Steve Ballmer became chief executive of Microsoft in January 2000, a few months before a federal judge ordered the company to be broken up on antitrust grounds, because it was too powerful and was extending its grip too widely. This ruling was later reversed and, 11 years later Microsoft remains in one piece, and its size and scope has turned into its weakness.
This week, Microsoft paid $8.5bn to acquire Skype in Mr Ballmer’s latest bid to seize back the initiative from nimbler rivals such as Apple and Google. It overpaid for a company that lost $7m last year but the deal was a decent tax arbitrage with its spare overseas cash. If throwing a couple of billion too much at a tempting asset were the problem, Mr Ballmer would be secure.
The real difficulty is that Microsoft faces unresolved questions over its strategy and its ability to fulfil its ambitions, and Mr Ballmer does not look like a man with the answers. Having "an ambitious, forward-looking, irrepressible nature", as he described Microsoft on Tuesday, is one thing; having the ideas, discipline and focus to defeat a disparate array of competitors in many fields is quite another.
Microsoft either needs to find itself a new leader or simplify itself sufficiently so it can achieve fewer things faster and better. Its current approach has allowed consumer technology rivals to vault past in mobile devices while it simultaneously competes with everyone from IBM to Oracle in enterprise software.
Mr Ballmer does not accept this, preferring to stick with Microsoft’s established strategy, which goes back to the glory days of Windows and Office in the mid-1990s – of occupying as much of the waterfront as possible. As he responded at last year’s shareholder meeting, when asked whether he should break the company up: "It’s not in my natural genetic make up to think that way."
The Skype deal typifies this. Skype appeals to Microsoft as a consumer brand to rival Apple’s FaceTime or Google Voice on mobile devices, and to be embedded in its Xbox console. However Mr Ballmer also wants to insert Skype in enterprise software and make it work with Microsoft’s Lync, its new communications software for businesses.
That will be fine if it works out. Microsoft has never lacked vision – it was backing smartphones and tablets based on Windows software long before Apple arrived with the iPhone and the iPad. In practice, however, they were inadequate and uninspiring products that failed to excite consumers.
A lot of the blame for this lies with the fact that, as Paul Allen, co-founder of the company with Bill Gates, put it in his recent book Idea Man: "Microsoft got huge and failed to deal with the consequences." Its omnivorous approach to trying to match the potential threats to Windows, in everything from search and e-mail to video games, has stretched it very wide.
This "embrace and extend" culture is deeply imbued in Mr Ballmer – he made a circling gesture on Tuesday as he talked about "extending" Skype’s reach throughout its multiple products. It has created a degree of organisational complexity and internal rivalry that has hurt its ability to innovate effectively.
Ray Ozzie, Microsoft’s former chief software architect, wrote in a farewell memo last October: "As long as customer or competitive requirements drive teams to build layers of new function on top of a complex core ultimately a limit will be reached. Fragility can grow to constrain agility." He was referring to software (and implicitly Windows) but it also applies to Microsoft’s organisational structure.
Microsoft has shown signs of getting its act together in the past couple of years, since the humiliation of the bloated and insecure Windows Vista. Windows 7 is a much better product – as is Windows Phone 7, its attempt to match Apple in mobile software. Bing, its search engine, has managed to gain 14 per cent of the US market and its "cloud computing" model for enterprise software is doing well.
Meanwhile, Mr Ballmer has reshuffled his senior management team, under some pressure from his board, and is as energetic and irrepressibly optimistic as ever. None of this has helped Microsoft’s perennially depressed shares, which have been meandering for a decade. As Apple’s shares have risen by 26 per cent in the past year, Microsoft’s have fallen by 11 per cent.
Mr Ballmer is no fool but he has set himself too broad a challenge – far greater in scope than any of his direct competitors face. Above all, his prolonged efforts to compete with Apple and Google as consumer-focused companies have been financially ineffective, in spite of recent one-off hits such as the Kinect controller for the Xbox.
Under the hood, Microsoft is not really a consumer company – it gains the vast bulk of its revenues from Windows and Office (with a solid contribution by its enterprise server and tools businesses). Meanwhile, its entertainment and online divisions made $20bn losses over eight years, and Goldman Sachs last year estimated that 97 per cent of its market value lies in its enterprise-focused divisions.
It cannot abandon the consumer altogether and become Oracle-like – its priority is to migrate Windows effectively into mobile devices to prevent it becoming a decaying asset – but it could spin off both Xbox and Bing without inhibiting that. Above all, it needs to make harder choices than it has done.
Mr Ballmer may yet be capable of transforming Microsoft’s prospects, although his visceral attachment to its imperial traditions does not inspire hope. There is no question that someone needs to do it.
