Microsoft's Ballmer: Bill's Co Pilot

After 18 years at Microsoft, is Steve Ballmer ready to be president?

Microsoft's Ballmer: Bill's Co Pilot

After 18 years at Microsoft, is Steve Ballmer ready to be president?

It was vintage Steve Ballmer. Microsoft Corp.'s self-appointed cheerleader bounded onstage at the company's annual sales meeting in New Orleans on July 27 and shouted at the top of his lungs: "I love this company! I love this company! I love this company!" The 6,000-person sales team responded with a five-minute standing ovation. Then Ballmer whizzed through a 90-minute pep talk on the virtues of customer obsession, bringing the audience to its feet once more when he finished by playing a recording he listens to before every major milestone in his life: Dionne Warwick's I Say a Little Prayer.

Ballmer might need their prayers. After six years of running sales and support for the software giant, he has been elevated by CEO William H. Gates III to the position of president--in charge of both sales and product development--allowing Gates to focus more on technology and mapping out the company's future.

With this move, Steven A. Ballmer finally gets public recognition for the role he has long played at Microsoft: Bill Gates's co-pilot. Together, the two college chums have spent 18 years forging a fiercely competitive company unmatched in computerdom. Gates has been the company's big brain and Ballmer its wildly thumping heart, inspiring the troops as no one else can. Now, while Gates remains CEO and point man in the company's antitrust battle with the Justice Dept., it's up to Ballmer to run day-to-day operations at a juncture that's as crucial as any in the company's history.

Microsoft is under fire from all sides--not just from Justice but from tough competitors such as IBM and Sun Microsystems Inc. To sustain a blistering 28% yearly growth rate, Microsoft must succeed in markets far afield from its dominance in desktop computing. That means persuading corporate customers that Microsoft's software can be trusted to run their most vital operations. At the same time, Microsoft is pushing its Windows software into everything from cars to building alarms to telephones. And the company must transform its Web sites, which lost $300 million last year, into moneymakers.

GIMLET-EYED. In many ways, the 42-year-old Detroit native is tailor-made for the job. While Gates is the company's technology visionary, Ballmer is its top business strategist. He earned his stripes by building Microsoft's sales operation into a major-league force in corporate computing. He has had every major management job at Microsoft, and he has the kind of gimlet-eyed financial discipline necessary to pick apart the flaws in any ailing business plan.

Already, Ballmer is sending hundreds of product engineers out to learn from corporate customers what Microsoft needs to do to help solve their computing problems. He is doing sit-downs with some 100 employees to ferret out what's happening with product development. And he is boning up on what makes a Web site a hit. Look for him to whip into shape the company's E-commerce operations by boosting revenues and pruning unnecessary costs.

Ballmer's omnipresent intensity should help. He's larger and louder than life--6 feet tall, built like a linebacker, with a huge, balding head and a booming voice. Despite his stock options worth some $6 billion, he's not easing off one bit, and responds with bug-eyed indignity to rumors he was considering retirement before getting his promotion. "That's just not true," he says. He's the kind of guy who, while jogging, charges up hills--gutting out the pain.

At home, too, Ballmer's devotion is boundless. He tries to be there to put his two young sons to bed every night. And when his parents became ill with cancer last summer, he moved them to Seattle and took 12 weeks off from work to care for them. "Not too many senior executives will just drop out like that for their family," says Mike Maples, a former Microsoft executive vice-president who is now retired.

But Ballmer's intensity has a dark side. He can sometimes be a hothead whose emotions get the better of him. He can be rough on people who work for him, bawling them out so violently that his voice can be heard through the vents at Microsoft's Redmond (Wash.) headquarters. And sometimes, Ballmer blurts out public comments that simply do not become a company president.

Gates--no diplomat himself--doesn't hold Ballmer's shortcomings against him. The two have been close friends since they met as undergraduates at Harvard University. Later, in 1980, Gates persuaded Ballmer to drop out of Stanford University's business school to help run a fledgling Microsoft that was growing so fast it was nearly out of control. Ballmer was the company's first nonengineer, and Gates valued his management experience at Procter & Gamble Co., where he helped market cake mixes.

