Microsoft 2022: Redmond faces two old challengers in the new year

It might be a new year, but for Microsoft, the challenges are likely to feel very familiar. Forget all those lean startups. The real competition comes from Apple and Google, and it's not clear how Microsoft can fight back.

Playing the prognostication game isn't easy. Just ask the prominent "Silicon Valley guru" who confidently predicted 10 years ago that Microsoft had only six quarters left before it would start a rapid descent into failure. "Microsoft is the living dead. Microsoft is a standing joke now in the technology business," he said in mid-2011.

His advice to Microsoft's corporate board? Your company needs to be more like IBM, he suggested. Buy Nokia, fire thousands of employees, and replace your CEO. In short, Microsoft should "reinvent itself."

So, how'd that work out? A decade later, even after failing spectacularly with its Nokia purchase, Microsoft is the second-largest company in the world, with 25 times the market capitalization of IBM. No reinvention required. It does help, of course, that the company had been building a juggernaut of a cloud business with Azure and Office 365 at the time, and both are now arguably at the core of the company. 

The moral of the story is that it's never smart to write off Redmond as out of touch and slow. And yet, as we head into 2022, the company faces challenges on the consumer side that are remarkably similar to those it confronted back then, from the same two competitors that it faced 10 years ago, Apple and Google.

Can an older, larger Microsoft work the same magic that has kept it at the top for so long?

Apple and the M1 dilemma

Microsoft has been competing with Apple on the desktop for decades, and the overarching narrative hasn't changed much. The Mac is favored by creative professionals, who are willing to pay a premium for Apple-branded hardware, while the PC industry sells 8 to 10 times more Windows computers, mostly for use in business. 

As long as both hardware platforms were driven by the same Intel-compatible CPUs, that was a predictable dynamic. But Apple has completely upset and reset the market with its new Macs, which are powered by new, proprietary CPUs from the M1 family.

The new M1 Pro and M1 Max SoC designs deliver remarkably better performance, especially on graphics-intensive tasks, as well as greatly improved battery life. It's tempting to reach for the easy solution: Microsoft should accelerate its move to Arm-based PCs. After all, Windows 11 now runs a full 64-bit emulator on Arm-based PCs like the Surface Pro X.

But the secret of Apple's M1 success isn't just the change in architecture. A large part of those performance improvements come from the company's decision to design its M1 chips in-house and tie the operating system and the silicon together in ways that aren't possible with off-the-shelf components.

Microsoft has an ongoing partnership with Qualcomm that's similar to its longstanding relationship with Intel, but it doesn't have anything close to Apple's years of SoC design experience. Without that deep integration, it's hard to see how Windows PCs catch up with M1-based Macs. Or, for that matter, how they compete with the growing base of M1-powered iPads, which are increasingly capable of taking on PC-like workloads.

Google and the new browser war

At the turn of the 21st Century, Microsoft had an undisputed monopoly with Internet Explorer. If you wanted to use the Web in the early 2000s, you almost certainly did so on a PC, using Microsoft's ubiquitous browser.

That lead began to dissipate steadily as competing browsers appeared in the market, and the trend accelerated dramatically when Google launched the Chrome browser in 2008. And nothing Microsoft has done in the interim has made a dent.

Releasing the new Microsoft Edge browser with Windows 10 and setting it as the default was a good start, but it had no luck overcoming Chrome's big lead. Here's what I found when I checked browser stats at the end of 2019:

According to the most recent stats from the U.S. Government's Digital Analytics Program, less than 16% of traffic from Windows 10 PCs comes through Microsoft Edge, and even Internet Explorer has a higher share of usage. That's down significantly from the 20% share Edge had on Windows 10 PCs in 2017. Meanwhile, Chrome's usage share on Windows 10 is above 60%.

In January 2020, after a few months of beta testing, Microsoft released an all-new Edge, built on the same open-source Chromium code base that Google uses for Chrome. More importantly, the new Edge is a cross-platform product, designed to go head to head with Chrome on mobile devices, Windows PCs, Macs, and even Linux machines. For a full timeline of Microsoft's decades-long browser strategy, see "With Chromium-based Edge, has Microsoft finally found a viable browser strategy?"

Props to Microsoft for the effort, but nearly two full years after its release, Microsoft Edge has barely moved the needle, creeping back just over the 20% usage mark on Windows 10/11 PCs. Despite those modest gains, it's actually further behind Google Chrome, which has increased its lead on Windows PCs to a staggering 69% share.

Meanwhile, the new Edge barely registers on other platforms, squeezing out a sliver of a fraction of 1% share on macOS, iOS, and Android devices.

Microsoft's response to this lack of adoption has become increasingly desperate. The newly released Windows 11 makes it much harder to change the default browser from Edge to another alternative, like Chrome. And the latest versions of Edge are packed with links to Bing and MSN, including shopping features and even partnerships with Buy Now Pay Later services, all in a quest to redirect revenue from Google services to Microsoft's bottom line.

It's a classic example of Good Microsoft versus Bad Microsoft, a battle that has been going on internally in Redmond for as long as I can remember. (See, for example, this story from 2010: "Good Microsoft versus Bad Microsoft on privacy.")

The irony is that Microsoft rakes in plenty of cash via Office subscriptions on Android and iOS devices. But reaping those profits through the good graces of another platform is always risky business, and Google, like Microsoft from its worst days, isn't afraid to throw an elbow or two.

As longtime Microsoft watchers know from experience, dislodging an entrenched competitor isn't easy, and it sometimes takes the help of government regulators. And for now, at least, those regulators are taking aim at someone other than Microsoft, which might offer a hint to how this story ends.

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