond to an email seeking comment.
Mr. Ballmer's successor will be tasked with recapturing the sort of innovation that transformed Microsoft from a wild idea hatched in a New Mexico hotel room into a premier American business.
"With this change at the top, there is a watershed opportunity to find someone who will bring a fresh approach to lead the company into the future," Paul Allen, who founded Microsoft with Mr. Gates, said in a prepared statement Friday.
Critics said that Microsoft's next leader needs to throw out Mr. Ballmer's playbook of trying to insulate the company's existing franchises. For example, to protect its Windows empire, Microsoft has refused to make its Office franchise freely available for people using non-Microsoft devices like the iPhone. The decision has created strife inside of Microsoft, and cost the company a new generation of users.
"Microsoft needs a young leader with great product intuition and a willingness to burn the ships and refocus the company," said entrepreneur Ali Partovi, who sold a company to Microsoft and briefly worked at the company. "More important, they need to take big risks and send a message to the world that they're willing to shake things up at the root."
The retirement of Mr. Ballmer marks a dividing line between the first generation of computing, and the next era still taking shape. Tech pioneers such as Apple, computer-chip maker Intel[12] Corp. and International Business Machines[13] Corp. already have put new leaders in place in recent years.
Just as those companies outlasted once-powerful rivals such as Commodore Business Machines and Digital Equipment Corp., there are big questions whether the technology mainstays of the last generation—including Microsoft, Apple, Oracle[14] Corp. and even relative newcomers like Google—can dominate the next era as Microsoft as its brethren did the last one.
"The cycles by which we adopt technology and create new technologies are changing dramatically," said Aaron Levie, chief executive of Box Inc., which is among the new generation of companies born in the Web age that are challenging Microsoft with less costly and often simpler alternatives to its software.
Mr. Levie pointed to Apple's once wide lead in sales of smartphones with the iPhone, which was usurped quickly by devices running Google's Android software. "Apple can be the leading smartphone producer for one or two years, and then a new technology emerges like Android," Mr. Levie said. "You're going to see more of a steady effect across the industry."
There are plenty of doubters that fresh leadership is enough to save the company.
"The only one who can turn around Microsoft's disastrous situation is Bill Gates—he is a true visionary and leader of our industry," said Marc Benioff, chief executive of business-software company Salesforce.com and a longtime Microsoft antagonist.
—Don Clark, Joann S. Lublin and Lora Kolodny contributed to this article.
Write to Shira Ovide at shira.ovide@wsj.com[15]
References
- ^ SHIRA OVIDE (topics.wsj.com)
- ^ CONNECT (online.wsj.com)
- ^ Microsoft (online.wsj.com)
- ^ Steve Ballmer (topics.wsj.com)
- ^ Bill Gates (topics.wsj.com)
- ^ Gartner (online.wsj.com)
- ^ Apple (online.wsj.com)
- ^ Google (online.wsj.com)
- ^ Facebook (online.wsj.com)
- ^ Stephen Elop (topics.wsj.com)
- ^ Nokia (online.wsj.com)
- ^ Intel (online.wsj.com)
- ^ International Business Machines (online.wsj.com)
- ^ Oracle (online.wsj.com)
- ^ shira.ovide@wsj.com (online.wsj.com)
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