Microsoft Has Lost Its `Audacity,' Former Top Exec Says

Joachim Kempin joined Microsoft in 1983 and spent almost 20 years at the company. For much of that time he oversaw Microsoft’s relations with the company's hardware partners. He helped orchestrate Microsoft’s rise to industry dominance, but also crafted some of the practices that landed Microsoft in hot water with the Department of Justice - leading to the historic trial that began in 1998 and was settled in 2001. Kempin retired in 2002, and now, after a decade of watching Microsoft lose its way, he has published a book, Resolve and Fortitude: Microsoft’s `Secret Power Broker’ Breaks His Silence, in which he reminisces about the old days and blasts his old company for losing the “audacity” that once made it great.

To describe Kempin as a fierce competitor would not be nearly enough. He was a warrior, a guy whose heroes include Napoleon, Frederick the Great and Gen. George Patton. He cites inspirational quotations like this from the Wasabi Venture website: “Your competitors are not your friends. They are the enemy, and you must step on their throats and cut off the very air they breathe.” He says the DoJ antitrust case was unfounded, and describes the lawyers who used that case to bring civil lawsuits against Microsoft as a “pack of wolves and leeches.” He blasts Utah Senator Orrin Hatch for scheduling hearings to investigate Microsoft’s business practices, arguing that Hatch did this because Microsoft rivals Caldera, Novell and WordPerfect had contributed to his election campaigns. “I still believe he abused his position, and I consider his behavior bold-faced sleaze,” he writes.

Hardcore, Old-School Microsoft

In other words, Kempin is hardcore, old-school Microsoft. His book is a kind of lament for the company, which he says has become listless, bureaucratic and afraid to compete. He has harsh words for CEO Steve Ballmer and even for Microsoft founder Bill Gates, writing that Gates “miserably failed in guiding the company through the Internet and social network revolution,” and that “perhaps the company would have been better off if Bill would have left earlier rather than tangentially spending his time saving his legacy and subsequently missing waves of opportunities!”

Recently I interviewed Kempin. Here are some highlights from our conversation:

ReadWrite: Why did you write the book?

Joachim Kempin: There was never a really good book written about the Microsoft days when things were really going well, meaning the days before the DoJ trial. This always bugged me somehow. About three years ago I spent an hour and a half with Steve [Ballmer] in his office. I told him I was frustrated with what the company had done over the six or seven years since I’d left. I gave him some thoughts on what I thought he could do. He said “I hear you, I hear you.” Nothing happened for a long time. So one night I just told my wife, “I need to write my book and just tell the world what I think, and if no one buys it, so be it.”

How Can Microsoft Be Fixed?

ReadWrite: What needs to be done?

Joachim Kempin: The company has lost its coolness. I compare today with the launch of Windows 95, when people were lining up around the block at midnight. This didn’t happen with Windows 7 or Vista. It hardly even happened with Windows 8. But it happens every time when Apple launches a new product.

It seems to me that Microsoft is basically malfunctioning. Back in the late 1990s we had our own tablet under development. It never saw the light of day. When I left in 2002 people were talking about social media. We were selling phone software. But we didn’t take advantage of any of that. I’m not a big fan of Facebook. I’m on Facebook, but the program is so confusing and user unfriendly. Its value lies in over 1 billion people using it and the network which runs it. The user investment is immense. Microsoft should take advantage of that and do a next generation of Facebook and do it right. People would use it if they could transfer their posts with one mouse click. A Metro-like Facebook clone, and Microsoft would look way cooler than it does today. Instead the company produces its own hardware [i.e. the Surface tablets] and tries to compete with Apple while pissing off its loyal hardware manufacturers. Oh my God.

ReadWrite:  What is the core problem?

Joachim Kempin: I think it’s that Steve hasn’t assembled the right team to propel the company forward. I don’t see any technical visionary in there. They have great ideas in their research groups, but those ideas don’t see the light of day.

Steve Ballmer vs. Bill Gates

ReadWrite:  Some people suggest that Ballmer needs to go. Do you agree?

Joachim Kempin: Steve has his best friend on the board, Bill Gates. That friendship will stand in the way of objectivity to some degree. I always believed friends of Bill were sometimes rewarded more than others. Steve and Bill like to surround themselves with loyal people. Toward the end of my tenure you had Bill’s boys and Steve’s boys. Bill was an active chairman at the time. Steve was running the company. Steve’s boys were always skeptical of Bill’s boys, and Bill’s boys were skeptical of Steve’s boys, which slowed things down as they checked each other all the time. Today I think the Bill boys are all no longer there.

