Microsoft: Times Are Changing, Ballmer Is Out

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Times are a-changin’ at Microsoft Corporation (NASDAQ:MSFT), and investors are excited about it. An activist investor is pushing for change at the company, and it’s giving up on software (Yes, you read that right). Oh yeah, and CEO Steve Ballmer is retiring.

Microsoft: Times Are Changing, Ballmer Is Out

Shares climbed as much as 8 percent initially this morning after the news about Steve Ballmer’s retirement was released.

ValueAct pushing for new CEO at Microsoft?

Interestingly enough, shares also edged upward on Thursday after the report from Nomura suggesting that activist investment firm ValueAct Capital may push for a board seat, and possibly other changes at the software giant. Unlike some activist investors who shall remain nameless, when ValueAct pushes for change, we don’t get publicly teased about what’s happening through Twitter or other outlets. We just don’t hear as much about what the firm is doing until it is about to happen or it has happened because ValueAct keeps the lid on just a little tighter than others.

So did ValueAct have anything to do with Ballmer’s retirement? Keep in mind this is a mere question. But it’s interesting that his retirement is announced while Microsoft Corporation (NASDAQ:MSFT) is being targeted by an activist firm. We’ve known ValueAct was building a stake in Microsoft at least since the firm’s May 13F filing. About three weeks after that, the Federal Trade Commission gave ValueAct the green light to go activist on the company.

Ballmer’s retirement part of the reorganization?

And then there’s the July announcement from Microsoft that it was going to completely reorganize the company. That reorganization plan did not provide any indication of who would replace Ballmer, and this was one concern raised by some analysts. But if there isn’t anyone in-house who can do Ballmer’s job, then it’s time to look outside.

Ballmer himself may have come to realize that it’s time for him to be done. After all, as CNET’s Don Reisinger points out, the disasters that were Windows Vista and Windows 8 both happened under his watch. And Microsoft Corporation (NASDAQ:MSFT) hasn’t been able to push into mobile computing successfully either.

Yes, times, they are a-changin’. And if giants like Microsoft are going to keep moving forward, then they have to change with the times. Ballmer has been one of Microsoft’s masterminds for decades, and his track record in the past has been excellent. The company wouldn’t be where it is now without him and Bill Gates. But sometimes when the market changes like it is right now, a fresh perspective is needed.

Goodbye, software, hello, “devices and services”

Speaking of changes, Business Insider Editor-In-Chief Henry Blodget points out something else that’s very interesting in the press release about Ballmer’s retirement. He points to a single phrase which could mean that Microsoft Corporation (NASDAQ:MSFT) is indeed giving up on software: “the effective transformation of Microsoft to a devices and services company.”

Blodget notes that the traditional software model is definitely on the way out and has been for some time, although Microsoft hasn’t really acknowledged this until recently. Just a few years ago, the company never would have even considered twisting its forward toward a business model led by devices.

But the transition from one-time purchases of packaged software to multi-year service contracts has been happening gradually at Microsoft over the last 10 years or so. Recurring revenue is an important part of business growth these days, and companies like Microsoft Corporation (NASDAQ:MSFT) are discovering they need to change with the times.

There may not be a more perfect time to find a new CEO than right now.

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