Whip out the elegant, light, superthin Asus (2357:TT) Zenbook on an airplane, and you’re sure to attract stares. The PC stands out even more with Microsoft’s (MSFT) Windows 8 software, its touchscreen full of colorful tiles promising a glimpse of the future. But that view starts to get foggy when Windows 8 tries to work with Microsoft Office 2013, lagging or freezing up as it attempts a task as ambitious as saving a document. This divide—between how good Microsoft’s products look and how badly they still behave—partly led to Chief Executive Officer Steve Ballmer’s Aug. 23 announcement that he’ll leave within a year.
Ballmer will hand his successor Windows 8, the Windows Phone mobile operating system, and the forthcoming Xbox One video game console. These are good and often beautiful products. Really. The not-so-small task for Ballmer’s replacement will be to turn those innovations into something more: easy, fun, useful products that don’t disappoint.
In the immediate aftermath of the announcement, critics were quick to dish out the standard suggestions to fix Microsoft: bring in someone like former IBM (IBM) CEO Sam Palmisano, jettison the money-losing consumer operations, and focus on corporate software and services. These are reasonable strategies that would look good in the short term. But Microsoft would still have to sell products that don’t quite stack up against the more polished offerings from Apple (AAPL), Google (GOOG), and other rivals.
Ballmer has already done some of the hard work. In July he led the company through a massive reorganization that vaporized traditional business units (Windows, Office) to get everyone working together on products. Top executives will now oversee technology areas such as devices, software, and services. “They lost some good people, but the reorg broke up long-standing political fiefdoms,” says Jeffrey Sonnenfeld, a professor of management at Yale University. “Now they’re organized the right way for someone to come in and make it work.” Microsoft has also overhauled most of its major product lines in the past year. Its next CEO will inherit a business that, while slumping, still produces enough profit to make any executive drool.
To avoid blowing this once-in-a-lifetime opportunity, Ballmer’s successor must first acknowledge that the current lifeblood of those profits—customers who feel locked into Microsoft’s consumer and business products—won’t last much longer. There’s no reason consumers have to buy Microsoft’s products anymore when they can head to Apple, Google, or cloud country, or just squeeze more years out of their old PCs. Few companies buy smartphones and tablets for employees as they do for PCs, so Microsoft will have to earn every point of market share in these booming markets the hard way, by making stuff that’s way ahead of the competition. That means modeling itself to some extent on Apple, which, despite its recent stock slump, remains the finest product shop in tech.
Lesson No. 2: Learn to say no. A lot. Microsoft will never have only five product lines like Apple, given its huge swath of businesses ranging from keyboards to obscure data center software. Still, the company needs to pare down its menagerie of brands—SkyDrive and Live.com probably don’t ring a bell—to push a couple that consumers can remember, if not rally around. Microsoft’s Skype (MSFT) boasts around 300 million users and engenders the kind of loyalty most of its products lack. Longtime tech investor Roger McNamee, a co-founder of private equity firm Elevation Partners, wrote in an e-mail that Microsoft should elevate Skype over Windows as a fresh, vibrant brand, creating a central Skype browser and a range of Skype phones, including some for lower-income consumers in emerging markets. Nirm Shanbhag, managing director of consultancy Interbrand, says Microsoft needs a brand that extends beyond a product, “something representative of a larger platform.”
That would pave the way for an even more radical notion—packaging all of Microsoft’s consumer products in a single bundle, the way selling Word with Excel and PowerPoint was once revolutionary. The company has taken steps in this direction, offering some free Skype minutes with a yearly subscription to its online version of Office, but it ought to take bundling further. Why not use the strong Xbox brand to pitch college students on a package that includes an Xbox One, a smartphone, a Skype number, and a student version of Office? Such bundles could expose people to services that work well but haven’t found an audience, like Xbox Music, which offers song streaming and downloads. Subsidizing these deals would be expensive in the short term, but Microsoft needs to do something drastic to boost its mobile fortunes while it still has a mountain of cash ($77 billion).
To prosper on the merit of its products, Microsoft needs them to work together without freezing PCs with a click of the save button. As its next CEO, or at least that person’s right hand, the company needs a harsh, demanding product expert willing to ignore internal politics, focus group findings, or complaints about impossible deadlines. Such leaders (Steve Jobs, Mark Zuckerberg, Marissa Mayer) are rare; Microsoft arguably hasn’t had a world-class one since Bill Gates in his mid-’80s prime. But only a boss who insists that products be great the first time around can squelch the dread that has long accompanied a new Microsoft release.
Finding that person requires Microsoft’s board to resist the temptation to bring in one of the usual suspects, an experienced general manager such as Palmisano or Oracle (ORCL) Co-President Mark Hurd. While such able managers could hone Microsoft’s financials, the company needs a development-focused executive at the helm to address its fundamental problems. “We’re in the era of the product person rising to the top,” says Martha Josephson, a recruiter with headhunter Egon Zehnder. “The best sales executive in the world cannot solve a lack of product vision.”
Almost as important is a fresh face. Sure, Gates has morphed from tech’s Dr. Evil to St. Bill, and Ballmer has poured billions into new businesses in an attempt to keep the former monopoly from sliding into irrelevance. But Microsoft needs someone who can persuade people to give it one more chance.