Microsoft faces challenges in wake of Ballmer retirement

Michael Comeau | Minyanville

Microsoft announced this morning that Steve Ballmer, CEO since 2000, will retire within 12 months after the completion of a search for his successor.

Despite the enormous growth in revenues and earnings under his watch, Ballmer has been an increasingly controversial leader. Critics say that Microsoft missed the Internet and mobile computing booms, which are fields now dominated by rivals like Apple and Google.

In fact, typing the phrase "Steve Ballmer is" into Google shows the following autocomplete results:

Ouch! Though interestingly enough, what pops up for deceased Apple visionary Steve Jobs is actually much worse.

Nonetheless, while many people, myself included, tend to excuse Jobs's misdeeds because of how revolutionary Apple's products have been, Ballmer is unlikely to receive the same treatment.

In public, Jobs had uncanny personal charisma, one underappreciated example of which is the iMac introduction way back in 1998.

Ballmer, on the other hand, was not exactly operating on the same level of cool.

On a personality level, Steve Jobs comparisons are never, ever fair. But Ballmer had been running the company that was Apple's number one rival (I would argue that Google and Samsung are now Apple's biggest rivals), so it's fair to talk about the underlying businesses.

Apple essentially created the modern mobile gadget industry with 2001's iPod, and then it catalyzed the death of the modern PC with 2007's iPhone and 2010's iPad.

Microsoft's rival products under Ballmer, each of which followed's Apple's innovations -- the Zune mp3 player, Windows Phone operating system, and Surface Tablet line -- all failed to make meaningful marks within their respected product categories.

Investors cheered Ballmer's retirement announcement today, sending the stock as high as $35.20, a 9% gain from yesterday's close, this morning.

That's an obvious indication that there's optimism that new blood can reinvigorate Microsoft.

However, serious challenges remain.

The traditional PC industry is collapsing due to cannibalization from emerging markets like tablets and Google Chromebooks. According to Gartner, worldwide PC shipments dropped 10.9% in the second quarter of 2013, marking a record five consecutive quarters of decline.

Microsoft remains heavily reliant on the PC market; last year, its Windows and Business (90% of Business is MS Office) divisions accounted for 56% of revenues and a whopping 97% of operating income. Meanwhile, the online services division, which includes the Bing search service, lost $1.3 billion. The year before, it lost $8.1 billion, including a $6.2 billion writedown related to the 2007 acquisition of digital marketing company aQuantive, which failed to live up to expectations.

These losses come in stark contrast to Internet-centric heavyweights like Facebook and the aforementioned Google, which generate enormous profits online.

So whoever steps in has a lot of existing holes to plug while catapulting Microsoft ahead in competitive new markets.

That's a pretty tall order. In fact, I'm curious to see who has the nerve to take the job.

This story originally appeared on Minyanville.