By mistake, we got a copy of a leaked internal memo that apparently Steve Ballmer sent a few weeks ago to Microsoft's (NASDAQ:MSFT) upper management.
It is probably the most outspoken and frank memorandum you'll ever read about a large company - although Elop's effort comes very close.
There is a small possibility that this memo is a fake: for example, an analyst we contacted for a comment told us, off record: "I doubt Steve has such a clear vision of Microsoft's problems".
Another good reason to share it publicly: Steve, if you haven't, you should have written it.
There is a pertinent story about a man who was working on an oil platform in the North Sea. He woke up one night from a loud explosion, which suddenly set his entire oil platform on fire. In mere moments, he was surrounded by flames. Through the smoke and heat, he barely made his way out of the chaos to the platform's edge. When he looked down over the edge, all he could see were the dark, cold, foreboding Atlantic waters.
As the fire approached him, the man had mere seconds to react. He could stand on the platform, and inevitably be consumed by the burning flames. Or, he could plunge 30 meters in to the freezing waters. The man was standing upon a "burning platform," and he needed to make a choice.
He decided to jump. It was unexpected. In ordinary circumstances, the man would never consider plunging into icy waters. But these were not ordinary times - his platform was on fire. The man survived the fall and the waters. After he was rescued, he noted that a "burning platform" caused a radical change in his behavior.
We too, are standing on a "burning platform," and we must decide how we are going to change our behavior.
Over the past few months, I've shared with you what I've heard from our shareholders, operators, developers, suppliers and institutional investors. Today, I'm going to share what I've learned and what I have come to believe.
I have learned that we are standing on a burning platform.
And, we have more than one explosion - we have multiple points of scorching heat that are fuelling a blazing fire around us.
For example, the PC market as we know it is collapsing. It will take time, but the whole sector is due to experience disruptive innovation.
Our business model (a de-facto monopoly in the industry, where we were the only ones making huge profits on each individual PC sale) seemed just perfect: falling prices for PCs were not our problem. They actually helped sell more devices, and increase our revenues and profits.
A great we-win / OEMs-lose game. We loved it that way.
Chart by Benedict Evans
A spectre, however, was haunting our perfect world. A few, actually.
People started using PCs to "surf the Internet". Strange idea, indeed - they should have only used them to launch our Office suite.
No big deal: we just wasted some shareholder money pretending to be competing with Google and a few other successful Internet companies, and that was it. Our business model was still strong enough to allow us to be profitable in spite of all mistakes we could make in our online business.
Then people started using different devices to surf the Internet. "Phones" (I've been told I should refer to them as "computers in your pocket").
Consultants told us this major change was coming, but we could not figure out how to approach this new market and adapt it to our business model. We went through denial, anger, bargaining, and finally acceptance.
We caused our shareholders depression, but they might be used to it looking at our history of missed opportunities.
Chart by Benedict Evans
Billion units sold per year. Wow. It would be nice to get a royalty on each sale.
Unfortunately, that's not so easy. For us, I mean.
Back to PCs.
The introduction of the iPad (a bigger iPhone, for those who do not know it) represented the inflection point on our industry: PCs went from double digit Y/Y growth to double digit Y/Y decline.
Chart from Asymco
That's a big fire on our platform.
I know: in many cases we fell behind, we missed big trends, and we lost time in the past.
But as a company we were generating a lot of money we, as management, could waste pretending we were reacting to a changing market.
If PC sales collapse, where shall we get those billions of profits we desperately need to distract the market with funny acquisitions we'll fail to integrate properly?
Apple (NASDAQ:AAPL) disrupted our sector by introducing new categories - tablets and smartphones, and attracting developers to a closed, but very powerful ecosystem.
Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range of "computers in your pocket".
Google (NASDAQ:GOOG) owns both the high and the low end. In a few years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream to phones under €100. Google has become a gravitational force, drawing much of the industry's innovation to its core.
While competitors poured flames on our core sector, what happened at Microsoft? We now find ourselves years behind.
The first iPhone shipped in 2007, and we still don't have a product in mobility that is close to their experience. Unbelievable.
The battle of devices has now become a war of ecosystems, where ecosystems include not only the hardware and software of the device, but developers, applications, ecommerce, advertising, search, social applications, location-based services, unified communications and many other things.
We've lost market share, we've lost mind share and we've lost time.
In mobility, we poured gasoline on our own burning platform. We are wasting 1 billion a year to support Nokia which can only sell a few million Lumia phones per quarter, mainly because of their brand. In spite of our financial support, they are going broke.
I believe as a company we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haven't been delivering innovation fast enough. We're not collaborating internally.
Microsoft, our platform is burning. Our cloud, I've been told, isn't big enough to extinguish such a huge fire.
We are working on a path forward - a path to rebuild market leadership. It will be a huge effort to transform Microsoft. But, I believe that you can face the challenges ahead of MSFT. Together, we can choose to define your future.
In the next few weeks you'll hear a lot of great news.
We'll re-organize ourselves and try to copy Apple - hoping imitating their model will lead to be as successful as they are. For sure, the existing one doesn't work.
We'll go both vertical, like Apple, and horizontal, like Google. Devices and Services. Night and Day. Black and White.
Some analysts will notice this makes no sense: on purpose, we are not showing a clear direction, so that we cannot be criticized for the execution of our new plan.
We will buy out Nokia and pretend it's a great business decision - it's a defensive move, to avoid disappearing in mobility.
Lastly, I will step down as CEO and remain just as a large shareholder - quite a concerned one, to be honest.
The burning platform, upon which the man found himself, caused the man to shift his behavior, and take a bold and brave step into an uncertain future.
I have decided I will not be that man. I wish my successor well, and hope he will be able to tell his story one day, if he can survive.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.