The death of Microsoft

The death of Microsoft

Summary: Most companies die. Here's why Microsoft is in danger, despite its seeming invulnerability.

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death of microsoft

The seeming permanency of major corporations make it difficult to imagine that they will die. Blackberry and Nokia are today's examples. This week's Great Debate got me thinking about Microsoft's vulnerabilities.

Microsoft's next CEO: Is an insider Redmond's best bet?

The bad news: companies like Dupont, General Electric and IBM that survive as dynamic and innovative companies for over a century are the exception. The good news: multi-billion dollar companies usually take a long time to die.

In the 1920s the Radio Corporation of America – RCA – was a massively profitable and high growth tech company thanks to radio - which no one had in 1920 and everyone had in 1930. They even tried computers after WWII. You still see the trademark in odd places, but the company is long gone.

In the 1960s and 70s multiple billion-dollar minicomputer companies were born, flowered and - mostly in the 80s - died. Names like Data General, Wang, Prime and DEC – at one time the second largest computer company in the world – employed hundreds of thousands of people and sold products all over the world. The PC killed them, just as smartphones and tablets are killing PC vendors - and a big chunk of Microsoft's revenue - today.

A remnant of Data General survives at storage company EMC. DEC was absorbed by Compaq and now Hewlett-Packard. It was inconceivable in the 1980s that H-P would ever be the world's largest computer company.

20 years ago even mighty IBM was headed to disaster. Its old model wasn't working and the then CEO didn't have a clue as to how to change it – not unlike Microsoft today.

Understanding Microsoft's business
Microsoft has several profitable major businesses - and some that suck up huge dollars for no profit.

In their last earnings report they break down revenue and income:

Group    FY13 numbers in USD billions Revenue Profits (Loss)
Windows 19.2 9.5
Servers & Tools 20.3 8.2
Online Services 3.2 (1.3)
Microsoft Business 24.7 16.2
Entertainment & Devices 10.2 0.8

Today, by division
Windows revenue is stagnant - and facing decline - due to smart phones and tablets. Google and Apple treat operating systems as commodities rather than cash cows. This is $19B that will be almost gone in 10 years.

Servers & tools. Growing fast, it includes Windows Server, Microsoft SQL Server, Windows Azure (cloud), Visual Studio, System Center products, Windows Embedded device platforms, and Enterprise Services. People get the value of tools and cloud, so S&T should continue to be high growth and profitable. But Amazon owns the cloud today and MS will have to fight harder than they ever have to carve out a competitive position.

Online services. Stick a fork in it: it's done to a crisp. Google owns this market and despite the excellence of Bing, Googling is the verb and Bing is a little-known noun. The normal MS strategy of waiting for a less profitable incumbent to screw up isn't going to work here: Larry Page knows where Google wins and he's going to make sure it keeps winning.

Business division i.e. Office. Microsoft's office suite has been the greatest application success of the last 30 years. But the future looks ominous: Office features overshoot what 99% of users need or want. Google and Apple have introduced free or much less expensive products that do most of what Office does. Keeping Office from iOS and Android and has introduced hundreds of millions to spreadsheets, presentations and word processing on a non-Microsoft platform. Oops!

Entertainment & devices i.e. Xbox consoles and games. Barely profitable by MS standards, yet this is the focus of the newly announced strategy. This is a dying business as we'll see when the Xbox One results come in.

Tomorrow
Operating systems are commodities that are free or almost free - like device drivers are today. Say goodbye to Windows revenue.

Servers and tools will become more important as apps, computes and storage move to the cloud - public or private - to enable powerful mobile user capabilities. But MS has to move cross-platform or lock themselves out of the fast growing Linux server space.

MS isn't going to win the ad battle against Google. Stop trying.

Office will be the 8-track tape of business apps in 10 years. Few people need what it does - file compatibility is the sales driver, not features - and as Google Docs and other apps proliferate at much lower cost, more people will leave. Solution: make Office a brand with Office/Easy, Office/Business and Office/Extreme versions - and put at least O/Easy on every platform.

Games? Really? Grow up.

The Storage Bits take
Microsoft's major revenue streams and competitive advantages are slipping away day by day. It needs reinvention on the scale of IBM 20 years ago.

But as long as Gates and Ballmer hang around it won't get it. So a great company will fade, its massive capabilities frittered away by timid and blinkered management, eyes firmly on the rear-view mirror as they drive off a cliff.

Waiting for Apple, Google and Amazon to screw up is stupid. Sure, the San Andreas fault could swallow Google and Apple, and Mt. Rainier could bury Amazon - along with Redmond - but hope is not a strategy. Microsoft needs a new CEO who sees the dangers a decade out and positions the company to meet them from a position of strength.

Let's hope the new guy gets it right. Microsoft is too important to waste.

Comments welcome. I've sketched this in very broad strokes, but what is the most important thing you see?

