‘MSN is going to be better than the web’ – why the bombast, and Ballmer, had to leave Microsoft

“MSN is going to be better than the web.”

If you want to know why Steve Ballmer was such a failure, you don’t have to look much farther than that sentiment.

I heard it when was a Microsoft intern in 1995, arriving in Redmond just a few months before the launch of Windows 95. And I couldn’t believe what I was hearing.  The head of the nascent online group, Russ Siegelman, was telling his division that MSN content would never appear on the Web, and in fact, people would leave the Web because the Microsoft Network (MSN) walled garden dial-up service would be so much better.

I was there to help set up an online newsroom called MSN News…it would eventually become MSNBC.com. I was that group’s third employee. At the time, most Microsoft employees didn’t have access to the Internet.  Indeed, I had to dial into the computers at my school, the University of Missouri, to show my editorial colleagues what competitors were doing on the web.  I had worked on an experimental web news site at Missouri, one of the earliest. USAToday was up with a great site, as were several other national outlets.

No matter really, since MSN was going to be better than the web.

I think we know how that turned out, and how almost every other Microsoft initiative since then has turned out.  If you doubt Ballmer was a failure, tell that to Wall Street. Stocks usually plunge when the CEO of a large company quits with no clear succession plan. Today, Wall Street is saying, “anyone is better than Ballmer.”

Microsoft was still a relatively small company in 1995 — all the interns got to have dinner at Bill Gates’ original house — and at the time, it has not yet buried Apple in the desktop market. Windows 95 accomplished that. It was probably the greatest leap forward the company ever made. With the exception of XBox, it was probably the firm’s last clear win, too.

Even with that raging success, the seeds of Microsoft’s destruction were sown. Microsoft was already making roughly $100 for every PC sold in the world that was preloaded with Windows…meaning almost every PC. And in many cases, nearly $100 more for preloaded copies of Office.  The company’s balance sheet started every year with an incredible pile of cash. Throw in some occasional accounting creativity to smooth out the quarters, and Microsoft couldn’t lose.

Microsoft was the original “too big to fail” company. Nothing its employees did mattered, because there was always a pile of cash lying around to save the quarter. At Microsoft, none of the normal reward and punishment mechanisms of market forces applied.  No one had to be accountable for their bad decisions, because Microsoft could buy its way out of any misstep, and it was really impossible for the firm to have a bad quarter.

In my new book The Plateau Effect (co-written with Hugh Thompson), we talk about all the reasons success is bad for a company. Microsoft’s stock price is the very definition of a plateau, a crime given its powerful position in the marketplace and the tremendous human capital that can be found in Redmond.  Microsoft certainly suffered from all the obvious symptoms. It ignored customers and gave them products they didn’t want, slowly growing immune to marketplace signals. It clearly suffered from something called accidental reinforcement – in which “victims” becomes overconfident because of an early success, and presumes all their other choices must also be correct.

It all leads to the kind of tone-deaf decisions that dog big, successful companies. Crazy bets on products like Zune. Out-of-touch management, as when Ballmer famously scoffed at the iPhone. Plateaus make  companies fat and lazy, and late to every new trend.

In the end, Microsoft couldn’t be better than the Internet.  Or search. Or mobile phones.  It was tragically late to every one of these tectonic shifts in the tech world. It believed its own propaganda, that it could outsmart all the major trends and improve on them. The end of Ballmer’s bombastic management style, which encouraged everyone around him to make the same bad, bold bets, is a very good thing for Microsoft.

About Bob Sullivan 1344 Articles
BOB SULLIVAN is a veteran journalist and the author of four books, including the 2008 New York Times Best-Seller, Gotcha Capitalism, and the 2010 New York Times Best Seller, Stop Getting Ripped Off! His latest, The Plateau Effect, was published in 2013, and as a paperback, called Getting Unstuck in 2014. He has won the Society of Professional Journalists prestigious Public Service award, a Peabody award, and The Consumer Federation of America Betty Furness award, and been given Consumer Action’s Consumer Excellence Award.

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