Microsoft, Mr Einhorn said, suffers from "Charlie Brown management". Ouch.
Mr Ballmer is as adorably hopeful in his endeavours as his cartoon doppelgänger, whether Microsoft is launching its iPod-savaging Zune player or the revolutionary Kinmobile phone or Windows Vista. But for all his enthusiasm, Charlie Brown is one of life's non-achievers, and Mr Einhorn's attack hit a nerve because investors have watched Microsoft under Mr Ballmer fail again and again to gain traction in any of its new products and services.
So here we are a few days on from Mr Einhorn's speech at the Ira Sohn Investment Research Conference in New York, and still the dust hasn't settled. Shareholders, analysts and commentators are now openlydebating whether Mr Ballmer should, as the hedge fund manager demanded, be fired forthwith byMicrosoft directors.
"It's time for Microsoft's board to tell Steve Ballmer, 'All right, we see what you can do, let's give so-and-so a chance'," Mr Einhorn said. "His continued presence is the biggest overhang on Microsoft's stock... He is stuck in the past. He has allowed competitors to beat Microsoft in huge areas, including search, mobile communications software, tablet computing and social networking. Even worse, his response to these failures has been to pour tremendous resources into efforts to develop his way out of these holes."
Ouch, ouch, ouch.
Steven Anthony Ballmer, 55, has been at Microsoft almost as long as its founder and chairman, Bill Gates, and only Mr Gates has a larger number of shares in the company. (Mr Gates has just under 7 per cent, Mr Ballmer just under 4 per cent – worth $8bn. Mr Einhorn's Greenlight Capital, for the record, has about 0.1 per cent.)
A Harvard and Stanford University student, Mr Ballmer was hired by Microsoft in 1980 as its first business manager, bringing some business school nous to the five-year-old software firm, which was still less than 30 people in total. He took the title of chief executive from Mr Gates in January 2000, as Microsoft's founder started devoting more of his time to philanthropy. In 2000, Microsoft still dominated the tech world, through successive versions of its Windows operating system for PCs and its ubiquitous Microsoft Office business software. 2000 was also when the US courts ruled Microsoft was an "abusive monopoly" that should be broken up. Maybe Mr Ballmer rues the day Microsoft got the ruling reversed, leaving him to steer the supertanker into unchartered technological waters.
Given how fast have been the changes wrought by broadband and mobile internet, the chief executive's defenders say, it might be fairer to hail Mr Ballmer as a hero for keeping Microsoft among the top tier of tech companies. It may have been overtaken in terms of market value by two of its old rivals, Apple and IBM, and Google is closing in fast, butMicrosoft is more profitable now than ever. Revenues are up about one-and-a-half times under Mr Ballmer. So are earnings per share.
Yet the shares languish. Yesterday they were trading at just under $25. That's the same level as a year ago. And three years ago. And five years ago. And in 2001. And in 1998.
Windows for PCs and the Office suite of word processing, spreadsheet and email software are still cash cows for the company, butinvestors have lost confidence that Microsoft can find the same winning formula in the new technological landscape. In a new generation of mobile devices – smartphones first, and tablet computers now, too –Microsoft is in danger of being an also-ran, its operating systemappearing on far fewer devices than Apple's much-loved iPhone and iPad system or Google's fast-growing open source Android software. With Google also now launching an operating system for the PC, and tablets already replacing laptops as some consumers' device of choice, you don't have to work hard to envision an armageddon scenario.
In addition, with high-speed internet at work, at home and on the go, there are no clear divisions nowbetween software, media content and services on the internet – and new companies that spring up in what you didn't think was your area can quickly wreck your business.
This is why Mr Ballmer has pushed Microsoft into brand new areas, notably on the internet, where its MSN business, with Hotmail email at its centre, and the search engine Bing are hardly negligible players, even though they are dwarfed by alternatives such as Facebook and Google. Despite the growth of online advertising, Microsoft has contrived to losefortunes on its internet ventures – $726m just last quarter, and a total of $7bn over the past four years – and earlier this month purchased Skype for a whopping $8.5bn in the hope it could become the default platform for video telephony and perhaps then a future cash cow for Microsoft.
Mr Einhorn mused in his lecture that a post-Ballmer Microsoft would be able to sell off or restructure these internet businesses. But Microsoft can't not be on the internet. Even Office has become an "app" you can buy over the web, which is updated automatically when you are online, and which allows you to store your documents on Microsoft's servers ("in the cloud") so you can access them from anywhere and collaborate with colleagues working elsewhere.
Meanwhile, one of the notable innovations of the Ballmer years, the Microsoft Xbox, goes from strength to strength. Selling the Xbox console was just the start; now Microsoft gets revenues from Xbox Live subscribers paying to play games online and to stream television shows and movies on demand via their broadband internet connection. The entertainment and devices division that includes Xbox is growing revenues at an annual rate of 60 per cent, and is solidly in the black.
The Microsoft board sent out word after Mr Einhorn's intervention that it remained fully behind Mr Ballmer. Dislodging him may require more than grumbling the company has not conquered the internet the way it did the personal computer.
"Is Microsoft going to be better off without Steve Ballmer? That doesn't make sense to me," says Shelly Palmer, a technology consultant and founder of Advanced Media Ventures. "David Einhorn would like to see the shares move, I get that. But this is a personal attack, rather than a solution. Steve Ballmer is not saying anything that doesn't make sense."
Mr Einhorn landed some cruel blows against Microsoft's Charlie Brown this week. Ultimately, though, his fellow shareholders may ask, how potent a rallying cry is "let's give so-and-so a chance"?
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