Questions for Microsoft as It Nears a Crossroad

Justin Lane/European Pressphoto AgencySteven A. Ballmer, chief of Microsoft and a friend of the company’s chairman, Bill Gates, said he would retire in the next year.

Microsoft’s plan, announced Friday, to replace Steven A. Ballmer as its chief executive does not exactly follow — at least to people outside the company — the way they draft these things in business school.

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Steven Sinofsky
Left Microsoft last year amid friction and is seen as unlikely to return.

But Mr. Ballmer and Microsoft’s board have been considering the possibility of his retirement for some time. Still, because of Mr. Ballmer’s larger-than-life personality, the board’s reluctance to push back and the company’s recent product and financial problems, finding a new chief executive for Microsoft was never going to resemble a cut-and-dry, business-school case study, according to people with knowledge of the company.

“No one is an obvious candidate,” said Michael A. Cusumano, a professor of business and engineering at the Massachusetts Institute of Technology who studies strategy in the computer software industry. “All the really interesting people who were in the company over the last dozen years who might have been have left. I also find it hard to imagine they could bring an outsider in. Microsoft is known for having quite a lot of powerful groups within the company and they make life very difficult for anyone who tries to oversee them.”

Succession planning is a delicate issue for many companies, particularly one like Microsoft, where Mr. Ballmer has been a senior employee since 1980 and chief executive since 2000, and his longtime friend, Bill Gates, Microsoft’s co-founder, remains chairman.

“Particularly for a person like Ballmer, who really is one of the founders, leaving is almost like death, so it’s extremely difficult to have an orderly process,” said Joseph L. Bower, a professor at the Harvard Business School. “It requires a very grown-up relationship between the chief executive and his board.”

Industry insiders almost immediately began to place bets on which executives inside and outside Microsoft — and even outside the technology industry — could be tapped. The decision will go a long way to determining whether Microsoft will successfully transition to tech’s future of mobile computing and computing in a virtual cloud of data-storage devices.

But at the moment, at least, the betting cards are virtually empty.

Even though Mr. Ballmer had indicated he was going to retire when the youngest of his children went to college, which was in about two more years, “I think people thought Ballmer would maybe die with his boots on in that role,” Mr. Cusumano added.

Developing a succession plan is one of a board’s chief responsibilities, but only half of companies actively groom executives, according to a 2010 study by Stanford University’s Rock Center for Corporate Governance and Heidrick & Struggles, the executive search firm that is leading Microsoft’s search. Boards spend only an average two hours a year on succession planning, the study found.

“When you have such strong personalities as Gates and Ballmer, is the board really proactive with them, or is it more of a caretaker board?” said David Larcker, director of corporate governance research at Stanford University’s business school, who worked on the study.

Though it might not be obvious outside the boardroom, Microsoft’s directors have been planning the transition, according to a person briefed on the board’s meetings who was not authorized to speak about them publicly.

Discussions have been happening for a decade, the person said, and intensified in 2010. Several months ago, Mr. Ballmer suggested to the board that it was time to begin a formal succession process, the person said, and told directors on Wednesday that he would announce his retirement.

Mr. Ballmer and the board have discussed the attributes they want in the next chief executive and have been appraising internal and external executives who might be candidates. Over the last 18 to 24 months, Mr. Ballmer has personally met with several outside executives, including people outside the tech industry with experience transforming very large companies, according to the person knowledgeable about the board’s work.

Nick Wingfield contributed reporting.

On the Road: In-Flight Entertainment Is at Crossroad

ONE morning last week, I strolled into the spacious, shiny exhibition space of Paramount Pictures at the annual trade show sponsored by the Airline Passenger Experience Association, a network of airlines and businesses and professionals who supply various in-flight comfort and entertainment services, from seats to software.

But a stern-looking woman from Paramount scowled at my name tag, saw that I was a reporter and chased me out. “This is private,” she hissed, as if I might be on the prowl for, say, inside information about Paramount’s deepest movie secrets.

Actually, all I was doing, along with about 2,500 others who attended the convention, was wandering among the scores of exhibitions, admiring a 64-inch digital cabin video monitor here, a cushy lie-flat airline bed with flashy remote controls there, a display of passenger earphones providing concert-hall fidelity over there.

If I had a take-away from the event, it was that in-flight entertainment is at a crossroad. At a time when about a third of passengers are flying with their own devices like tablets and smartphones, how do airlines respond?

Do premium carriers continue to invest heavily in hardware — in expensive in-seat audio and video systems that provide packaged offerings like hundreds of on-demand movies, television programs and video games, but need regular upgrading as technology improves?

Or do other carriers concentrate mostly on improving in-flight Wi-Fi for those passengers who prefer to use their own hardware? If so, do the airlines try to sell them licensed content like movies and video games, while somehow overcoming significant concerns by studios and other providers about piracy? And how do they address passenger discontent about slow, balky in-flight Wi-Fi service, not to mention complaints about the dearth of power outlets on airplanes?

Hollywood studios and other content providers are happy to sell fairly recent movies to airlines to offer on the on-demand seat video systems. But while airlines can save lots of money, including fuel costs, by stripping out the cables and seat screens and installing far-simpler Wi-Fi servers, the studios are wary of streaming content onto personal devices on open networks.

As the industry struggles to sort those things out, I nevertheless sensed a degree of relief at the show’s fancy awards ceremony. Here, at least, was something familiar and tangible — an awards show, the annual Passenger Choice Awards, based on global passenger surveys done with help from the Nielsen Company.

The winners for “best overall passenger experience,” including cabin amenities and in-flight entertainment, were Emirates Airlines and Virgin America. Regional winners were South African Airways (Africa), Virgin America (Americas), SriLankan Airlines (Asia and Australasia), Virgin Atlantic (Europe) and Emirates (Middle East). Norwegian was cited for best in-flight connectivity. But aside from Virgin America and Southwest, which won a nod for best in-flight publication, airlines in the United States were conspicuously missing from the in-flight experience awards.

Meanwhile, Singapore Airlines, for one, continues to bet big on high-end embedded in-flight entertainment.

Singapore, a premium carrier, said it is spending $400 million on an advanced in-flight entertainment and communications system from Panasonic that will be installed on 40 new long-haul planes it has ordered. That’s an improvement on the carrier’s current system, which offers on-demand more than 140 movies and 200 television shows.

On long-haul global flights, the case for embedded entertainment systems is far clearer than on shorter flights, however. That’s where airlines and suppliers are scratching their heads.

For providers of in-flight entertainment of all kinds, the proliferation of smartphones and tablets is clearly confounding. Passengers carrying tablets, smartphones and laptops already have “a very wide range of content available right up to the point where they board the aircraft,” said Robert Smith, the director for market intelligence for IMDC, a consulting firm in Britain.

Traditional and perhaps hidebound in-flight content providers like movie studios aside, “there are some extremely large organizations fighting very hard to be the consumer’s first choice” in providing content, including content that is brought onto the plane by the passenger, he said.

That got me thinking on Sunday, as I was returning home on Southwest Airlines. On that trip, I was deeply engrossed in the in-flight entertainment — a tragic and heartbreaking tale of a spirited young princess who is dragged across a continent to a life of luxury, duty and ultimate horror, as she evolves into a doomed queen caught in the vice of violent history and goes to her savage death with dignity and valor.

Not a dry eye in the house on that drama, I’d say. Incidentally, I brought that particular in-flight entertainment onto the plane with me, in the low-tech form of Antonia Fraser’s brilliant 2001 biography, “Marie Antoinette: The Journey.” The book was far, far better than any movie I might have watched on a screen.