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Is Steve Ballmer a failed CEO?

Forget the criticism of Microsoft for not beating Google or Apple at their own game. Though these companies' rapid growth surely illustrates the potential of connected computing, no business can do everything or focus on every opportunity (an oxymoron).

There's a reason new business models tend to be pioneered by new players. Microsoft still has a large number of customers willing to pay for what it already does. It needs to keep investing to meet their needs. Such investment is far less risky, far more of a sure thing, than any brainstorm aimed at inventing something totally new, especially something that might also have the potential to cannibalize Microsoft's existing meal tickets.

Yes, the company stumbled badly with Vista, its previous version of Windows, and Microsofties must shudder to think what would have happened if such a flub came say five or 10 years from now, when Web-based alternatives will be reliable and capable enough to supplant a conventional desktop environment for business.

Mr. Ballmer was in charge, so that's one demerit against him. But the company also recovered ably with Windows 7. And it's hard to argue with a tripling of revenues and doubling of profits since he took over 10 years ago.

The damning indictment, instead, concerns the billions in shareholder cash Microsoft has invested in trying and failing to develop profitable new businesses. At another company, how long would a CEO last after spending hundreds of millions to launch the "Kin" line of phones, only to abandon them after 48 days? To develop and market Bing, for the purpose of garnering a minuscule fraction of Google's market share? Internet Explorer? MSN? Zune? Windows Mobile? Look what constitutes a successful business these days outside Microsoft's core software products: the Xbox game machine, finally profitable but unlikely soon to recoup the billions plowed into it.

Then again, what isn't spoken, and is perhaps mitigating, is that these investments also had a strategic purpose. Bing is a weapon with which to attack Google's margins, countering Google's own jabs at Microsoft's operating system and Office franchises. Xbox was created to help secure Microsoft's living room flank. Windows Phone is about to get another big makeover to fend off the threat of mobile operating systems and apps.

A problem is that Microsoft doesn't verbalize such motives, leaving investors puzzled about whether management is merely squandering money that should have been given back to shareholders. When he took over from Bill Gates, Mr. Ballmer charged himself with creating a third profitable major business line to supplement Windows and Office. He hasn't succeeded. Unstated, meanwhile, is the defensive rationale for certain investments that may never be profitable.

Now let it also be said Microsoft has returned considerable cash to shareholders, more than $100 billion when dividends and share buybacks are considered. Had that $100 billion stayed on its balance sheet, Microsoft wouldn't have recently been bested by Apple in the market cap sweepstakes.

But what investors care about is total return. And even disregarding Microsoft's bubble valuation when Mr. Ballmer took over in 2000, the stock has been the proverbial dead money for a decade. This can't go on, unless American capitalism somehow has lost its pecuniary motive. One day, all of a sudden perhaps, shareholders will decide they've been waiting for a train that will never come.

At bottom, this is a corporate governance problem. Manifestly, the solution is not to let management keep stepping up to the plate with shareholder money and promising home runs that never materialize. Nor is the solution another big, one-time dividend like the massive, $3-a-share payout in 2004.

That $32 billion attempt to placate investors, in retrospect, may have been the seminal blunder of the Ballmer era. It didn't go far enough. What the company should have done, and should do now, is sharply lift its regular dividend and then promise to keep lifting it, so management will have to strain and push to reinvest in its core business while still meeting its dividend commitment to shareholders. Mr. Ballmer or whoever succeeds him needs to be placed under relentless daily pressure to distinguish between necessary spending on the business and pursuit of me-too products that don't serve shareholder interests.

This would be bad news for the company's armies of boffins, but it would be good news for the stock. In the funny way the world works, Microsoft might be surprised to discover it actually starts hitting a few home runs based on more disciplined capital spending.