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Ballmer HAD To Make Windows The Center Of Microsoft's Tablet Strategy -- Even If It Kills Them (MSFT)
 Published 4:00 am PDT, Saturday, April 2, 2011 Microsoft's tablet strategy -- wait for the next version of Windows -- will probably end up costing the company its long-held Windows monopoly, at least among consumers.

But it's the LEAST BAD strategy Microsoft could have followed.

Earlier this week, Fortune criticized Steve Ballmer for his lack of vision, pointing to his decision to kill the Courier tablet prototype and instead build tablet functionality into Windows. In a follow-up article based on interviews with ex-employees, Fortune cited Ballmer's "slavish devotion" to Windows and Office.

All true. But it's not Ballmer's fault.

Microsoft is forced to operate this way because of the huge profit margins it earns on Windows and Office -- at least 60%, and sometimes up to 80% on Windows.  Ballmer would be crazy -- and possibly legally liable to shareholders -- if he approved any strategy that knowingly cannibalized those two businesses.

Insiders call it the "strategy tax," and it's been around for at least a decade.

A former employee once told a story of pitching a feature to Bill Gates back when he was still doing product reviews. Gates said "That sounds like the f*** Windows strategy." Then he started going around the table. "Do you want to f*** Windows? How about you? You?" The team got the message loud and clear.

That's why the Xbox, which was meant to conquer the living room, never had a digital video recorder in it -- that function was reserved for Windows Media Center. That's why Microsoft scrapped a plan to move Office to the Web (called NetDocs) way back in 2001.

As Microsoft watcher Manan Kakkar points out, Ballmer and the Windows team are actually trying to pull off a pretty interesting coup with Windows 8. It will have elements of Windows Phone 7 -- like a design based on the "Metro" interface and the ability to run Silverlight apps (the same platform used for building Phone 7 apps). That should make reviewers and -- Microsoft hopes -- consumers happy. But because it's Windows, it will have the broad application and backward compatibility that IT buyers require.

If Microsoft loses 10% or 20% or 50% of the consumer PC market to non-Windows tablets, that's a huge problem. That means Windows growth comes to a screaming halt. It could even end up costing Ballmer his job.

But he had no other choice.

Tragic figures in classical Greek drama often suffered from a condition called hamartia -- a fatal flaw that isn't necessarily their fault, but is impossible to overcome.

It still makes for great drama today.


