The question has been asked, by James Kwak: Why Does Steve Ballmer Still Have a Job? (The Baseline Scenerio; May 24, 2010 - http://baselinescenario.com)
The flaw is MS's business model and corporate culture--an obsolescent legacy still guided by Gates; Ballmer is simply a manifestation of this. Gates has always been more of a marketer and manipulator. Microsoft's baby was DOS; its poor mother was the OS, which Gates did not own or have rights to (he stole it: CP/M from Gary Kildall). Its rich father was IBM, which Gates contracted to before he had a product.
The resulting personal computer with its open architecture was explosively successful swamping the nascent technological approaches of other start-ups, rapidly eliminating all competition and marginalizing Apple. The ensuing software products were all inferior to other applications: Word was a piece of junk from the beginning, a clutz compared to Wordperfect, for example; Excel was a knockoff of VisiCalc, which paled in comparison to Lotus 1-2-3, all be it both Excel and Lotus were children of VisiCalc. Of course everything out there, gui, mouse, apps was ripped from Xerox PARC.
The difference apparent today is what evolved. Jobs has understood and persisted in the simple tool model; As highly sophisticated as Apple products may be for the user they are simple like a screwdriver or a toaster. And they were directed toward the individual. Gate's approach was opposite: the desktop, which says it all; intended for the massive corporate market as replacement for the preceding computer technologies operated and maintained by engineers in separate cold rooms. The main frames (IBM) and micro-computers (Digital). A computer on every office desk instead. But, the result was greater complexity, because tech support had to become decentralized with company IT guys running around to tens of thousands of stand-alone computers.
What dooms Microsoft is system maintenance. Structurally, it's as if all the cars on the road have only one mechanic for service, MS. Microsoft has followed in the footsteps of General Motors: too big, too complex, redundant and absorbed in a self-serving culture. This worked as long as monopolistic methods smothered innovations. Other ideas, better ideas leak out. Apple's down and up history comes out of a dedication to staying in tune with the individual.
Fundamentally, Apple asks me what I want and need, Microsoft tells me what's good for me. One makes delicious healthy fruit, the other makes pop tarts.
The better question is: Why Does Microsoft Still Have a Market?