The 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:

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:

• Microsoft Surface: What it tells us about devices, services and the future of Microsoft
• Demystifying Microsoft's new financial reporting structure
• Microsoft business 'blades': Thinking outside the Surface consumer box
• It's time for Microsoft Lifecycles to enter Internet Time
• Surface 2: Everything that's wrong with Microsoft's model