Even today, they spend hours together talking over their frustrations and dreams. "He's my best friend," says Gates. "We love working together on very hard problems. We trust each other and understand how the other one thinks." Ballmer's affection for Gates runs just as deep. "Our friendship has grown much stronger as a result of working together. It's like a marriage," says Ballmer. In an interview last fall he said Microsoft's vaunted long-term approach to business emerged partly because he and Gates "wanted to prove our commitment to one another."

But where Gates calculates his moves, Ballmer simply makes them. "Steve's invention is: Don't have an elegant plan. Do the smart, obvious thing. Then fix it as you go," says Peter Neupert, a former Microsoft executive who is now CEO of

As president, Ballmer will have to be more judicious--and diplomatic. "He's proven he can be General Patton," says Paul A. Maritz, Microsoft's group vice-president for products. "Now, he has to be more like Eisenhower." Ballmer is working on that. On Aug. 6, he ventured into hostile territory to meet with the CEOs of 10 Silicon Valley startups intent on persuading them to see Microsoft as an ally. "I was impressed," says Naveen Bisht, CEO of Ukiah Software Inc. in Campbell, Calif. Ballmer even promised to call venture capitalists on their behalf.

TO THE RESCUE. Mostly, though, Ballmer's new job keeps him close to home and focusing on his two new priorities: making sure all the company's businesses are operating at peak performance and notching up Microsoft's dedication to customer satisfaction. "I'm going to dial up my focus on delighting customers," he says.

That may sound like so much marketing hooey, but Ballmer is in earnest. Some customers say they rarely meet a software executive so attuned to their needs. Richard Schell, vice-president of information systems at ABC in New York, says Ballmer came to the rescue when he ran into technical problems after switching to Microsoft's Windows NT software three years ago. And two years ago, after Schell suggested a change in Microsoft's basic licensing agreement during a Microsoft-sponsored gathering of corporate customers, Ballmer convened a meeting on the spot and resolved the issue by the next morning. "I find it very comforting that within the huge domain of Microsoft they have such a senior person who is so sensitive to customer needs," says Schell.

Obviously, it's not altruism that drives Ballmer. He understands that for Microsoft to keep up its sizzling growth, it has to make customers out of millions of people who don't use PCs now, plus find compelling reasons for corporations to buy upgrades. Part of it is getting products out the door faster--like the tardy upgrade of Windows NT. But most crucially, Microsoft's products need to get much easier to use and manage.

To help achieve that goal, Ballmer has budgeted an extra $250 million this year to increase the company's consulting and support staffs by 25% each and pay for technical seminars for 2.3 million small consultants and software developers. Also, Ballmer plans to send engineers out to learn from customers. It's not just about figuring out the latest feature to put into Windows NT, the network operating system that's the basis for Microsoft's corporate-computing strategy. Ballmer wants to understand where the gaps are in the entire product line. "It's a blitz session to dig in and hear what's out there," he says.

But boosting traditional software sales won't be enough to keep Microsoft's revenues soaring. Ballmer is looking hard at the company's Interactive Media Group (IMG), which has had some hits, such as its Expedia travel site, but has failed to make the Microsoft Network online service a major force in cyberspace. Now it's trying to emulate Yahoo! by transforming MSN into a so-called portal site that serves as a doorway to the Web and routes customers to Microsoft's own travel, investment, and shopping sites.

WEB HEMORRHAGE. To get himself up to speed on the portal business, Ballmer took what he calls a "crash course" during three days of talks in June with advertisers and ad agencies in Chicago and New York. While he thinks revenues should be growing faster, he supports the company's high level of investment in Web sites. "The quibbles are about what's the appropriate target for payoff," he says. Financial analysts, though, are losing patience with the profitless Web ventures. "Red West should be called Red Ink," scoffs David Readerman of NationsBanc Montgomery Securities Inc.--referring to the satellite office where those businesses are located in Redmond, Wash.

Pete Higgins, head of the IMG group, is not expecting conflicts with his new boss. "He's hard on budgets, but so am I," Higgins says. Ballmer says his new job isn't so much to root out problems as to nip them in the bud. "Nothing's wrong," he says. "But many things could go wrong if we don't prepare today."

