One CEO who subtracted value

Adding a new spin to a story about how Microsoft hopes to do a search deal with new Yahoo CEO Carol Bartz, a front page story on the Wall Street Journal this morning highlights all the ways that CEO Steve Ballmer missed the boat to challenge (or even pre-empt) his current rival for Total World Domination.

According to the story, Microsoft had two other chances to have its own equivalent of Google AdWords prior to last year’s failed attempt to buy Yahoo. The first was called Keywords, which a prototype service developed inhouse in 2000, and a few customers who signed up. The article has mini-profiles of Scott Banister, Ali Partovi and Bill Bliss, who once pushed the internal effort before giving up.

(The story of Microsoft killing Keywords reminds me of Apple killing “Star Trek,” a demonstration project that ported Mac OS to Intel chips 14 years before Apple finally made the switch. In my dissertation, I considered it emblematic of the poor executive leadership at Apple from 1985-1997.)

The second opportunity was a 2003 opportunity to buy Overture Services, a pioneer in targeting ads to search. The company was instead bought by Yahoo, and five years later was a major reason why Microsoft wanted to buy Yahoo.

Ballmer is supposed to the the more accommodating of the duo that ran Microsoft for near all of the past three decades. One might argue that he was the less visionary, but the article (and common sense) suggest that founder Bill Gates agreed with Ballmer on these decisions.

I think this illustrates two key points about CEOs knowing their own limitations.

First, it’s essential that top execs both encourage and support bottom-up innovation and initiative. This harnesses (and motivates) the talents of the entire company to support its growth, and recognizes that the boss can’t have all the possible answers. When they come up with a good (and feasible) idea, however, the executives have to give it a try — or you won’t get any more.

Second, success is dangerous because it both breeds complacency and locks executives into their winning paradigm. Gates and Ballmer were part of the PC generation, and (unlike their young engineers) couldn’t see that eventually software revenues would decline and be replaced by ads sales on the Internet. So if the CEO can’t adjust to understanding these new paradigms, (s)he needs to step aside for someone who can.

The Microsoft search miscues also have a subtheme about being willing to cannibalize your own revenues before someone else does, but that’s an old story — Microsoft’s major challenge since the triumph of Windows 95.