The problem with Microsoft...

March 29, 2011: 5:00 AM ET

No one questions CEO Steve Ballmer's drive or intentions - but is his devotion to the company and its Windows business hurting its ability to innovate?

By Gary Rivlin, contributor

It seemed a little like love when a blogger named The Paperboy got his hands on a secret device being developed inside Microsoft under the code name Courier. With its icon-rich user interface and multitouch, stylus-friendly screens, Courier represented "an astonishing take on the tablet," gushed Paperboy's post on Gizmodo in the fall of 2009, around the time techies were buzzing about Apple's forthcoming tablet. "Maybe," Paperboy wrote, "we've all been dreaming about the wrong device."

The Microsoft (MSFT) team working on Courier was equally jazzed. "We had a breakout product that had the potential to really delight the user," says Rebecca Norlander, a star programmer inside Microsoft who quit last June after 19 years with the company. Just as important, Courier held the promise of catapulting Microsoft into mobile devices, a lucrative field that had eluded Microsoft for 15 years -- and where rivals Apple (AAPL) and Google (GOOG) had made significant inroads.

So when Robbie Bach, who led the company's entertainment and devices division at the time, presented his idea to CEO Steve Ballmer and Microsoft's senior leadership, he expected enthusiasm and additional funding for the project. There was just one problem: The Courier prototype borrowed from Windows, Microsoft's vaunted computer operating systems, but had an operating system all its own. (That's what Apple did with its iPhone and iPad -- it built a new operating platform based on its existing Mac OS X.)

Bach learned a hard lesson about the power and might of Windows within Microsoft. Not only would Bach not receive the extra funding he sought, said Ballmer, who personally delivered the blow, but there would be no Courier because it was unnecessary. The best of Courier, where appropriate, would be folded into the next version of Windows, Windows 8, due at the end of 2011 or in 2012 -- or maybe even Windows 9. Several months after its death, Bach announced his retirement. (He wouldn't comment for this story.) More

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