RW: Were you one of Steve’s boys or one of Bill’s boys?

Joachim Kempin: Neither one nor the other. I had plenty of elbow room to do my job and taking sides was never needed. I respected both of them and still do.

ReadWrite: Let’s assume Ballmer can’t or won’t be pushed out by the board. Do you think he might just leave on his own?

Joachim Kempin: He has stated that he wants to leave in 2018. The probability is he will stay longer. He loves what he’s doing. Now, there could be a performance issue in between. Or maybe he’ll say, “I have enough money, let me worry about my life after Microsoft.”

ReadWrite: But by a lot of measures Ballmer is actually doing a great job, isn’t he?

Joachim Kempin: If you produce the expected revenue and profit, that’s one great leg to stand on as CEO. But can he be part of the next generation of software, the stuff that the Facebook generation will like? That’s a different story. There I have my concerns. Steve is a very honest guy. He told me he wasn’t happy with the performance of the company, despite the fact that his numbers are nearly always okay. He wants Microsoft to be seen as a cool company and it bugs him that it hasn’t happened.

ReadWrite: The revenue and profit numbers are good and yet the stock has been dead for years. Why is that?

Joachim Kempin: The company is minting money, no doubt. But Wall Street doesn’t believe in Steve’s technical leadership.

ReadWrite: If Ballmer quit tomorrow would the stock go up?

Joachim Kempin: It might get a little bump, but nothing of importance. The stock will only go up if the board finds the right person to replace him.

ReadWrite: But who out there could run Microsoft any better?

Joachim Kempin: Look at Yahoo. They got this new CEO, Marissa Mayer, who has turned the corner with the company. There is talent out there, people who are closer to the current market trends. Microsoft has plenty of money. You can go into tech startups, or Google and Apple, and hire people away. Is this an easy company to run? No, because of its complexity. But I think the person could be found.

Is The Enterprise The Answer?

ReadWrite: Maybe instead of being cool Microsoft is just shifting its focus to the enterprise, and becoming more like IBM. And that might be a good idea, right?

Joachim Kempin: No doubt that’s what Ballmer has been doing for the last 10 years, if you disregard Xbox. But that’s not going to propel the stock forward. The people inside the company have outside friends who are telling them that they’re not cool anymore, and this hurts their spirit. It hurts their work attitude. I talk to some of them and they don’t feel as good about their company as we felt in the 1990s, despite the fact that they are making plenty of money. They want more than that – market leader recognition.

ReadWrite: Do you think Microsoft insiders are truly happy with Windows 8? Publicly they keep saying how great it’s going.

Joachim Kempin: My internal sources are telling me that there exists a mixed bag of opinions. The concept of having a unified interface across tablets, PCs, phones, servers and Xbox is a splendid concept. But it has not been rolled out properly.

RW: And you’re not a fan of the Xbox?

Joachim Kempin: Forget Xbox. That is a crummy product. Think of the graphics you have on an Xbox versus a regular PC. The PC runs circles around it. I voted against Xbox when it got started. Microsoft lost $6 billion to $10 billion on Xbox. Today they are making a small amount of money in that area. But is this important for the company? No, it’s a distraction. You know why Xbox was done? There was only one reason; Bill said, “We need to stop Sony from conquering the living room with the PlayStation.”

ReadWrite: Steve Ballmer usually gets the blame for Microsoft’s troubles, but should Bill Gates shoulder some of the blame too?

Joachim Kempin: I believe there is some truth to that. I was there when Bill basically mentally departed from the company. He just didn’t want to run it anymore. He told me personally he didn’t want to be the next Rockefeller. He didn’t want to have the scarlet M, for Monopolist, stamped on his forehead. So he gave the reins to Steve. That was when the whole management style of the company changed, dramatically. Bill was a mission-oriented guy - “This is what we need to do; now you go make it happen.” Steve would say, “This is what we need to do, and now let me tell you how to make it happen.” He’s very prescriptive. That change made a huge difference. People felt less empowered when he took the reins. Today Bill is mainly looking after vaccines and doing good things for the world, and whatever his motivation is, I don’t care. I wish him well. But when he left, the company lost someone who was once upon a time totally up to date on technology trends. I’m not sure if in this regard Ballmer’s current team has ever filled his shoes.

