Why Microsoft Paid Steve Ballmer $112 Billion

Ethan
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STEVE BALLMER

STEVE BALLMER


This is Steve Ballmer. He was the  CEO of Microsoft between 2000 and 2014 which gave him a net worth of $112 billion. Seeing this, you’d probably be inclined to think that  Steve was one of the most respected tech executives of all time but it’s actually quite the opposite. In fact, aside from actual frauds and incompetent leaders, Steve Ballmer is often viewed as the worst big tech CEO of all time,  and many attribute his wealth to nothing more than dumb luck. Why you ask? 

Well,  for starters, Microsoft stock fell 36% under his leadership which translates to a market cap loss of roughly $100 billion itself. This was largely due to Microsoft screwing up with smartphones and Windows 8 under his leadership.  In fact, the stock actually started rallying when  Steve Ballmer announced his exit. But, even more than stock performance, much of the tech community simply viewed Ballmer as a meme. 

There were all these infamous clips of him laughing at the iPhone and going absolutely crazy on stage.  But, if we look past these funny clips and his goofy personality, we’ll see that Steve was much more than just a tech executive. For Steve,  Microsoft wasn’t just a company that he led, it was a company that he bled. He was fiercely loyal to everything Microsoft as he truly loved the company. He thought that Microsoft was hands down the best company in the world and that everyone should use everything Microsoft. 

In fact,  he would eventually go on to buy the Clippers and he would force all of the players to ditch their iPads and iPhones. You could say that he was basically the Louis Litt of Microsoft. But,  it wasn’t just loyalty that Steve had going for him. 

Fundamentally speaking, he actually did a  pretty good job. In fact, under his leadership,  Microsoft’s revenues and profits more than tripled. Of course, this was never reflected in the stock price, but that’s not something that he has control over. 

So, was Steve Ballmer actually just an enthusiastic dud who got luck beyond belief or was he just a misunderstood leader who more than deserved his $112 billion compensation?



NEAR MISS

The story of Steve actually goes all the way back to the  1970s to the dorm rooms of Harvard. Maybe, you’ve wondered what it would be like to know someone like Bill Gates or Steve Jobs before they were famous in school or college. 

Well, luckily for  Ballmer, that’s exactly what would happen as he would end up across the hall from Bill Gates at  Harvard. Hearing this, you’re probably thinking:  oh well, Bill and Steve probably founded Microsoft together. That must be why Steve got so rich but that’s not how things played out. 

You see,  Steve was from a relatively conservative immigrant family who very much valued the stability of a  college degree and a 9 to 5-job. So, dropping out of Harvard to bet it all on a software company with Bill wasn’t exactly Steve’s cup of tea.  

So, when Bill dropped out, Steve would simply wish him good luck and farewell and stick with  Harvard. He would eventually graduate magna cum  laude with a degree in applied mathematics and economics in 1977. He followed this up with a traditional job as an assistant product manager at Proctor & Gamble. 

As far as the general public was concerned, Steve had done it. He had a degree from Harvard and a stable job at a legacy giant but Steve couldn’t help but feel that something was missing. Maybe it was the monotony of a 9 to 5  or the lack of creativity, he couldn’t tell but he was determined to find out. In fact, he would turn around and try to break into Hollywood by writing screenplays in his free time. 

Unfortunately,  this never went anywhere and Steve would find himself lost once again. He figured that maybe returning to school would help him, so he would enroll in a graduate program at Stanford. But,  it wasn’t until Steve got a call from Bill that he would finally find his path. At the time,  Microsoft was filled with a bunch of extremely smart tech dudes but what they didn’t have was a business dude. 

As the company grew larger and started to have more meetings and negotiations, this became increasingly apparent. Microsoft needed a business leader so Bill would call up his friend from Harvard: Steve Ballmer. This time, Steve wasn’t hesitant. After all, he had nothing to lose. He already had a degree and real-world experience, so if Microsoft didn’t work out,  he could always just get another job or return to Stanford. 

In fact, when Steve told his mom  about his plan to join Microsoft she said quote  “OK, OK, we hear you, but if it doesn’t work out,  you’ll go back to business school right?” Steve replied “Right” but he would never come back. 



PROVING HIS WORTH

Steve’s initial salary was quite modest, $50,000 per year but that wasn’t the entire offer. Bill also offered  Steve 5-10% equity in the company depending on his performance. Steve started off as basically the scapegoat. Anything that the tech guys didn’t want to do, Steve would handle. This included little things like cooking and washing bottles to setting up accounting and HR. But, it wasn’t until later on in 1980 that Steve would really prove his worth. 

In July of 1980,  IBM approached Microsoft with a deal to make software for their new computers.  There was just one problem, Microsoft didn’t actually have what they were looking for:  an operating system. And this is when Microsoft would pull off one of the biggest bluffs in tech history. Though Microsoft didn’t have its own OS, they did know where to find one. 

