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The Microsoft Death Spiral Continues

You could see it this past quarter, when Apple, for the first time, posted higher profits than Microsoft; total sales were already ahead. I could almost imagine Steve Jobs and his crew applauding and cheering when Microsoft’s financials were originally announced. It was a long time coming.

Apple’s ascendency was most obvious last year when the company’s market cap exceeded that of Microsoft. Whereas Apple’s stock is, overall, rising, Microsoft’s has been flat for years. Fewer and fewer investors have confidence in the long-term prospects, although Microsoft continues to make profits that most companies would envy.

The problem is that Microsoft CEO Steve Ballmer doesn’t seem to have a grasp of the fact that innovation means inventing something new and different, rather than poorly imitate what has gone before. This lack of inspiration from the executive suite may, in part, explain why Windows Phone 7, though it has a really nice interface, seems to be a couple of years behind when it comes to features. Microsoft must still believe they’re stuck in the 1990s, where the mere vaporware promise to beat or exceed the competition some day is sufficient to keep customers calling.

These days, if there’s any chance of a replay of a two-party operating system war in the mobile space, it’s between Apple and Google, and Microsoft may have a seat at the table, but probably a small one. Perhaps their last great hope is that long-term alliance with Nokia, where Windows Phone 7 will replace the existing Symbian-based OS on the company’s smartphones come next year. Meantime, Apple earns more than Nokia on handsets, with a fraction of the market share. Worse, telling customers that existing Nokia gear is already obsolete doesn’t help the company make much progress this year on the high end.

And it’s not that Microsoft’s promotional campaigns seem terribly compelling. Although Windows 7 is doing well enough in a stagnant PC market, a large portion of the new sales involve OEM bundles, meaning the OS is preloaded onto a new PC. It’s not that Microsoft’s lame ads are causing loads of people to rush into their local consumer electronics outlet to buy a costly retail upgrade.

The Bing campaign, to boost Microsoft’s search engine, is curious in its own right. The message is not simple and direct, as in any Apple ad you can mention in recent memory. Worse, the lame attempt at humor falls flat. Besides, what’s so compelling about a free search engine anyway? How many TV ads has Google run lately, or in your memory, yet Google’s search share remains fairly consistent. Bing’s gains came by cannibalizing Yahoo! search which is, as you recall, now powered by Bing.

That Bing is now an option on a Mac with Safari might help, at least for those who care to try a different search engine, or regard Google as the “evil empire,” Microsoft’s former role. But most customers don’t really care a whit about changing search engine options. Google works fine. Bing might have prettier background images, but I am not at all convinced the search results are superior, let alone comparable.

Where is the message that Bing conveys that would make you want to switch? Other than, as I said, encouraging people who can’t tolerate Google, which doesn’t really demonstrate a provable advantage for Microsoft, or even a sensible marketing strategy.

While Microsoft seems to be doing OK is on the game machine front — and they will likely prosper from the backlash in light of Sony’s recent Playstation online debacle — on the long haul the biggest competition is that old nemesis, Apple, with the iPhone, iPod touch, and the iPad.

And when it comes to tablets, whenever there’s talk of a potential iPad competitor, new Android OS devices get first priority. Then there’s the curious case of the RIM BlackBerry PlayBook, which still must be bridged with a regular BlackBerry to use an email client, not to mention RIM’s pair of CEOs who cannot voice a coherent vision for the company. It’s no wonder RIM’s growth curve has flattened, and the PlayBook was greeted by collective yawns.

Nowhere do we hear much about an impending Microsoft tablet solution. Sure, maybe Windows 8 will have support for ARM chips, the ones used on other tablets. But supporting a set of mobile processors doesn’t mean that Microsoft has a grasp on how to tailor the classic Windows interface to work best on a mobile device with a touchscreen or tiny physical keyboard. As I said, Windows Phone 7 isn’t bad, actually. Aside from the missing features, there aren’t a whole lot of apps available yet. There’s also a report that Microsoft is actually trying to lure iOS developers to the platform, because they aren’t coming of their own accord.

Now if Microsoft fails to adapt to the 21st century, it doesn’t mean that sales will suddenly plummet. There’s enough momentum there to keep Microsoft’s stockholders — and their wealthy executives — fat and rich for a number of years. But the trend, as I’ve previously said, remains inexorable. It’s going to be downhill, and the slide will be slow and treacherous.