See also:

Topics: Microsoft, Cloud, Software, Storage

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207 comments
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  • The biggest growing arena is mobile devices

    and MS have had too many failures for too long and nothing that can be regarded as a genuine success - despite MS having a decade or more headstart on groups like Apple and Google. I doubt that MS will die, they are hardly even moribund, but it is clear that investors are worried. Ballmer is gone and now major investors are trying to get rid of Gates, too.
    1,2,3
    • And Microsoft just lost it.

      The amazing thing about the phone market is that Ballmer was allowed to remain for so long, releasing dud after dud after dud.

      Each dud, when it was released, served to erode confidence in Microsoft's ability to succeed. There was Sidekick. There was Kin. There was Windows Mobile. Then Windows Phone, etc. Ballmer was good at promising that the "next one" will succeed. But each one failed.

      Possibly Microsoft's biggest failure is Windows RT. That insignificant Surface RT tablet that nobody wanted was supposed to be Microsoft's entry into the Post-PC Era. It ran on ARM processors, but nobody bought it. Well, actually, three people did, but they've never been located.

      So, do you feel sorry for poor Microsoft?
      Vbitrate
      • Microsoft is gaining in mobile...

        While Microsoft got a late start to mobile... the reality is that NOW they are actually increasing their market share in a very competitive market... which tells me that they're doing something right. Windows Phone has almost 10% market share in Europe. If it can duplicate that in other areas, particularly the US & China, then that's pretty remarkable. Furthermore, the enterprise is beginning to warm to Windows 8 & RT tablets as they update their fleets.

        Microsoft and Ballmer may have made some mistakes (who doesn't), but to say they're dying is just ignoring the facts.
        cybersaurusrex
        • They are sprinting

          Microsoft is increasing market share because they are sprinting and the race is a marathon! Microsoft will be bent over panting for breath and when that happens they will die, mark my words.
          Tim Jordan
          • Mark your word.. boss with one correction

            Ok .. I mark your philosophy words... but only one correction.. All the other racer also need to bent over panting for breath. And when that will happen MS will kill each of them.. and finally they will be alone to finish the race.. so no hurry.. they can bent for breath.
            Jecob8888
          • Too optimistic, Jecob

            While Windows Phone is finally growing again, their competitors aren't exactly coasting. Someone needs to make the 'next great breakthrough' or it will simply come out a dead heat. Windows Phone/RT has the potential to be that leader, but only if Microsoft doesn't stumble the way they've done too many times this last decade.
            Vulpinemac
          • "Three of the top 20 investors in Microsoft Corp are lobbying the board

            to press for Bill Gates to step down as chairman.

            The three investors are concerned that Gates' role as chairman effectively blocks the adoption of new strategies and would limit the power of a new chief executive to make substantial changes. In particular, they point to Gates' role on the special committee searching for Ballmer's successor."

            Source: www.reuters.com/article/2013/10/02/us-microsoft-gates-investors-idUSBRE9901H320131002

            This is just one reason your logic is flawed, Jecob8888. How does Microsoftr re-org under a new CEO picked by Gates and strapped to Ballmer's re-org plan?

            As long as the (not so) dynamic duo continue to call the shots nothing will change.

            As for Microsoft "Killing off the Competition", that is what they have always been able to do until recently. Starting with the funding of SCO to kill off Linux and Open Source, Microsoft has had to learn a new hard reality that it does not always get it's way.

            The rest of the world has changed and Microsoft is ruled by two guys who refuse to see that reality.
            InformationRetrieval
          • when that 'will' happen MS 'will' kill each of them

            Jecob, it's becoming quite repetitive from Redmonians to talk the future here, the future there, but I understand, when the present is so bad you start dreaming of a rosy future.
            Maybe you didn't watched the new but the iPhone funeral was already staged! It was kind of sweet, do you remember?
            It was WP7 the killer, the one that would destroy the iPhone. Where is WP7.5 now?
            theo_durcan
          • Correct but that was a MS add

            That was an MS add just like they say "Bing" will kill google. But I do have my doubts since I much prefer Google as does the rest of the world apparently.
            RobertMoore12@...
          • If this is a marathon MS is past the 75 mile mark.

            MS has been doing and doing for a long long time now. The only real competitors out there with as long a "track" record are Apple and IBM. And MS has successfully changed course before.
            DevGuy_z
          • 75 mile mark, fully hydrated

            and ready for next big thing. Companies can't expect consumers to buy new phones every 9-12 months while innovation slows. This is where MS is going to reap the benefits. people will look at their current android or apple device and say "Maybe I should try WP, it's different, looks as good as the competition and performs even better."

            As for XBOX One the author states this is a dead market which is a joke. The best games are still played on the console or PC. These are immersive games with a greater level of control. Tablet games will never be on the same level due to the inefficiencies of the touch interface. How is this market dead and who's to say the slow migration to digital downloads doesn't open the door for cheaper games that are still better than anything you find in an app store.
            Rob.sharp
          • Microsoft has to give buyers a reason to even look

            and honestly, based on the abysmal reaction to Windows 8 and their Surface products, the negatives reviews are in and encouraging people NOT to look.

