An epitome of “disruptive innovation” – smartphones take down the CEO of Microsoft. Are there more heads going to roll across the “old” tech establishment? You bet!

The CEO of Microsoft, Steve Ballmer, shocked the markets with his recently
announced “retirement”.  There is the normal speculation one would expect when the CEO of an iconic enterprise announces his departure.  Microsoft is a $278
billion market cap behemoth with $77.8 billion in revenue and $76 billion in
cash.  So why was he asked to leave (of course he was asked)?  Consider the
following chart of PC sales versus smartphone sales and you will begin to be
able to formulate an answer. (Courtesy of Business Intelligence here)

PC unit sales vs smartphones 9-2-13

Microsoft has been left in the dust of the wireless aka smartphone revolution.  It is a classic example of disruptive innovation (see Clayton Christensen’s web site here ) where . . . “an innovation transforms an existing market or sector by introducing simplicity, convenience, accessibility, and affordability where complication and high cost are the status quo. Initially, a disruptive innovation is formed in a niche market that may appear unattractive or inconsequential to industry incumbents, but eventually the new product or idea completely redefines the industry.”  The “disruptor” Microsoft is itself “disrupted”.

What now?  That is the more interesting question.  Microsoft may be like a crazed beast now desperate to reassert its market leadership.  They have money – $76 billion in cash – scale and talent.  I suspect they will buy companies and launch products.  The message is clear to all incumbent CEOs of “old” tech companies – no one’s job is safe. You better get a wireless strategy working and fast.  I suspect we will see elevated M&A activity.  That wouldn’t be all bad for valuations of small tech companies such as ours –eh?  Jeb B. Terry, Sr. Sept. 2, 2013

Aberdeen Investment Management – a guide service for micro-cap technology investment

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