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article imageSmartphones 'strained' Bill Gates and Steve Ballmer's friendship

By James Walker     Nov 11, 2016 in Technology
Former Microsoft CEO Steve Ballmer discussed his decision to turn Microsoft into a hardware company in a recent interview. Ballmer said his smartphone push "strained" his relationship with Microsoft co-founder Bill Gates, causing them to "drift apart."
Ballmer made the comments during an interview with Bloomberg earlier this month. He talked about his achievements during his 14-year tenure as Microsoft CEO, focusing on the company's move into smartphones and tablets. He admitted regret at his handling of the hardware business, saying he should have entered the market sooner.
When Ballmer finally made the call to start making smartphones, it created disagreements amongst Microsoft's board. This caused a fracture in the relationship between Ballmer and Microsoft co-founder Bill Gates. The two "drifted apart" over the issue of whether Microsoft should be building its own devices.
"It was definitely not a simple thing for either one of us," Ballmer told Bloomberg. "There was a little bit of a difference in opinion on the strategic direction of the company."
Steve Ballmer was succeeded as CEO by Satya Nadella in February 2014. Under Nadella, Microsoft has transitioned back to being a software company. It has laid off much of the smartphone business it acquired from Nokia and scaled back or cancelled other hardware projects. The company retains a strong foothold in some areas of the devices industry though. Its Surface tablets and HoloLens augmented reality headset have been particularly well received since Nadella took over.
These developments were started by Ballmer. He "pushed Surface" to Gates, paving the way for today's highly successful business. When Microsoft unveiled the original device in 2012, it was forced to take a $900 million write down on unsold inventory though.
While Surface is now profitable, the same can't be said for Microsoft's virtually non-existent phone business. It currently commands less than one percent of the market. Smartphones in particular caused a "climax" in the disagreements between Ballmer and Gates.
"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 — a little reluctant in supporting it. And then things came to a climax around what to do about the phone business."
Microsoft bought Nokia's devices division for $9.5 billion. Under Nadella, it has since written down almost the entire value of the purchase after consistently failing to gain any significant market share. Ballmer is famous for having claimed "there's no chance" that Apple's iPhone would ever "get any significant market share" because it cost too much. In the interview with Bloomberg, he addressed the quote, noting he hadn't considered Apple's carrier subsidy-based business model.
"I wish I'd thought about the model of subsidizing phones through the operators," he said. "You know, people like to point to this quote where I said iPhones will never sell, because the price at $600 or $700 was too high. And there was business model innovation by Apple to get it essentially built into the monthly cell phone bill."
Ballmer suggested his biggest achievements were made after Bill Gates left his full-time position at Microsoft in 2008. In the years since, Ballmer launched the Bing search engine, giving Microsoft experience in running data centres and cloud computing. This knowledge was then used to build cloud services including Office 365 and Microsoft Azure, platforms that are now critical to Nadella's running of the company and two of the biggest money-makers for Microsoft.
Ballmer now owns the Los Angeles Clippers NBA team. He is also still one of the largest holders of Microsoft stock and remains optimistic for the company's future. Microsoft's stock price recently leapt to a record high on the back of strong growth in cloud services and Surface hardware, businesses that Ballmer brought to the company. Nadella has led many of his projects to fruition and Ballmer agrees with his current direction.
"I see the stock price flying sky high and all you can say is the market certainly agrees with the direction Satya is taking the company and I'm super excited about that," Ballmer said during the interview.
More about Microsoft, Steve Ballmer, Bill gates, Satya Nadella, Smartphones
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