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Originally published December 29, 2013 at 8:02 PM | Page modified December 30, 2013 at 11:26 AM

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Microsoft transforming, from top to bottom

Steve Ballmer’s last year as Microsoft’s CEO was marked by a number of events and developments with far-reaching impact, including the search for his successor.


Seattle Times technology reporter

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Microsoft CEO Steve Ballmer announced this year that he would be retiring within 12 months. Before he leaves, though, he set in motion a series of big changes.

To mark Ballmer’s 14 years as CEO — he was named to the position in January 2000 — here’s a list of 14 notable Microsoft events that happened in 2013, his last full year in office.

1. Ballmer announces retirement; search for successor begins: Ballmer’s August announcement came several years earlier than expected and set off a months-long, ongoing search for his successor.

Microsoft’s board search committee faced the formidable challenge of finding someone capable of leading a high-tech company that last fiscal year brought in $78 billion and is involved in everything from corporate servers to consumer devices to online search.

The CEO search became a bit of a horse race with such early favorites as Ford CEO Alan Mulally and emerging dark horses. The search committee said in mid-December that it had identified more than 100 possible candidates, narrowed the field to about 20 and expected to complete its work in early 2014.

2. Companywide shake-up: In July, Ballmer announced a huge company reorganization designed to forward his goal of transforming Microsoft into a devices-and-services company.

The plan, which he dubbed “One Microsoft,” realigned the company according to function, cutting in half the number of product divisions and centralizing marketing, finance and other services.

As part of the reorganization, Kurt DelBene, president of the Office division, said he would be retiring. In December, President Obama named DelBene to a temporary gig leading the fix for the glitch-plagued Healthcare.gov website.

Also leaving the company was Don Mattrick, president of Microsoft’s Interactive Entertainment division, which produces Xbox. Just ahead of the reorganization announcement, he became CEO of social game company Zynga.

3. Microsoft buys Nokia phone business: Since 2011, Finnish phonemaker Nokia has made Windows Phone its primary smartphone operating system while its Lumia phones almost single-handedly boosted Windows Phone’s market share.

In September, Microsoft announced the acquisition of Nokia’s handset business as part of a $7.2 billion deal.

When the deal is finalized — which is expected in early 2014 — former Nokia CEO and former Microsoft exec Stephen Elop will return to Microsoft to head the division that includes Windows Phone, Xbox and Surface. About 32,000 Nokia employees, many of them working in manufacturing and assembly facilities around the world, will also then become Microsoft employees.

4. No more stack ranking: In November, Microsoft eliminated its much-criticized practice of ranking employees against each other during performance reviews.

That “stack ranking” review system has been blamed for stifling innovation while fostering a corporate culture rife with internal politicking and back-stabbing.

When Lisa Brummel, head of Microsoft’s human resources, announced in November that there would be “no more curve” and “no more ratings,” and that the company would be emphasizing teamwork and collaboration, many employees rejoiced.

5. Microsoft and the NSA: First, news reports on whistle-blower Edward Snowden’s leaked documents about the National Security Agency’s surveillance programs seemed to implicate Microsoft and other high-tech companies in collaborating with the agency’s sweeping data-gathering efforts.

But Microsoft and other tech companies denied such collaboration. Facing public backlash, the tech companies pushed the government, via petitions, lawsuits and calls for surveillance reform, to allow them to be more transparent about the national surveillance orders they receive.

Earlier this month, Microsoft announced it’s expanding encryption across its services to guard against government snooping.

6. Xbox One launches: The long-awaited successor to the Xbox 360 debuted Nov. 22, selling more than a million units in its first 24 hours and more than 2 million in its first 18 days.

The lead-up, however, didn’t go as well. Microsoft angered gamers and later reversed course on several policies it had intended. The company said it would not require the Kinect motion- and voice-sensor to be always on and connected, nor would it require that the Xbox One be regularly connected to the Internet.

7. Windows 8.1, Surface 2, Surface Pro 2 launch: Windows 8.1 — the update to Windows 8 that includes a Start button (though not a Start menu) and the ability to boot to desktop — came out in October and was generally well received. Some analysts said it was what Windows 8 should have been.

Also in October, Microsoft launched its follow-up to its first branded computing devices. The Surface 2 and Surface Pro 2 improved upon their predecessors with faster, smoother performance and better battery life.

Several versions of the tablets have sold out, although Microsoft won’t say how many it has sold.

8. Surface RT writedown: Microsoft had high hopes for the Surface tablet but ended up taking a $900 million writedown on the Surface RT last fiscal year.

Microsoft had produced far more than it could sell, ending up discounting each tablet by $150. That writedown contributed to Microsoft’s big miss in its fourth-quarter earnings results last fiscal year.

9. ValueAct muscles onto the board: Activist investor ValueAct Capital, which holds about 0.8 percent of Microsoft’s outstanding shares, has been pushing for changes at Microsoft.

It succeeded in gaining an opportunity to fill a seat on Microsoft’s board for ValueAct President Mason Morfit. Some speculated ValueAct also played a role in Ballmer’s retirement decision, though Ballmer has said that was not a factor.

10. Launch of the newest versions of Office: The newest desktop version of Office — Office 2013 — debuted this year. But the bigger news was the launch of Office 365 Home Premium, a high-profile step in Microsoft’s move toward providing its software via service subscriptions.

Office 365 (including Home Premium, as well as other versions) is on track to make $1.5 billion by the end of this fiscal year, Microsoft said.

11. Windows Phone now No. 3: Microsoft finally overtook BlackBerry to claim the No. 3 spot for smartphone operating systems worldwide.

In the second quarter, Windows Phone held 3.3 percent of sales to users, compared with BlackBerry’s 2.7 percent, according to research firm Gartner.

Research firm IDC, meanwhile, showed Windows Phone holding 3.2 percent of worldwide shipments in the first quarter, compared with BlackBerry’s 2.9 percent.

12. Microsoft’s roller-coaster stock price: Microsoft’s share price went on a bit of a wild ride this year. After the company missed big in the fourth quarter of fiscal year 2013, which ended June 30, its stock price plunged 11.4 percent, closing at $31.40 the day after the earnings report. It was the biggest single-day drop since January 2009.

But then Ballmer’s retirement announcement sent the stock soaring 7 percent to $34.75. More recently, with speculation that Mulally might become CEO of Microsoft, the share price rose as high as $38.94 on Dec. 4 — the highest it had been since 2000.

For the calendar year, the shares are up more than 30 percent.

13. Microsoft expands retail reach: Microsoft opened 35 retail stores this year, and now has 83 stores in North America. That includes 51 full-line stores (such as the ones at University Village and Bellevue Square) and 32 specialty stores — basically, kiosks within malls.

In addition, Microsoft teamed up this year with Best Buy to open 600 Windows Stores within Best Buy and Future Shop stores in the U.S. and Canada.

14. Patent battles — the never-ending story: Microsoft and Google’s patent war continued on multiple fronts.

In Seattle, a U.S. District Court jury decided in September for Microsoft in its claim that Motorola breached its agreements to provide, at reasonable rates, use of its patented technologies that have become part of industry standards in online-video viewing and wireless usage. Motorola has appealed.

In December, Motorola lost a U.S. Appeals Court effort to invalidate a patent Microsoft had used to win an import ban by the U.S. International Trade Commission on certain Motorola devices running Android.

Meanwhile, earlier this month, a German court invalidated a patent Microsoft had used to win a sales ban in Germany on certain Motorola devices running Android.

Janet I. Tu: 206-464-2272 or jtu@seattletimes.com. On Twitter @janettu.



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