Steve Ballmer doesn't get it

    I sat incredulous last week listening to Steve Ballmer display more out-to-lunchness than I've ever heard from a major CEO. His company, Microsoft (MSFT), only recently lost the battle of most valuable technology company to Apple (AAPL). He is presiding over the umpteenth reorganization of the company he has run for years, having succeeded his pal, Bill Gates. His online business, whose Bing search engine is making modest gains against industry leader Google, lost more than $700 million last quarter.

    Yet here was Ballmer traveling down a semantical rabbit hole over the future of the PCs. In Ballmerworld, it doesn't matter that the PC is shrinking in relevance. Any device is a computer, and people will want to use Windows because they're so familiar with it. By the way, Windows 7, Microsoft's latest release, is crushing it, further proof that computer users love Microsoft.

    CEOs certainly are paid to put on a happy face and represent as well as possible. But hearing Ballmer at the Wall Street Journal's D conference left me with one question: What is the guy smoking? Windows 7 has been a "success" in part because Microsoft's previous effort, Vista, was such a stinker. Businesses the world over held off so long on upgrading their PCs that once Microsoft got it right they had no choice but to start replacing obsolete equipment.

    Semantics aside, Ballmer knows as well as anyone that the future of personal-computer industry is in mobile devices. Here, Microsoft's hand is so weak that its most important global equipment partner, Hewlett-Packard (HPQ), is buying a beleaguered smartphone maker, Palm (PALM), for its superior mobile operating system. Ballmer's reminiscing that Microsoft was ahead of the curve on mobile software only draws attention to the fact that the PC kingpin's cash, power, research and market might have left it approximately nothing in the phone arena. That's not good. If the growth is in mobile devices and Microsoft can't shoot straight on anything other than a PC or a laptop (and, to give credit where its due, gaming devices), then its fearsome cash flow and market position in the corporate enterprise mean less than nothing going forward. In the area of computing where Microsoft has been thrashed by Apple, it is nothing more than an extremely well-funded yet dysfunctional and emotionally scarred company. (This seems like a good time to point out that Microsoft has been pursuing tablet computers for a decade, the very segment Apple dominated in a couple months. But then that would feel like piling on.)

    There's more. Ballmer came across as obsessed with the competition. That, at least, is prudent yet doesn't sound good. He spoke at length about Google (GOOG), Apple, Nokia (NOK) and Research in Motion (RIMM). (To his credit, he was responding candidly and thoughtfully to an interviewer's questions.) Young Mark Zuckerberg, in contrast, fed the audience a line about Facebook's most challenging competitor being a company it hasn't necessarily encountered yet. Trite, yes. But also not defensive, and supremely confident.

    The current issue of Fast Company has a thumbsucker suggesting that it's time for Ballmer to go -- and that he should be replaced by Bill Gates. An even more embarrassing chart in the New York Times the day after Apple passed Microsoft in value starkly showed the turning point at Microsoft: the year Ballmer became CEO.