It's just that kind of edginess that started Gates on the path to appointing Ballmer president. In a memo to the board of directors and top execs last December, Gates revealed his frustrations. Less than half of his time was spent thinking about technology. And he was concerned that Microsoft was becoming too bureaucratic. Then there was the Justice investigation--which resulted in a May lawsuit charging Microsoft with anticompetitive business practices. "He was feeling a bit overwhelmed and not having as much fun as in the past," says board member Jon A. Shirley, who was Microsoft's president for much of the 1980s.

Still, it took more than six months for the board to settle on making Ballmer president. One hangup was his fiery personality. "Steve's greatest strength can also be seen as a weakness," says board member and Ballmer friend David Marquardt. Ballmer shouts when he gets excited or angry--his voice rising so suddenly that it's like an electric shock. "That could be intimidating to people who didn't have a lot of self-esteem," says Scott McGregor, a Windows development manager in the mid-1980s who is now a top executive at Philips Semiconductors. By the early 1990s, Ballmer had to have throat surgery to fix problems brought on by shouting.

OOPS FACTOR. Then there was the Janet Reno incident. Last fall, in front of reporters, he made the colossal blunder of sneering "To heck with Janet Reno!" after the Justice Dept. sued Microsoft. That comment made headlines and hurt Microsoft's already battered image. Ballmer says he deeply regrets the comment. "That's the way I am," he says. "I have to work on being a better version of myself."

According to Shirley, Gates cleared the way for Ballmer's promotion by making sure each of the executives who would report to him was satisfied with the arrangement and by convincing the board that he could modify his behavior. That may be sorely tested in coming days when Justice Dept. attorneys grill Ballmer in a deposition. So far, though, he is one of the few top Microsoft executives who has not been portrayed as a bad guy in government filings.

Ballmer's friends forgive his excesses, and even some Microsoft critics are willing to cut him slack. "I find him refreshing. There's a joy and love of life about him," says Ken Wasch, director of the Software Publishers Assn. Ballmer is affable most of the time. He cracks jokes and laughs and says things such as "Oo la la!" People warm up to him because he has an incredible knack for remembering their names--and even their kids' ages.

Most of all, Ballmer is an all-around good sport--always up for company high jinks and publicity stunts. He swam across a chilly Microsoft campus pond in November, 1988, on a dare. And last year, he and Gates portrayed a couple of buddies out for a drive in a video spoof of a Volkswagen ad that was shown at public-relations events. They picked up a Sun Microsystems computer from the side of the road--then unloaded it after they noticed a stench.

What drives this unconventional exec? As a child, Ballmer was keen on pleasing a mother he adored and a demanding Russian immigrant father. His father, who worked in accounting at Ford Motor Co., didn't go to college, and Ballmer can remember being told in no uncertain terms when he was eight that he would attend Harvard. His dad had a relentless work ethic and urged young Steve and his kid sister to buckle down. "He'd always say `If you're going to do a job, do the job,"' Ballmer recalls. And he remembers that his grandfather, a veteran of the czarist army who sold used auto parts, gave him a $6-per-month allowance, but insisted that he turn it over to his mother--perhaps the genesis of Ballmer's legendary tightfistedness at Microsoft.

MATH WHIZ. Ballmer wasn't always so bold. He was shy as a child--so much so, he remembers, that he hyperventilated before heading off to Hebrew school. He only became confident once he got used to new people and situations. As a scholarship student at Detroit Country Day School, he was a spirited--if mediocre--defensive tackle on the Yellow Jackets football team. Childhood friend Steve Pollack, the team's all-state center, bested him every time during scrimmages. "But Steve would never give up. He'd keep coming and coming," says Pollack.

Ballmer turned out to be a math whiz--ranking in the top 10 among Michigan high schoolers on a statewide test--helping him achieve his father's dream, a Harvard education. There, he got his start as a leader--as manager of the football team, the Harvard Crimson student newspaper, and the literary magazine. But it was his hookup with schoolmate Bill Gates that sealed his fate as a future captain of industry.

They lived at opposite ends of a dormitory floor--but their shared passions for math and science brought them together. They teamed up to study and competed fiercely at trivia games and in academics. Ballmer still rues the day Gates outscored him with a final test grade of 99 to Ballmer's 97 in a macroeconomics course for which neither of them attended a single class. The competitive jousting continues to this day. Gates and Ballmer recently brought a staff meeting to a temporary halt while they tussled over exactly how much bigger BellSouth is than US West.

