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Microsoft CEO Steve Ballmer To Retire; Search for New CEO Is On

Microsoft Corp. CEO Steve Ballmer stunned the business world and tech industry on Friday morning, announcing he will retire within the next 12 months.

The company's board has appointed a search committee to find a successor. The committee is to be headed by John Thompson, Microsoft's lead outside director. There doesn't appear to be a front-runner to succeed Ballmer at this time.

Microsoft CEO Steve Ballmer at this year's Worldwide Partner Conference

Although no date for Ballmer's departure was set, Microsoft said he will step aside once a new CEO is named. Despite frequent calls by shareholders and critics for Ballmer to step aside or for Microsoft's board to replace him, Ballmer has long insisted he wouldn't leave Microsoft until the latter part of this decade. Because he always had the public support of Microsoft Founder and Chairman Bill Gates, most observers saw Ballmer's departure as unlikely.

However, Microsoft's struggles have become more pronounced in recent years, as rivals have usurped the company in key growth markets such as tablet devices, smartphones, search and cloud computing. With the PC business it brought to the mainstream decades ago now in a precipitous free fall, Microsoft's failure to dominate or hold a strong position in the rapidly growing tablet market has made Ballmer a lightning rod for the company's struggles. Investors appeared to welcome the news, with Microsoft shares up nearly 7 percent Friday morning.

Ballmer's reign as Microsoft's second CEO was rocky from the outset after he took over from Gates in 2000, when the company's valuation and market dominance had peaked. Despite continued revenue and earnings growth and huge cash reserves during Ballmer's tenure, Microsoft's once-dominant position as a supplier of software to both consumers and enterprises came under siege by the likes of Google Inc., Apple Inc., Amazon Web Services (AWS) Inc., VMware Inc. and Salesforce.com Inc.

Critics have often questioned whether Ballmer had the chops to turn Microsoft around in recent years, and the chorus of those calling for new leadership has amplified lately as it became increasingly clear that the new Windows 8 operating system faced an uphill battle against Apple's iOS and Google's Android OS, both of which dominate the tablet and smartphone landscape.

In addition, detractors have pointed to Ballmer's miscues, including shrugging off the iPhone and iPad when Apple introduced them, which led to Microsoft's delayed entry to the smartphone and tablet markets. Likewise, despite building a huge cloud service in Windows Azure, customer adoption pales to that of AWS portfolio of cloud offerings. Microsoft's prospects in cloud computing are more promising, though still uncertain.

Windows 8's struggles and weak demand for Microsoft Surface, the hybrid tablet-PC devices Microsoft launched with much fanfare last year, have further eroded industry watchers' confidence that Ballmer could turn it around. Some question whether any successor can reverse Microsoft's fortunes, including longtime Microsoft watcher Rick Sherlund, head of U.S. technology research at Nomura Securities.

"I don't think there is an easy fix or a fix at all for tablets and smartphones [for Microsoft]," Sherlund told CNBC Friday morning. "You can certainly continue to try but I think this is not about fixing the company in that regard."

While Ballmer seemed impermeable to many of the consequences from his missteps over the years, Sherlund said a new wave of investor activism -- including reported moves by ValueAct Capital Management to secure a board seat with the goal of seeing Microsoft increase share buybacks and dividends -- may have hastened Ballmer's early exit.

For his part, Ballmer said in a statement that with the new corporate restructuring announced in June under the framework called One Microsoft, the timing for his retirement was opportune.

"There is never a perfect time for this type of transition, but now is the right time," Ballmer said. "We have embarked on a new strategy with a new organization and we have an amazing Senior Leadership Team. My original thoughts on timing would have had my retirement happen in the middle of our company's transformation to a devices and services company. We need a CEO who will be here longer term for this new direction."

Gates indicated in a statement that he will be actively involved in the process of recruiting Ballmer's replacement. "As a member of the succession planning committee, I'll work closely with the other members of the board to identify a great new CEO," Gates said. "We're fortunate to have Steve in his role until the new CEO assumes these duties."

In addition to Thompson and Gates, the search committee includes Chuck Noski, chairman of Microsoft's audit committee, and Steve Luczo, chairman of the company's compensation committee. The board has retained executive recruiting firm Heidrick & Struggles and has indicated it will consider both internal and external candidates.

In an e-mail to employees Friday morning, Ballmer said he remained optimistic about Microsoft's future. "Microsoft has all its best days ahead," he said. "Know you are part of the best team in the industry and have the right technology assets. We cannot and will not miss a beat in these transitions."

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About the Author

Jeffrey Schwartz is editor of Redmond magazine and also covers cloud computing for Virtualization Review's Cloud Report. In addition, he writes the Channeling the Cloud column for Redmond Channel Partner. Follow him on Twitter @JeffreySchwartz.

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