Microsoft and the Lost Empire

NEW YORK ( TheStreet) -- The two most important things I learned in high school history class were that, first, it is true that teachers have eyes in the back of their heads, and second, empires simply do not last. This is something Wall Street understands better than most, as evident by the current state of Research in Motion ( RIMM), the fall of Blockbuster, Eastman Kodak, Nokia ( NOK) and countless other names.

However, the question is, can they rise again? Aside from a company such as Apple ( AAPL) -- and it can be argued that Apple never really had an "empire" prior to 2001 -- Wall Street has never seen it happen.

Last week, discussing the potential impact of Windows 8 for software giant Microsoft ( MSFT), I asked rhetorically can its management survive another failure? I asked this because despite its dominance, the company has established a litany of failures over the past decade -- all under the watch of its current CEO Steve Ballmer who many analysts would love to replace if they were members of the company's board.
Microsoft's CEO Steve Ballmer

For this reason, Wall Street has gone out of its way to exploit every opportunity to punish the company mercilessly because it is not Apple. Meanwhile people like me rush to the company's rescue, reminding investors there is still brilliance in the making if the company is given a little bit more time. However, I often wonder if my loyalty to Microsoft will only end up blowing up in my face.

As much as I want to continue giving the company the benefit of the doubt, it has occurred to me that I shouldn't be working so hard to come to its defense -- at least since I don't collect legal fees.

The reason is simple; I am emotionally attached to the company. As much as I have denounced "emotion" on Wall Street, Microsoft has always been a company for which I have made an exception -- and I don't think that will ever change.

On the other hand, change within the company is certain to come should Windows 8 falls short of expectations -- starting with the likely removal of Ballmer. As much as I like him as a manager, I don't think Microsoft this time will have a choice. Though Windows 8 has the ability to silence his critics, the likelihood that it can also seal his fate should not be ignored. I think this is a make-or-break opportunity for Ballmer and likely his real last shot upgrading the legacy both for him and the company that have been in a downtrend since Bill Gates left the post.

The question is, can the company execute to the extent that it can restore its empire? A this point, should that even be the goal?

The biggest criticism for Microsoft has been that it needs new leadership. With its recent track record, it's hard to argue against that sentiment. Even if Windows 8 succeeds, it will be considered three years too late. It does not appear that the company fully appreciated and anticipated well enough the rise in popularity of smartphones, tablets and overall mobile devices.

The result has been the constant playing of catch-up to Apple, Google ( GOOG) and now Samsung. However, the "catch-up" timeline dates back to the exact point in time of when Ballmer took over the company. Fairly or unfairly, this is when Microsoft appeared to have lost its competitive edge and commenced its empirical decline. For example:
  • Microsoft poorly underestimated the vitality of the search market. The company allowed Google to dominate the industry and now has introduced Bing a full decade later to compete in the search space. Though Bing is doing well, Microsoft missed a leadership opportunity -- one where it could have averted Google's rise.
  • Microsoft was outsmarted in previously strong areas of its business such as browsers where it was able to kill off Netscape. However, Mozilla has seemingly come out of nowhere to "outfox" the company. Now even Google's Chrome browser is proving a worthy alternative to Internet Explore.
  • The company's approach to both its core business and its biggest future opportunities appear to have been poorly executed -- aided by the failure of its Vista launch which arguably set the company back three years as it was considered to be a complete disaster. The company has been heavily criticized for choosing to focus its low-growth legacy businesses.
  • Until recently, Microsoft's mobile strategy has been a complete mystery. Once a competent rival to Palm (PALM), it has, for the most part, gone nowhere in terms of this most dynamic segment of the consumer technology market. For this reason Windows 8 continues to be its biggest catalyst since MS DOS.
  • During the course of Ballmer's leadership, the company aborted various projects that could have generated the creativity and produced "must-have" items such as being one of the first entries in both the smarphones and tablets markets only to now constantly looking up to Apple and Google.
  • It goes without saying that it would have been hard for any other CEO to survive this list of failures -- at least not if its board was worth anything. However, Ballmer is not your typical CEO. Despite the company's recent history of lacking product focus and underestimating the competition, Ballmer still has strong support from the most important person to Microsoft -- Bill Gates. For this reason, he has been untouchable. I think Ballmer knows that, yet I don't think this is how he wants it to be. After all, nobody can be pleased with a legacy that does not include merit or worst, being thought of as having kept a position because you were owed a favor.

    Bottom Line

    For as much criticism as Ballmer has received, I think he has done a decent job not only with maximizing the company's profits, but also generating as much revenue as possible out of its consumer and enterprise businesses. That said, no one can say with a straight face that he has done an adequate job propelling the company forward technologically or strategically.

    I think this can all change not only with Windows 8, but also with the company's cloud strategy, its Yammer acquisition, its investment in Facebook ( FB), its partnership with Nokia, monetizing Bing, integrating its Xbox console, integrating Skype into a workable platform and a few other moves.

    Interestingly Ballmer was the architect of all of these possible catalysts. While they may all be on his bucket list, to the extent that he can successfully executing them all, he would likely write his legacy as having done something that have never been done before, as having restored an empire.

    This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

    At the time of publication, the author was long AAPL, FB and held no positions in any of the stocks mentioned, although positions may change at any time.