Steve Ballmer Talks About Microsoft Surface, Phones And His Strained Relationship With Bill Gates

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Microsoft is riding high these days under CEO Satya Nadella. The company is firmly entrenched in the cloud business, has deftly transitioned its software products to a subscription model for its most profitable customers, invested heavily in deep learning and advanced AI technologies, and is finally seeing some of the fruits of its investment into the Surface family of first-party hardware.

As a result, Microsoft shares closed at an all-time high of $61 in late October (the company is still not far off that mark today at $59.15). With all that is going right at Microsoft these days, Bloomberg decided to have a talk with the man that previously headed Microsoft: Steve Ballmer. Ballmer took over the helm at Microsoft in 2000, replacing Bill Gates, and held that position until February 4th, 2014 when he handed the keys to the palace to Nadella.

Ballmer started off the interview talking about his relationship with Gates. Ballmer indicated that he and Gates began drifting apart once he replaced him as CEO, partly because the two butted heads on where to devote resources at the company and partly because "Bill didn't know how to work for anybody, and I didn't know how to manage Bill.” The pair at times seemed inseparable from the early days of Microsoft, but they shared a “brotherly relationship in the good parts and the bad parts” added Ballmer.

Gates was staunchly against the Surface tablet and the decision to get into hardware. Microsoft had previously stuck mainly to providing software for its OEM partners, which produced the hardware. With Surface, Microsoft would be taking the Apple approach of overseeing the design and development of the entire product. The move with Surface turned out to be a huge money pit for Microsoft at first (the company took a $900 million charge during its first year of production due to unsold inventory), but the Surface division has become successful with time and is now profitable for the company.

"There was a fundamental disagreement about how important it was to be in the hardware business," said Ballmer. "I had pushed Surface, the board had been a little reluctant in supporting it, and things came to a climax about what to do about the phone business."

While the bet on Surface turned out to be a good one in the end (even if it was a bit late), Ballmer regrets dragging his feet for so long on smartphones. Ballmer famously said about the iPhone in 2007, “There’s no chance that the iPhone is going to get any significant market share. No chance. It’s a $500 subsidized item.”

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"I would have moved into the hardware business faster and recognized that what we had in the PC, where there was a separation of chips, systems and software, wasn't largely gonna reproduce itself in the mobile world," Ballmer added. However, Google’s model with Android showed that this separation model could actually work just as well as Apple’s integrated model. As a result, Google has a nearly 90 percent share of the smartphone OS market, while Microsoft is on life support, treading below 1 percent.

In addition, Microsoft’s late attempt to rescue its smartphone operations with its purchase of Nokia’s Devices and Service division also ended in failure with a write down of the entire cost of the deal and the firing of thousands of employees.

In his parting thoughts, Ballmer says that he doesn’t dwell too much on not getting more credit for successes during his tenure as Microsoft's CEO. “At the end of the day, I had the great sort of comfort in knowing what I did and feeling good in myself and everything else doesn’t matter.”