While this article is written ahead of Microsoft's investor conference call for their most recent financial quarter, they are confronting a wealth of problems that cast a huge shadow over the company's future prospects. Yes, they will continue to earn high profits from the sale of software and sales, but the PC market has changed, and it doesn't appear they fully grasp the consequences.
When Apple reports Mac sales next week, it will be clear that more and more people are avoiding new PCs and buying Macs instead, or possibly iPads. Market leaders Dell and HP are suffering from declining sales, and more and more companies are offering Macs and iPhones to employees to, in part, convey a sense of being contemporary. PCs are yesterday's news.
Sure, Microsoft is making a big deal over the release of Windows 8 later this year. But their priorities are peculiar. While Apple built a special slimmed down version of Mac OS X, dubbed iOS, designed strictly for mobile gadgets, Microsoft isn't quite sure how to emulate that approach. They have repurposed the failed Metro interface from the Zune and iPhone and made it the face of Windows 8. But it's just window-dressing in the worst sense of that pun. Beneath that overlay, it's still just plain Windows.
Yes, Microsoft is building a version of Windows 8 for ARM-based hardware, no doubt in response to Apple and Google, but that doesn't guarantee success. After all, Windows apps still won't run on the mobile gear. It's an issue that some members of the tech media never seem to understand. Microsoft often announces intentions to do something, but there's never a guarantee that the promised product or service will ever appear. Even if the product does appear, some features may vanish with empty promises that they'll return in the future. Take a look at the original feature set for Windows Vista and you'll see what I mean. But how many members of the media called Microsoft for their constant failure to deliver?
This year, the Zune digital player was cancelled. As the iOS and Android OS continued to dominate the smartphone market, Microsoft's Windows Phone was saddled with a single digit market share and stagnant growth. Although Nokia is starting to market smartphones with Microsoft's OS, that's no guarantee of success. Nokia has only been doing well with less profitable feature phones.
When it comes to smartphones, it's actually hard to see where there's room for another player. Both Apple and Google's Android partners have carved out substantial shares of the market. Even assuming that Apple garners more and more victories in their ongoing legal battles against Android licensees, at best the losers will just remove or redesign features to avoid possible patent infringement. Some suggest Apple will license some of their less critical intellectual property and, as Microsoft does now, get a check on nearly every Android smartphone sold. Indeed, it may well be that Microsoft is making more money on Android smartphones than for licensing Windows Phone.
However, Microsoft appears, on the surface at least, to be utterly tone deaf about such considerations. They continue to tout a Windows-anywhere strategy, imagining that the next generation of tablets with the ARM version of Windows 8 will somehow fare better than previous Windows tablets. This in a market where the iPad is king, and the Android-based Amazon Kindle Fire and Barnes & Noble Nook are pulling up the rear. The rest of the Android contenders are going nowhere, and there are published reports that RIM might be trying to sell off all or part of the company.
This doesn't mean there isn't room for more competition, or that Microsoft is a paper tiger. Clearly the company has had a long ride on the top, and Windows still powers the vast majority of traditional personal computers around the world. But that share drops considerably if you regard smartphones and tablets as PCs too. So Microsoft must find a way to embrace the future before they become a relic of the past.
Sure, Microsoft has done pretty well with game consoles and related gear, but Apple has demonstrated that the iOS is a more and more compelling platform for gaming. The titles you buy at the App Store are far cheaper than the ones you buy for personal computers or dedicated gaming hardware. The biggest developers are on board, so what is Microsoft to do?
It may well be that Microsoft's worst problems are top-down, and that Steve Ballmer and his executive lieutenants are poor managers who haven't a clue how to fix the company's problems. Even if Ballmer was ousted, or left voluntarily, that's no guarantee that Microsoft's future fortunes will of a sudden turn around. That might take someone who isn't afraid to make major changes, as Steve Jobs did in 1997 when he took over Apple.
Sure Apple then was close to failure when Jobs returned. Microsoft can continue in the same groove and remain highly profitable for years to come. But the handwriting is on the wall. I only wonder if Microsoft's leadership will read the warning signs before it's too late to recover.
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