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1 2 : 0 0 A M, J U L Y 3 2 0 1 2

Microsofts Downfall: Inside the Executive Emails and Cannibalistic Culture That Felled a Tech Giant
by Vanity Fair

Microsoft C.E.O. Steve Ballmer delivers the keynote address at the 2012 International Consumer Electronics Show, in Las Vegas, on January 9.

Analyzing one of American corporate historys greatest mysteriesthe lost decade of Microsofttwo-time George Polk Award winner (and V.F.s newest contributing editor) Kurt Eichenwald traces the astonishingly foolish management decisions at the company that could serve as a business-school case study on the pitfalls of success. Relying on dozens of interviews and internal corporate recordsincluding e-mails between executives at the companys highest ranksEichenwald offers an unprecedented view of life inside Microsoft during the reign of its current chief executive, Steve Ballmer, in the August issue. Today, a single Apple productthe iPhonegenerates more revenue than all of Microsofts wares combined.
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Eichenwalds conversations reveal that a management system known as stack ranking a program that forces every unit to declare a certain percentage of employees as top performers, good performers, average, and pooreffectively crippled Microsofts ability to innovate. Every current and former Microsoft employee I interviewedevery onecited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees, Eichenwald writes. If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, 2 people were going to get a great review, 7 were going to get mediocre reviews, and 1 was going to get a terrible review, says a former software developer. It leads to employees focusing on competing with each other rather than competing with other companies. When Eichenwald asks Brian Cody, a former Microsoft engineer, whether a review of him was ever based on the quality of his work, Cody says, It was always much less about how I could become a better engineer and much more about my need to improve my visibility among other managers. Ed McCahill, who worked at Microsoft as a marketing manager

for 16 years, says, You look at the Windows Phone and you cant help but wonder, How did Microsoft squander the lead they had with the Windows CE devices? They had a great lead, they were years ahead. And they completely blew it. And they completely blew it because of the bureaucracy. According to Eichenwald, Microsoft had a prototype e-reader ready to go in 1998, but when the technology group presented it to Bill Gates he promptly gave it a thumbs-down, saying it wasnt right for Microsoft. He didnt like the user interface, because it didnt look like Windows, a programmer involved in the project recalls. The group working on the initiative was removed from a reporting line to Gates and folded into the major-product group dedicated to software for Office, Eichenwald reports. Immediately, the technology unit was reclassified from one charged with dreaming up and producing new ideas to one required to report profits and losses right away. Our entire plan had to be moved forward three to four years from 200304, and we had to ship a product in 1999, says Steve Stone, a founder of the technology group. We couldnt be focused anymore on developing technology that was effective for consumers. Instead, all of a sudden we had to look at this and say, How are we going to use this to make money? A former official in Microsofts Office division tells Eichenwald that the death of the ereader effort was not simply the consequence of a desire for immediate profits. The real problem for his colleagues was the touch screen: Office is designed to inputting with a keyboard, not a stylus or a finger, the official says. There were all kinds of personal prejudices at work. According to Microsoft executives, the companys loyalty to Windows and Office repeatedly kept them from jumping on emerging technologies. Windows was the godeverything had to work with Windows, Stone tells Eichenwald. Ideas about mobile computing with a user experience that was cleaner than with a P.C. were deemed unimportant by a few powerful people in that division, and they managed to kill the effort. When one of the young developers of MSN Messenger noticed college kids giving status updates on AOLs AIM, he saw what Microsofts product lacked. That was the beginning of the trend toward Facebook, people having somewhere to put their thoughts, a continuous stream of consciousness, he tells Eichenwald. The main purpose of AIM wasnt to chat, but to give you the chance to log in at any time and check out what your friends were doing. When he pointed out to his boss that Messenger lacked a shortmessage feature, the older man dismissed his concerns; he couldnt see why young people would care about putting up a few words. He didnt get it, the developer says. And because he didnt know or didnt believe how young people were using messenger programs, we didnt do anything. I see Microsoft as technologys answer to Sears, said Kurt Massey, a former senior marketing manager. In the 40s, 50s, and 60s, Sears had it nailed. It was top-notch, but now its just a barren wasteland. And thats Microsoft. The company just isnt cool anymore. They used to point their finger at IBM and laugh, said Bill Hill, a former Microsoft manager. Now theyve become the thing they despised.

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