Did Microsoft experience a lost decade?

In "Microsoft's Lost Decade" -- a widely read piece that appears in the July issue of Vanity Fair -- Kurt Eichenwald shows how Microsoft has become technology's version of Sears over the past 10 years. Since 2000, Microsoft has performed poorly in a variety of areas, including music, search, and social networking. The formerly revolutionary company, according to Eichenwald, has "become the thing they despised."


E-readers will never amount to anything
Eichenwald's case for a lost decade is very compelling. While Apple (NAS: AAPL), Google (NAS: GOOG), and Facebook (NAS: FB) were introducing dramatic innovations, Microsoft was concentrating on "Old Faithfuls" like Windows, Office, and servers. Since 2000, Eichenwald notes that Microsoft's market cap declined from $510 billion to $249 billion (as of June 2012).

Eichenwald believes that Microsoft's concentration on Office, for example, made it unable to introduce new products like e-readers, despite the fact that it was an early pioneer in this area. Ultimately, it was Amazon.com and Apple that benefited tremendously from this innovative new product. And debacles like the Zune and Bing only reinforced the notion that Microsoft was losing its edge when it came to technology. Eichenwald even quotes a senior member of Microsoft's leadership team who wondered in 2004 why Apple's technology was "so much better than Microsoft's."

Ballmer strikes back
Not surprisingly, Microsoft's CEO Steve Ballmer firmly rejects the notion that his company experienced a lost decade. In a recent interview with Forbes, he said, "It's not been a lost decade for me!" He notes that there are now 1.3 billion people using PCs today, and that there will be 375 million of them sold just this year. He adds, "So, is it a lost decade?"

Ballmer also wonders whether the stock market might not be the best barometer of how well a company is doing. And he thinks the company is creating excellent products like Surface, Windows 8, and Office 15, and that those products will ultimately result in rewards for shareholders.

The demise of a company culture

So who is correct on the matter of the lost decade? Ballmer's defense is somewhat compelling. It's true that the stock market may not always recognize the true value of a company, particularly a tech giant like Microsoft. And there are many customers out there who praise the technology behind the Xbox and Windows Phone 7. Finally, Microsoft is the fifth largest company in the world by market cap. Clearly, it still has the ability to generate considerable profits for its shareholders.

Regardless of how we characterize Microsoft's most recent decade, it seems to me that the company developed a flawed culture that may constrain its ability to compete with its more innovative rivals in the future. Eichenwald concludes his piece with a quote from Steve Jobs, who said before his death, "I don't think anything will change at Microsoft as long as Ballmer is running it."