Microsoft stock plummets under Ballmer

When Steve Ballmer took over as CEO in January 2000, Microsoft was the tech titan and the world’s most valuable company.

My, how things have changed.

In the 13 years since Bill Gates stepped down as CEO, the tech landscape has seen seismic shifts. The dotcom bubble burst, wiping out the paper fortunes built on the dot.com companies. Apple iPods, iPhones and iPads have become ubiquitous. Google has become a verb. And Facebook has turned social media into something you do on your own, instead of being surrounded by people at happy hour.

The years have been less kind to Microsoft.

“Complacency and a lack of innovation have caught up with them,” said Yun Kim, analyst at Janney Capital Markets. “It’s their inability to stay relevant beyond the PC.”

When Ballmer became CEO, Microsoft had a market value of $604 billion. That weight meant it made up nearly 5% of the Standard & Poor’s 500 index, according to S&P Dow Jones Indices analyst Howard Silverblatt.

Today, Microsoft’s market value is $269 billion, less than half its value when Ballmer came to power. It represents less than 2% of the S&P 500.

When Microsoft announced Friday that Ballmer would retire within the next year, the company’s shares soared as much as 9% shortly after markets opened. They came within two dollars of their 52-week high. Microsoft rose $2.36, or 7%, to close at $34.75.

Under Gates, Microsoft dominated the software industry throughout the 1990s, and the boom in the company’s stock had far-reaching effects. The newly minted “Microsoft millionaires” left to launch tech companies, venture capitalists, and charities. Paul Allen, a childhood pal of Gates who co-founded the company, bought the Seattle Seahawks and Portland Trailblazers and opened a museum of pop culture. Gates used his billions to start the Bill & Melinda Gates Foundation, which influenced national and international health and education policy.

But under Ballmer, Microsoft shares have been a miss, losing 44% during his tenure. Still, dividend payouts have offset part of the crisis. A $1,000 investment in January 2000 would be worth just $767 after reinvesting dividends, according to FactSet data.

The same investment in Apple would be worth $20,120.

From the start, Ballmer faced some tough challenges. Months after landing his new job, the dotcom bubble burst. By the end of the year, Microsoft had fallen from the most valuable company in the S&P 500 to seventh place.

Microsoft’s decline was not simply because it failed to keep pace with technology, but because its technology was tied to the personal computer. And smartphones and tablets have pushed the PC aside.

When Microsoft tried to launch innovative products, it wasn’t the right time, said Ted Schadler, industry analyst at Forrester. Years ago, it created software for smartphones and tablets that failed to catch on.

That’s not to say Microsoft is out of options. Its software, including Windows and Office, is still popular with businesses large and small. About 70% of business email is still sent on Microsoft software, Schadler says. Microsoft Enterprise, which helps large companies operate databases, is also popular. And the company’s Xbox gaming consul has been a hit with consumers.

John Gallaugher, an associate professor of information systems at Boston College, said Microsoft had no problem turning a profit. Everyone working in an office relies on Microsoft operating systems and software. They use Microsoft Word for writing memos, Excel for spreadsheets, Outlook for emails and PowerPoint for presentations. The problem, says Gallaugher, is that almost everyone already has these tools.

By contrast, Apple and Google “basically pulled a rabbit out of the hat” from time to time with new products that have become staples, Gallaugher said. “Microsoft needs to reach in there and find some ears.”

© 2013 The Associated Press. All rights reserved.