A local computer company called Seattle Computer Products had an OS called QDOS which was very similar to what IBM was looking for. So, Microsoft’s plan was to basically get IBM to allow Microsoft to go out and buy QDOS and modify it for IBM’s needs. But,  there was one obvious flaw with this plan. IBM  could easily just go to Seattle Computer Products directly. 

So, it was up to Microsoft to convince IBM to let them be this sort of middle man and that’s where Steve Ballmer comes into play. Steve would basically become Microsoft’s sales guy with  IBM. And let me just say, that Steve hit it out of the park as this deal would basically make Microsoft.  IBM didn’t even know what was happening. In fact,  they thought that they had pulled a quick one over on Steve and these college dropouts. 

Microsoft didn’t ask for as much money upfront or a per-copy royalty as IBM was expecting them to.  So, they thought they had a slam dunk deal. They didn’t have to pay as much and Microsoft was gonna handle all of the groundwork in customizing QDOS  for IBM. And in return, all Microsoft wanted was the ability to sell this OS to other companies,  that’s it. Without giving it a second thought,  IBM would agree to pay Microsoft $45,000 for what would end up being MS-DOS. 

On the surface, Microsoft didn’t make a good deal as it would cost them $50 to $75,000 just to acquire QDOS. But Bill Gates very much knew what they had just pulled off. They had basically gotten IBM to largely pay for a new operating system that Microsoft would own and IBM would popularize despite not even creating the software in the first place. 

It wasn’t till decades later that the general public really began to understand what was really at stake for Microsoft with this deal. But,  Bill knew immediately and as promised, in 1981, he would hand over an 8% stake to the man who made it possible: Steve Ballmer. 

Over the next few years,  Microsoft would follow through with their deal with IBM and deliver to them a customized version of QDOS called MSDOS. MSDOS would end up being a solid success and lead to a very successful IPO, but the real magic didn’t happen till 1985. 

In 1985, Microsoft took MSDOS, added a graphical user interface, and called it  Windows. And this would take MSDOS from being a  successful product to being a legendary product. 


Also Read: Why People Are Switching From Android to iOS :The Future of Smartphones


STEVE’S LEGACY

The rest of the 1980s and '90s were pretty smooth sailing for Steve. As Microsoft grew, so did his wealth and title. He went from being a manager to being an executive leading various divisions across Microsoft including operations, sales,  OS development, and support. 

And all of this climaxed when Bill Gates decided to step aside at the turn of the century, making Steve Ballmer the new CEO of Microsoft which brings us back to the question of the day: did Steve Ballmer deserve to earn $112 billion? Well, that’s hard to say frankly because it’s hard to say that anyone truly deserves that sum of money, but we can look at it through a different lens. 

Instead of looking at it from an output perspective, we can look at it from an input perspective. Did Steve Ballmer make an 8%  contribution to Microsoft back in 1980? Well, the answer is absolutely. He spearheaded the deal that not only put Microsoft on the map but literally led to the creation of their hero product:  Windows. So, no, Steve did not just get lucky. 

The only reason people even say that is because Steve didn’t immediately take the plunge with Bill Gates and Paul Allen in 1975. So, history has basically painted Steve as this guy who just happened to come in as Microsoft’s 30th employee and got an 8%  stake just because he was friends with Bill Gates.  And his goofy bubbly personality simply plays into this persona but this really isn’t a fair assessment. 

While Steve wasn’t there from day 1,  he very much played the role of being a cofounder or at least the role of being their first business executive. And the IBM deal was simply his biggest contribution. Let’s not forget that Steve also spent 34 years as a Microsoft executive 14 of which were as CEO. 

During his stint as CEO, Microsoft came out with some of their most iconic products including the Xbox, Windows XP, Windows  7, and even Azure which is often quoted as being what “saved Microsoft”. Not to mention, Steve tripled Microsoft’s revenue and profit. Microsoft stock not going anywhere had more to do with the dotcom crash and the 2008 crash than it did with anything Steve did or didn’t do. 

And it was eventually the shareholders that pushed him out but he’s still very much loyal to Microsoft to this day. In fact, he’s by far Microsoft’s largest individual stakeholder retaining over half of his original stake at 4.5%. For perspective, that’s 5 times more than Bill Gates who only owns  0.9% of Microsoft today. 

Why Microsoft Paid Steve Ballmer $112 Billion


So, not only did Steve  Ballmer play a crucial role in the early days of Microsoft but there’s no question that Steve is by far Microsoft’s most loyal executive.  In fact, he probably wouldn’t have left if it wasn’t for shareholders pushing him out. 

So, does Steve Ballmer deserve $112 billion? Well,  I can’t answer that question but what I can say is that Steve Ballmer didn’t just get lucky. He deserves his money just as much as any of his centibillionaire peers and that’s why he was paid $112 billion.

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