Is Steve Ballmer Really the Best Choice to Run Microsoft’s Consumer Business?

At a time when Microsoft (s msft) is facing challengers to its desktop operating system, productivity suite and handsets, you wouldn’t think the company would be changing up officers on its front lines, yet that’s exactly what’s happening. Robbie Bach and J. Allard, both of whom were instrumental in creating consumer products through Microsoft’s Entertainment & Devices Division, are leaving the company as part of a broader reorganization, reports TechFlash. As a result, Steve Ballmer, Microsoft’s CEO, will initially gain greater control over the division, which includes the Xbox, Zune and Windows Mobile products.

J. Allard

Details on what led to the shakeup are sketchy, but more concerning is what the restructure means going forward — the departure of Bach and Allard is a huge loss for Microsoft. Add in the fact that Ballmer is often out of touch with what consumers actually want and the loss is potentially magnified, depending on how much involvement he actually has in these product areas going forward. Perhaps the best example of Ballmer’s “perception risk” comes from a 2007 interview with USA Today, in which he’s quoted as saying:

“There’s no chance that the iPhone is going to get any significant market share. No chance. It’s a $500 subsidized item. They may make a lot of money. But if you actually take a look at the 1.3 billion phones that get sold, I’d prefer to have our software in 60% or 70% or 80% of them, than I would to have 2% or 3%, which is what Apple might get.”

Given Apple’s (s aapl) 10.8 percent share of the worldwide smartphone sales last quarter — and Microsoft’s declining presence in that same market — it’s safe to say that Ballmer’s prognostication skills are lacking. And Windows Mobile is only just this year morphing into a more competitive Windows Phone. It’s difficult to look forward when you’re two or three years behind your competitors.

Robbie Bach

While the Windows Mobile group has been slow to respond to the fast-changing mobile market, the Xbox area has been a beacon of success for Microsoft, largely due to Allard. Incidentally, it was a 25-year-old Allard who in 1994 penned a 16-page memo titled “Windows: The Next Killer Application on the Internet,” the main thesis of which was to integrate the web within Windows, as Allard already saw the web-connected future. Between the Xbox design, 40 million consoles sold, and foretelling of the web’s importance, how does a company like Microsoft let a person with talent like this go? TechFlash says that Allard will stay an adviser to the company, so it’s not a total loss, but perhaps he should be moved up in the chain of command — not out of it.

The plan instead is for Ballmer to take the reigns, with key current leaders Andy Lees and Don Mattrick reporting directly to him. Lees has his hands full as the senior VP of Microsoft’s Mobile Communication Business, the area responsible for Windows Phone and Kin devices. As senior VP of the Interactive Entertainment Business, Mattick can build off the the Xbox successes while trying to push Zune into the limelight — a tough challenge in a world filled with iPods. And maybe an even tougher challenge the longer Ballmer runs the show.

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