Microsoft CEO Steve Ballmer announced today that he is stepping down in the next 12 months. He sent out an email:

I am writing to let you know that I will retire as CEO of Microsoft within the next 12 months, after a successor is chosen. There is never a perfect time for this type of transition, but now is the right time. My original thoughts on timing would have had my retirement happen in the middle of our transformation to a devices and services company focused on empowering customers in the activities they value most. We need a CEO who will be here longer term for this new direction. You can read the press release on Microsoft News Center.

This is a time of important transformation for Microsoft. Our new Senior Leadership team is amazing. The strategy we have generated is first class. Our new organization, which is centered on functions and engineering areas, is right for the opportunities and challenges ahead.

Microsoft is an amazing place. I love this company. I love the way we helped invent and popularize computing and the PC. I love the bigness and boldness of our bets. I love our people and their talent and our willingness to accept and embrace their range of capabilities, including their quirks. I love the way we embrace and work with other companies to change the world and succeed together. I love the breadth and diversity of our customers, from consumer to enterprise, across industries, countries, and people of all backgrounds and age groups.

I am proud of what we have achieved. We have grown from $7.5 million to nearly $78 billion since I joined Microsoft, and we have grown from employing just over 30 people to almost 100,000. I feel good about playing a role in that success and having committed 100 percent emotionally all the way. We have more than 1 billion users and earn a great profit for our shareholders. We have delivered more profit and cash return to shareholders than virtually any other company in history.

I am excited by our mission of empowering the world and believe in our future success. I cherish my Microsoft ownership, and look forward to continuing as one of Microsoft’s largest owners.

This is an emotional and difficult thing for me to do. I take this step in the best interests of the company I love; it is the thing outside of my family and closest friends that matters to me most.

Microsoft has all its best days ahead. Know you are part of the best team in the industry and have the right technology assets. We cannot and will not miss a beat in these transitions. I am focused and driving hard and know I can count on all of you to do the same. Let’s do ourselves proud.

Steve

The wording of the first paragraph sounds as if he had been negotiating with the board to stay longer but that he was overruled, or perhaps just had a change of heart. But why would he have gone through the recent restructuring unless he had planned to stay at least a few years?

Unsaid but looming behind all of this is Bill Gates, the chairman, and arguably one of the past century’s business geniuses. What’s his vision for Microsoft, now that the world has clearly left the company behind and Ballmer is soon to be gone? Does he have someone in mind?

The reality is that Ballmer’s vision, as articulated in last fall’s letter to shareholders, is not working. He  saw a transition for Microsoft away from the PC era into a devices and services company. As he said,

Our Business: Devices and Services

Last year in this letter I said that over time, the full value of our software will be seen and felt in how people use devices and services at work and in their personal lives. This is a significant shift, both in what we do and how we see ourselves — as a devices and services company. It impacts how we run the company, how we develop new experiences, and how we take products to market for both consumers and businesses. The work we have accomplished in the past year and the roadmap in front of us brings this to life.

Ballmer went on about consumer devices — “devices with end-user services” —  and that’s the half of the vision that is in flames. Windows 8 is a yawn fest, and Windows Phone and the Surface Tablet have flopped. The company took a $900 million write-down on Surface in July, for example (see “Microsoft takes $900M write-down on Surface, but Office 365 looks strong“).

The other half of the vision he laid out was services for the enterprise, and there is still a huge opportunity for Microsoft there. Enterprise tools like Microsoft Dynamics, Office, Exchange, SharePoint, Lync, and Yammer are the only good news in the most recent quarterly results, the one that sealed Ballmer’s fate (see “Microsoft sees worst stock drop since 2000: Welcome to the post-PC era“).

Microsoft needs to hire a new CEO with a vision to make the company the market leader in a new era of enterprise software and one who will avoid the entanglements of consumer devices. Ballmer made a huge gamble on consumer demand for Microsoft gadgets, and it’s just not there. The board could make a stupendous strategic error and continue to pour billions down the drain chasing that chimera, or instead it could get with the present. Instead, hire someone who will acquire Box or Dropbox and pull in promising startups like Asana. And who will spin off, shut down, or ramp down money losing sinkholes like Surface, Windows Phone, and, yes,  even Windows itself. It should definitely spin out Xbox, so maybe Windows could go with that as a short-term source of cash.

Azure may have legs, but cloud computing infrastructure is going to be a tough, tough market, with a number of wounded dinosaurs hoping to play there, like HP, IBM, Cisco, and of course, the giants like Amazon and VMware.

We’ll see how far this past year’s crash has radicalized Microsoft’s board. I don’t know Qi Lu, who now heads up Applications and Services Engineering at Microsoft, which is the enterprise computing heart of the company. He may not be the guy for this cycle at Microsoft, but it should be someone who sees that group as the future for the company. Perhaps David Sachs, the founder of Yammer. He’s a visionary, anyway, and so is Adam Pisoni, the Yammer CTO.

I still think there is a future for Microsoft, as I laid out in “Microsoft will rise from the ashes of Windows and Surface failures,” but it’s not the future Ballmer gambled on: It’s the enterprise.