Business

Window pain for Ballmer

Steve Ballmer is going mobile in a huge way, and he can’t bomb again.

The Microsoft chief executive officer is counting on the success of Windows 8 — the company’s biggest product refresh in perhaps its entire history — and if it disappoints, Ballmer could be out.

Windows 8 software and gadgets are being pushed hard this quarter by the software giant, which is trying to gain traction in mobile computing.

So far the results have not been encouraging, with sluggish sales of its Surface tablet and only 40 million installs of Windows 8 software.

“Absolutely there is lots at stake in terms of the mobile segment,” said Gartner analyst Carolina Milanesi. “Microsoft needs to be successful in mobile, because it’s where consumers are going.”

In the past decade, Microsoft has fallen further and further behind Apple, which out-innovated the PC giant in digital music players, phones and tablets.

Ballmer’s mobile success hinges on Windows 8 software, which creates a unified experience for its users across phones, tablets, laptops and game systems. The tiled design with “live” windows has won Microsoft some praise, but sales still lag.

The Surface — a hybrid tablet-laptop — has not been a hit yet since going on sale this quarter. Microsoft said it would distribute the device to more retailers to reach more consumers, claiming there was high demand for the devices but not enough places to buy them.

Earlier this week, Barclays Capital analysts reduced Surface sales estimates by 65 percent because of distribution concerns, and forecast 700,000 would sell this quarter.

Part of the problem is the cost, according to industry observers, who see the average $550 sales price as too high for consumers getting used to tablets selling for $200 and less. Even Apple’s iPad sells for $499.

The price discrepancy leads many to believe a Surface price cut is on the way, in the same way that RIM and others had to reduce their tablet prices when consumers were unwilling to pay more for their devices.

Even some of Microsoft’s most encouraging sales numbers are not as bright as they seem, Milanesi said.

For instance, the company said 40 million mobile and desktop devices have been upgraded to Windows 8 software. That’s still less than 1 percent of all Windows computers in use, Milanesi said.

In smartphones, Windows 8 devices are starting to gain some traction, and Ballmer has said the company is selling four times as many smartphones as it did last year.

There were 2.5 million Windows phones sold last year in the fourth quarter, according to Gartner. If Ballmer’s claim means Microsoft will quadruple those sales, it could be a big gain for the ecosystem, but it would still leave the company playing catchup to the likes of Apple, and Google’s Android platform.

Gartner predicts Windows phones will capture only 13 percent of the smartphone market by 2016.

The success of Microsoft’s mobile strategy doesn’t hinge only on this quarter’s sales. But if the company can’t boost results into next year, Ballmer would become vulnerable, Milanesi said.

“If Windows 8 were to fail, Ballmer would be questioned,” she said.

At the annual shareholders meeting last month, the CEO had to answer a lot of critics who questioned the pace of innovation. Ballmer was on the hot seat as his old boss Bill Gates looked on.

Some have even speculated that Gates, who was an early advocate of tablet technology, should pull a Steve Jobs-like return.

That would be surprising, Milanesi said: “He’s done his time and moved on.”