Microsoft's Troubles and the Way Forward

Almost everybody likes to see an empire crumble, so it came as no surprise that last week's Microsoft earnings report, arguably the company's worst ever, generated glee that some industry observers could barely contain.

First, there were the blog posts about how Windows 7, supposedly Microsoft's knight in shining armor and Vista slayer, wasn't going to help the company all that much after all, at least not in the short term.

Then, there were the wider predictions of the end of the Microsoft Era, and there was even speculation from Redmond magazine columnist Mary Jo Foley (who, for the record, did not seem gleeful at all about Microsoft's problems) that Microsoft might be looking at another round of layoffs.

While we at RCPU don't share the sense of bubbling excitement about Microsoft falling on hard times that some folks seem to feel -- as a newsletter for Microsoft partners, we generally want the company to do well -- we don't necessarily disagree with some of the perspectives we've read around the Web in the last few days.

As a couple of the links above suggest, Windows 7 might not help Microsoft all that much financially...in calendar 2010. We agree that many companies, given (everybody now) "this economy," combined with bitterness over the failure of Vista in the enterprise, will likely wait until 2011 to deploy Windows 7. (That should come as no surprise as XP is still serving many companies well, and lots of IT departments wait for Microsoft to release a service pack or two before they deploy an OS, anyway.)

Beyond that, even with Azure taking shape, Microsoft is frankly behind (or, at least, just catching up with) several of its competitors in cloud computing, a model we think will continue to grow as it becomes more reliable and less expensive relative to old-school on-premises deployment. And then there are the company's big rolls of fat, which hang over its belt in the form of all kinds of technologies that stray from the Microsoft core of operating systems, productivity suites and enterprise applications.

So, it wouldn't surprise us for Microsoft to continue to struggle into the next calendar year or maybe beyond. There will be more bad earnings reports; there will be more kids-seeing-Disneyland-for-the-first-time reactions from Microsoft haters. Steve Ballmer might even start to update his résumé, just in case.

But (and you knew this was coming) Microsoft is a resilient company. It has something many of its competitors still don't have: tons of cash and control of the desktop. Windows 7 might not set the world on fire in 2010, but it should be the new default OS by some time in 2011, just as (hopefully, although we're honestly not so sure) the economy as a whole begins to seriously crank up again.

Honestly, are consumers and companies going to switch to Apple, Linux or Google Chrome OS in massive numbers? If they were going to, they already would have by now. If Vista didn't drive them there, what would? And what's Apple's OS market share? It's still in the single digits, is it not? More importantly, will companies and consumers abandon XP for Windows 7? We think they will...eventually, when they have more cash and want to step up to a more powerful OS.

Furthermore, nobody has been able to dethrone Microsoft Office. And Google isn't the first competitor to try; remember Corel buying WordPerfect and Lotus rolling out SmartSuite more than a decade ago? Does Corel even still exist? And when's the last time somebody sent you a SmartSuite document?

Plus, in the enterprise, Redmond's server products are still very strong, and many companies are so heavily invested with Microsoft that they wouldn't or couldn't rip and replace at this point everything from Redmond that they've bought and deployed. And users don't like change, and that works heavily in Microsoft's favor. (Now, if only Microsoft could get Dynamics figured out...but that's another story altogether.)

Microsoft has a massive product-launch wave coming up, starting with the general release of Windows 7 in October. The company is moving forward in cloud computing and virtualization, as well as on more traditional enterprise fronts; there's even talk of a streaming version of Microsoft Office. If the economy really does start to crest as the launch wave rolls out and customers buy into it, Microsoft should be back in tall cotton in the next 12 to 18 months.

Things will likely be rough before then, though. And it does seem as though, with browsers encroaching on operating systems in terms of importance, cloud computing growing, some of Microsoft's more expensive offerings looking a little clunky in 2009, and the company itself searching for focus and an identity, the era of Microsoft as (nearly) undisputed king of the software mountain might really be over.

But Microsoft as the shrewd, wealthy, powerful force in the industry isn't going away, despite the fact that it has and will have arguably the toughest competition it has ever faced. Microsoft as the ruler of the desktop is likely to stick around for a while, too. And, most importantly, after a rough patch, Microsoft as the huge moneymaker for its massive channel should be back in force.

So, keep hope alive, Microsoft partners. Let the naysayers giggle and fist-bump each other for now. Your mothership is in some rough waters, and it might not be queen of the fleet any longer. But it's got the wherewithal to weather the storm, and that means that you do, too.

What's your take on the future of Microsoft? Is it just down for now or doomed forever? Sound off at [email protected].

Posted by Lee Pender on July 28, 2009