An Open Letter to Steve Ballmer

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Why Not Stick to Software?

You've heard this said about Microsoft before. It's a sprawling company often at cross-purposes with itself. In 1995, Microsoft's prospects seemed limitless. Since then, the company has grown in an uncontrolled manner, buying its way into businesses that are only barely connected to software: TV networks (MSNBC), phone answering software, and video games, to name a few.

Meanwhile, look at all the trendy Internet opportunities that both Microsoft and Yahoo have missed: social networking, video sharing, blogging, and so on. (Yes, Microsoft's now got a piece of Facebook. But that $15 billion valuation? It's hard to get a good deal when you buy your plane ticket at the counter just before takeoff.) The Internet's rapid shift to user-generated content, browser-based applications, and widgets has been unapologetically platform-agnostic. Windows is all but irrelevant in this arena. Had Microsoft kept its focus on its core business, this might not have happened. Instead, your efforts on the Web have tended to focus more on bending the Web to your will than making your software enhance it.

Take Microsoft Office. If someone took it away from me, I could get by using a Web-based office suite like Google Docs and Spreadsheets, or Zoho and others like it. You should have had Office on the Web five years ago. Meanwhile, as Web-based upstarts were quietly invading this turf, you've been wasting time, effort, and attention trying to be a consumer electronics company, a digital media company, and now an online advertising company. Before long you'll probably want to sell me telephone and TV service, too. Enough with the identity crisis! Microsoft is a software company. Everything else is superfluous.

Learning from the Other Steve

So who has focus? That other Steve. You know, the turtle-necked guy in California who keeps annoying you by selling iPods and computers that typically don't run on Windows. You could learn a lot from him. Focus saved his company from oblivion. Apple (AAPL) does what it's good at, and it expands into new areas carefully. (Examples: iPod, iTunes music store, Apple retail store, iPhone.) Consider this: With sales data showing that Mac computers are growing more popular than ever among consumers, you might think it's a perfect time for Apple to ride that momentum and go after corporate computing. But it won't. Why? Apple knows it wouldn't work because you have the corporate market all tied up with your pals Dell (DELL) and HP.

And why is the Mac growing more popular among consumers? Well, let's be honest. Windows Vista isn't exactly winning you many friends despite all the extra time you took to "perfect" it. (How many deadlines did you miss again?) At the same time, Apple's cleaning your clock in the smartphone business—the iPhone is now the second most popular smartphone in the U.S., behind the BlackBerry (RIMM). I haven't heard anyone talk enthusiastically about Windows Mobile, since…well, since there's been a Windows Mobile.

Eventually you'll get Vista fixed to the point of being tolerable. And overall, desktop software is one of many things Microsoft is awfully good at, and you make a pile selling it. Then there's server software and Microsoft Office. Between those three units, you've got a $43 billion business that's generating 62% operating profit margins. What's not to like?