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Has Ballmer lost the plot?

May 11, 2011 • Top Stories

Steve Ballmer, CEO, Microsoft (Image: Microsoft Sweden)As news of Microsoft’s $8.5 billion acquisition of Skype launches waves of astonished looks from investors and IT analysts around the world, Microsoft defiantly proclaims that “this will work out well for us, or sumfing.”

This acquisition by Microsoft is the biggest in the company’s history, and there are a lot of important questions to be answered.

Most puzzling of all, why did Microsoft pay so much for a company which is not yet making a profit? Facebook and Google were rumored to be interested in purchasing Skype, and a source told TechCrunch Europe that Google’s bid was pegged around the $4 bn mark.

Patrick Becker Jnr, a principal at Becker Capital Management, told Sify news that Microsoft paid a “headscratcher”of a valuation, and a more realistic valuation for a software company would be five times the company’s revenue (based on Skype’s 2010 results this would set the pricetag at $4.3 bn – firmly on the Google end of the spectrum).

So, what is Microsoft getting for their money? They are getting the 170 million connected users of Skype, they are getting the product itself,and they are getting the Skype Smartphone apps.

But some analysts have pointed out that this may be “too little, too late” for the lumbering giant which has seen barely any change in it’s stock price in the past nine years (Microsoft stock has been tethered to the $25/share mark sine 2002, with only small fluctuations in all that time). Microsoft plans to integrate the Skype service into existing products, such as it’s XBOX Live gaming platform, and the Windows Phones, but they seem to be playing “catch-up” with competitors such as Apple and Google which have stable and successful alternatives already built in to their smartphones, and online services (such as Google Talk).

This is only the latest in a series of boats which Microsoft has missed since Ballmer took the helm. Google continues to dominate Internet search, while Apple and Google dominate global smartphone sales (Two of the fastest-growing areas in the tech sphere).

Ballmer famously proclaimed that “there is no chance that the iPhone is going to get any significant market share” in an interview with David Lieberman, of USA Today, in April 2007. And this is not the only sign of a man who lacks vision and market sense.

He decided that the much-anticipated, but never launched Courier ‘digital journal’ was unnecessary, and, in so doing, doomed Microsoft to sit by while Apple dominated the tablet PC market which has rocketed them to first place in the latest Millward Brown Brandz ranking. Apple’s massive 84% “brand value” increase has been credited to the astounding success of the iPad.

Ballmer’s line-up of bad calls includes the abomination which shall not be named (Vista), the Zune MP3 player, and the “unsuccessful” Kin mobile phone.

Overall, the image which is starting to emerge is one of a CEO who is simultaneously making questionable business decisions, enduring the stigma of being voted Tech’s worst CEO by his staff and desperately trying to protect Bill Gates’ legacy. How much longer will the company’s shareholders tolerate his blundering, while their major competitors go from strength to strength?

By Angela Meadon

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