These days, Ballmer's commitment to Microsoft matches that of Gates. Sometimes, he'll handle overseas business reviews from 7 a.m. one morning to 2 a.m. the next. And no marketing stunt is too wacky. Take the time he dressed in a baseball outfit for the launch of Office 97 at Club El Nogal, a nightclub in baseball-crazy Bogota, Colombia. With the mention of each new product feature, he was to throw a pitch to professional ballplayers standing in the audience. But one of his tosses smacked a customer in the head. Ballmer jumped off the stage and rushed to the stricken man--who was not seriously injured.

While there are occasional misfires, Ballmer's intensity usually delivers. One example: the sales organization. When he took charge in 1992, Microsoft did little more than advertise, ship products to distributors, and wish them luck. Ballmer segmented the market into six categories--such as consumers and large corporations--and built organizations to address each of them.

SALES SAVVY. In the corporate market, Ballmer decided that Microsoft should not try to copy IBM's strategy of building huge direct-sales and consulting operations. Instead, it would make allies of thousands of consultants, resellers, and systems integrators who would carry its products to many more customers than IBM could ever reach. "He saw the power of the many," says Judy Sims, CEO of reseller Software Spectrum Inc. The result: Microsoft's enterprise sales organization reached $4 billion in revenues last fiscal year--up about 40% in each of the past three years.

Ballmer also cultivated the software companies that specialize in enterprise applications, such as manufacturing and inventory programs--persuading them to build their products on top of Windows NT. Says Paul Wahl, CEO of corporate software maker SAP America Inc.: "Steve spotted early that he needed SAP to make NT a success--to demonstrate that it was really ready for prime time." Ballmer offered engineering help, and SAP agreed to port its R/3 suite of enterprise applications to Windows NT. It was a win for both companies: SAP installations that are built on top of NT went from zero to 55% in four years.

Ballmer is relentless when it comes to closing a sale, too. Two years ago, after Boeing Co. told Microsoft it planned to choose Lotus Notes over its Exchange E-mail program, Ballmer called an emergency meeting of salespeople and engineers and told them this would be a test of Microsoft's ability to be a corporate computing player. Some 72 hours of nonstop strategizing and software coding ultimately changed Boeing's mind. Now, the aircraft giant is Microsoft's largest E-mail customer--putting Exchange on more than 200,000 computers. "It just came down to them committing to make it work," says Daniel Smith, Boeing's liaison with Microsoft.

Ballmer has come a long way as a manager during his stint in sales. Previously, he ran product development--with mixed results. After taking over Windows in 1984, he drove engineers relentlessly to meet an autumn, 1985, launch deadline, but when Windows 1.0 was released, it flopped. It took Ballmer six more years to produce Windows 3.1--which finally took the world by storm.

People who worked for Ballmer in the 1980s say he didn't understand the development process well enough to manage a product group well. But he has picked up a lot of technical knowledge since then. "The man says he's not technical, but if you tell him something now, he'll remember it at every meeting after that when it comes up," says Richard Tong, vice-president for marketing in the applications division.

But back when the president's position came open in 1992, after Michael R. Hallman left, the board passed Ballmer over--creating a three-person Office of the President. "There was general agreement between Bill and the rest of us that we wanted him to mature some more--to prove he could handle a large group of people who weren't developers," says board member Shirley.

Ballmer passed that test. Now, he has another mountain to climb as Microsoft's president. While he doesn't have a master plan yet, he wants whatever he does to make the 27,200-person company more nimble. His model: the way Microsoft changed direction to catch up with the Internet wave. "Problem! Brainpower invoked! Solution! Execution! Go for it!" he says, pounding his fist into his palm for emphasis. "If we can just work that way every day, we'll be able to get out ahead."

Ballmer might well be able to keep up that relentless level of intensity. But if he overdoes it, he risks alienating the veteran managers who report to him. His challenge is to find just the right mix of urgency and deliberation. And that's got to be tough for a guy who accelerates when he runs up hills.