            Personally, I agree that Windows 8 and Windows Phone have GREAT potential; however, it is only potential until people actually give it a try.
            Vulpinemac
          • the problem is it simply doesn't perform better

            and with no clear advantage, other than a niche super megapixel phone. I can name advantage upon advantage for both iPhone and android based phones. I'm not trying to bash windows phone, im just stating facts.

            Windows phone's UI might perform better than android 2.3 on a comparable cheap hardware, but that's because android was around before GPUs and prior to v3.0 did not take advantage of the GPU.

            As time goes on, hardware gets faster and cheaper. This will erase any current significant potential for windows phone on cheap hardware, as the relatively large OS licence fees they need to collect stay constant and hardware costs continue dropping like a rock thanks to rabid competition.

            With the XBOX it the same as the decline in PCs. You assume that more and bigger is always better, but for the average person, the trend is to play on phones, tablets - size and convience are more important.
            drwong
          • Re: the problem is it simply doesn't perform better

            As far as the UI's and phones themselves all of the current generation of smartphones are all on fairly even ground. Apple and Andriod clearly have the app market advantage, but the Windows phones have the Enterprise integration advantage. Many larger corporations have infrastructures that are mostly comprised of Microsoft products and for these environments especially the integration of the Windows phone is second to none. Others have gotten much better, but are still not on the same level.

            As far as Windows goes, I don't know if it will ever completely go away, but I centainly do not see it happening within 10 years. Large Corporations generally take a long time to make significant changes to their infrastructure and for those companies (and there are MANY) who have these large MS installations they will continue to use Windows for their primary OS if for no other reason because of, again integration.

            As for the gaming market, that certainly is not in the same boat as the PC. The game console market is still huge. Anyone serious about their gaming who wants a truly immersive experience with higher levels of complexity are not playing these games on their phone or tablet. The phones and tablets are good for the simple games that are not very complex and are used more as a distraction than for true entertainment purposes. Let's not confuse Microsoft's lack of profits with the status of the gaming market. The problem, in true MS fashion, is that again they were late getting into the game part of their catch-up plan was to sell at or below cost to gain market share quickly. This is the major reason for their losses in this segment.
            AnthemDBA
          • RE: people will look at their current android or apple device and say

            "Maybe I should try WP, it's different, looks as good as the competition and performs even better."

            Quite a prediction there, Rob.sharp.

            Can you tell me what lotto numbers I should play this weekend?
            InformationRetrieval
          • Samsung is the Sprinter Not MicroSoft

            Samsung reeks of desperation when they come out with model after model with slightly larger screens or slightly changed UI. Apple and MS have more confidence in their fewer products.
            Panwo1@...
          • Uh, this is a marathon, which Microsoft has been running

            for a long time already. They slowly released the new Windows Phone and are slowly merging the OS and APIs across all form factors. They aren't sprinting and rarely ever sprint. They are getting faster, but Google is more of a sprinter (creating and dropping products rapidly) and I agree with Panwo1, Samsung is the main sprinter. Microsoft is usually far ahead of things (tablet PCs being the prime example) but I think their underlying ideas are actually leading to some awesome products. Don't discount multi-billion dollar companies until they are no longer multi-billion.
            grayknight
          • I disagree....

            Microsoft has been sprinting, the problem is that they have never been known for reliability. Yes, they have been getting better, but historically, Windows = crashes, reformatting, viruses, malware, etc.

            They have to get the public over this perception AND they have to make sure that their phones are not filled with Junkware from the start by either manufacturers or carriers. And this has to apply to all Windows phones, no matter who makes them. If they fail at this, then their platform will fail and ultimately take the company with it, as the rest of the company is not doing all that well these days either.
            cmwade1977
        • Microsoft and Mobile reminds me of the Black Knight guarding the bridge

          in Monty Python's Holy Grail movie. They fought a valiant fight against every foe until MOBILE (King Arthur) starts hacking limbs off, yet they refuse to acknowledge that they just lost a limb, insisting it was only a flesh wound. At the end they will be a bloody stump of a Black Knight flopping around by that bridge.

          http://www.youtube.com/watch?v=dhRUe-gz690
          InformationRetrieval
        • They didn't get a late start in Mobile

          They were in as early as Palm and RIM. They had a lot of great ideas - like providing a reasonably full powered RTOS for low power devices (WinCE) - but they packaged it in a ridiculous desktop metaphor (start button, task bar, etc.) When something better came along, they were left behind.

          Now they're doing the opposite - having embraced the modern multitouch phone UI, they're attempting to cram the Phone paradigm onto devices that such a metaphor is clearly inappropriate for.
          Mac_PC_FenceSitter