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AnchorDesk

David Coursey
Microsoft's top 10 challenges for 2003

David Coursey
Executive Editor, AnchorDesk
Friday, December 13, 2002
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What issues should be at the top of Bill Gates's agenda as we swing into the New Year? A recent e-mail from the editors at Directions On Microsoft offered their list. That got me thinking about my own list--which I present here.

The Directions people talk to Microsoft's big corporate customers, while I focus more on individual and small business users. So our lists will only be similar by accident or because some issues--especially No. 1--are big enough to affect almost everyone.

So here's my list of Microsoft's Top 10 Challenges for 2003, in reverse order:

10. Make Xbox profitable. This should be obvious enough. Big investment with, thus far, little to show for it. As a bonus: MSN needs to become a real profit center, too.

9. Watch the business model. The continued decline in PC hardware prices makes the OS a larger and larger percentage of total system cost. Given Microsoft's 85 percent margin on the OS, I expect lots of pressure to lower what it costs to install the OS at the factory. Perhaps that will mean OEMs will pay MS a fixed percentage of hardware revenue. It's a complex issue and one that won't be solved in a column like this. But Microsoft's business model, across the company, is under intense pressure. This is only likely to get worse and result in some significant changes in the ways Microsoft does business.

8. Prepare to battle the consumer electronics companies. Microsoft and its cohorts are headed towards a battle with the entrenched consumer electronics companies over control of home entertainment and information. But that showdown could be over before it starts if the CE companies fail to notice what's already happening, as their hardware gets relegated to peripheral status, and as stereo systems and personal video recorders become either add-ons to, or entirely consumed by, next-generation PC technology. Sony is doing a keynote at the Consumer Electronics Show in January; perhaps it'll surprise me and present a coherent vision of that converged future. Otherwise, Microsoft could slide through almost unopposed.

7. Keep pushing on the wireless front. Microsoft is trying to turn the wireless business into something very much like the PC industry, in which the operating system and applications reign supreme and everything else is a commodity. That's probably a good thing for consumers. But the wireless carriers won't stand for being marginalized. If they all made up their minds to oppose Microsoft, MS could still be stymied. But since those carriers won't make up their minds, it only remains to be decided how much of the wireless world will end up marching to Bill's orders.

6. Bring trustworthiness to existing customers. I'm getting the idea that Microsoft's vision of Trustworthy Computing won't be realized until (a) MS releases its next operating system (code-named "Longhorn") and (b) MS and others write trustworthy applications for that new OS. But what about those of us who are running Windows 98 and XP? Aren't we worth protecting? Or is the problem so complex that we can't be properly protected without new software running on the new hardware that Microsoft's Palladium technology requires?

5. Improve the built-in experience. This isn't something I'm sure Microsoft can do. I'm not even sure the company should do it, because it could negatively impact those PC software vendors lucky enough to still be in business. Perhaps we should leave it up to the hardware OEMs. But whoever does it, the fact remains that an iMac comes with a much more compelling set of built-in media apps--including iPhoto, iMovie, iTunes, iDVD, iCal, and iSync--than the PCs I've seen on sale recently.

4. Issue a Media Center road map. Microsoft needs to offer a clear outline of how third-party software and hardware suppliers will be able to use a Windows PC as either a client or server for entertainment and other content.

3. Bring Media Center into the standard OS. The TV tuner/recorder and remote control features in Windows XP Media Center Edition should become part of the base operating system, rather than a superset of XP Professional. It should be possible to upgrade future PCs to add both Media Center features and third-party improvements, such as TV tuners and links to other home entertainment equipment.

2. Simplify! Microsoft Windows and the applications that run atop it are, as a group, way too difficult to use. There's just no way around it. And even with the significant stability improvements in Windows XP, there are still too many ways for a Windows machine to go wrong. Take my brand new HP Media Center PC: From the very first time I turned it on, it has displayed an error message when it powers down. I'd love to cut and paste the error message into an e-mail to HP support--but that's impossible, since the message can't be copied! So I guess I need to write down the whole thing, which will take about four shutdowns for me to do. But why should I have to do that? The worst thing my Mac ever requires is a forced restart after it's been idling for a few days.

1. Revive Office. Office XP didn't do much to help Microsoft's bottom line and Office 11, due out next summer, might not do any more. Why? Because most of us have all the Office we need and the additional features don't bring us noticeably greater ease-of-use or productivity--at least not when compared to the expense and hassle of upgrading. Microsoft's offer of a $129 Office for Students and Teachers lowers the cost for some users, but getting the rest of us to upgrade remains a challenge.

Office 11 will add a bunch of enterprise features--group collaboration stuff mostly--that are supposed to improve corporate productivity and communication. But it also requires the installation of Office servers, which will further slow adoption.

Microsoft also lacks any real strategy for making Office more meaningful to individual and small business users. While not a large market, Microsoft ignores us at its peril: Given the right incentive, like finding StarOffice, WordPerfect, or some other alternative suite preinstalled on a new PC, many of us could easily switch. If that customer rot became serious, it could spread to the corporate offices of these individual users.

So these are my top 10 things Microsoft needs to work on in 2003 from a consumer/small business perspective. All these things are important, some more than others, but each needs to be a top priority as the company begins the New Year.

What do you think? What does Microsoft have to do next year to stay on top? Are the company's fortunes heading north or south? Take my Quickpoll below and TalkBack to me! 

Right now, Microsoft stock is trading around $55. If you had to guess, where do you think it'll be trading this time next year?
Over $70
Between $60 and $70
Between $50 and $60
Below $50

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