Learning From The Old Days

ReadWrite: A lot of your book focuses on the old days, the era of DOS and then the Windows 95 era. Is any of that relevant to the Microsoft of today?

Joachim Kempin: When I joined Microsoft there were 400 people. By the time I left, in 2002, the company had 50,000. But so many people had left and with them so much experience and knowledge had departed. Gates and Ballmer remembered the lessons learned, for sure, and maybe a handful of other people. But that was hardly sufficient. These days the attitude is not, “Go conquer it.” It’s go to some committee meeting and try to get something approved. It’s very cumbersome. There is a huge bureaucracy in that company. It holds people back. It’s highly influenced by some principles that McKinsey has brought into the company. Ballmer loves McKinsey. He brought them in as far back as 1988, I believe. I’m not saying McKinsey is a bad company. It’s not. But I never admired the fruit of their work in the fast-paced competitive environment we operated in. I compared it to the stuff that was done at GE under Jack Welch. Steve admires Jack Welch. I think he’s totally overrated.

ReadWrite: How much of the change was brought about by the DoJ case? Was that a big factor?

Joachim Kempin: Yes. Most people got timid. The company got very cautious, and that’s why it missed lots of opportunities. People were told not to write rude emails toward their competitors. Nobody ever thought the government would be scrutinizing some of the macho words we often used to impress each other or take them verbatim, like let’s go and kill this competitor. So the whole atmosphere in the company changed.

ReadWrite: Is your argument that Microsoft did not have a monopoly, or that it had a monopoly but did not abuse it?

Joachim Kempin: I believe the whole DoJ case was a blunder by the government. The case was based on our dominance of the operating system. I believe they never calculated it properly. We had significant market share, but at the same time it didn’t mean the market couldn’t overcome that. Look at tablets and smartphones, and what that is doing to Microsoft. Alternative devices are replacing the good old PCs. The market always cures itself, and that is what is happening today. The government wanted us to separate Internet Explorer from Windows. That started the chase. Everyone thought that if we didn’t do that there would never be another competitive browser on Windows. Today IE usage has fallen below 50%. Chrome and Firefox are getting more popular every day. Microsoft has to run ads urging people to use IE. And IE comes with the product as it always has. Somebody has lost their edge and it happened without government intervention.

ReadWrite: What will Microsoft look like in 10 years?

Joachim Kempin: The company will go through some major changes over the next 10 years. They make take some pieces like Xbox and spin them out. The corporate and consumer sides of the business might get split up.

ReadWrite: Do you think Microsoft will keep growing or will the company hit a crisis like the one IBM faced in 1993 when they had to bring in Lou Gerstner to save the company?

Joachim Kempin: Such a crisis could happen in Microsoft if they can’t build a stronger consumer business. The business customers can only go so far. The crisis at Microsoft isn’t the same as the one at IBM. Microsoft’s challenge is that the corporate environment simply isn’t big enough to grow as fast as Wall Street would like to see it. There are only so many people who want Office, or a server product. And one day a lot of corporations might say, “Oh, we can get the Google stuff free, so why continue to buy from Microsoft?”

Who's Afraid Of The Boss?

ReadWrite: What is Ballmer like as a boss? Are the stories about him smashing furniture really true?

Joachim Kempin: Let me start with how Steve sometimes walks down the hallways bouncing a basketball. Or if he’s having a really good day he’s swinging a baseball bat. Do you think that sends a signal? Sometimes he brings it with him into the conference room. Is it symbolic? Maybe. I don’t know. I would never do that. For me it doesn’t send the right message. The man has some nervous energy and that’s how he gets rid of it. Have I heard him yelling? Yeah, I have. Most of the time he apologizes afterwards. He’s just a very high-strung guy. He’s not a bad guy. He just goes overboard sometimes. The two of us had an understanding, that yelling at each other does not work. We did it sometimes anyway - that is life and even that can be done with respect for each other - because we were both very intense and passionate and believed in what we were doing. If you understand that, it enables you to work things out in a much nicer fashion.

ReadWrite: Was Gates the same way?

Joachim Kempin: No, Gates was the guy who said, “This is the stupidest thing I have ever heard!” That’s Gates. Have I heard that a couple of times? Yes. Has he said to me? Yes. Did it intimidate me? Maybe once. He used it too often and with too many people. It got old after a while and people didn’t feel bullied by it any longer. They just disregarded it.