Microsoft is switching from defense back to offense

Microsoft has been back on its heels playing defense for a decade, since its antitrust trial with the U.S. Department of Justice. However, recent events point to a Microsoft that's ready to start playing offense again. But does the company still have any touchdown passes left?
Written by Jason Hiner, Editor in Chief

It's easy to forget that Microsoft started its life making programming languages. The world's largest software company, which was founded in 1975, didn't throw its first touchdown pass until it backed into the contract with IBM to supply the operating system for the first IBM PC in 1981.

Microsoft snatched that opportunity and sprinted with it over the next two decades, building operating systems and applications that powered the majority of the world's personal computers and turned Microsoft into a technology empire that eventually outgrew even IBM itself.

During the 1980s and 1990s, Microsoft may not have built the best products or been the first mover in most of the markets where it built products, but it was the scrappiest and the most tenacious (and sometimes, the most ruthless) competitor in the computer market. And, that's why it succeeded.

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But, when Microsoft was hauled into court by the U.S. Department of Justice in 1998 and charged with monopolistic and anti-competitive practices, the company lost its edge. It became a much less aggressive company.

At that point, Microsoft had also won the operating system war against Apple, it had won the Web browser war with Netscape, and it had won the desktop applications wars with WordPerfect, Lotus, and others. It was no longer a challenger. It was the incumbent champion that everyone else was gunning for. And Microsoft fell into the same trap that ensnares most incumbents. Instead of playing to win, it started playing not-to-lose. The whole company switched from offense to defense.

Even worse, Microsoft was not even playing an aggressive man-to-man defense. They've been laying back in a zone defense. The sports term for this is a "containment defense." And that perfectly sums up Microsoft's strategy for the past decade, as they've allowed smaller, quicker competitors to pick them apart, little-by-little, yard-by-yard.

However, there is mounting evidence that Microsoft is casting itself as the underdog and going back on offense, as Larry Dignan pointed out last week. Here are the five plays that Microsoft has run recently that make me think the company doesn't want to simply defend its turf any longer, but wants to move the ball down the field:

1. Microsoft's new PC ads draw complaints from Apple

Microsoft has been running its popular Laptop Hunters series of ads that show average tech buyers going into computer stores with a certain amount of money, comparing PCs and Macs, and then walking out with a PC with more features that costs several hundred dollars less. This is an effective argument, especially in tough economic times. Microsoft COO Kevin Turner recently revealed that Apple called Microsoft and demanded it to stop running the ads because they were inaccurate - Apple had dropped the price of its machines by $100. Microsoft employees are still high-fiving each other in the hallways over this one.

2. Bing has essentially become the Google alternative

The company recently unveiled its new Bing search engine, which drew praise from tech pundits and even stole a little market share away from Google and Yahoo. I still think Bing was a huge waste of time and money, but Microsoft executed almost perfectly on the launch, delivering a useful product, drawing buzz away from Google in the search market, and overtaking Yahoo for the No. 2 spot in search.

3. Microsoft Office 2010 includes a bold play for the Web

Google Docs and Zoho have stolen much of the thunder in online productivity apps while Microsoft made several half-hearted attempts (like officelive.com). With Office 2010, Microsoft is throwing off the shackles of the past and delivering robust Web versions of Word, Excel, and PowerPoint (I've been very impressed by the demos I've seen so far). Licensing cost is still a big question mark, but if Microsoft gets that right, it has an excellent chance of solidifying mainstream businesses on the Web versions of its already-familiar office suite and keeping those companies from experimenting with Google Docs or Zoho.

4. Microsoft is planning retail stores next to Apple stores

Not only will Microsoft unveil its retail stores this fall, but the company recently hinted that many of the first stores will be located in close proximity to Apple stores. That's a surprisingly gutsy move, especially since no one expects the Microsoft stores to be as flashy and successful as the Apple stores, but it could be a decent strategy for getting overflow traffic from the average technophiles who stop by the Apple stores (not the Mac fanboys). Also, if Microsoft hires the same people that design its booth at CES every year than the retail stores could be a successful outlet for showing off the best gear in the PC ecosystem.

5. Windows 7 has been radically trimmed down

The most significant part of Windows 7 is not what's going into it, but what's coming out of it. Microsoft is subtracting more than it's adding, and still charging for it (I'll have more on that leading up to the launch on October 22). This streamlining is long overdue and is significant because it will allow Windows 7 to run on low-power devices and provide better performance on high-powered devices. Microsoft will take some heat for this addition-by-subtraction approach, but it will likely result in happier users and extend the reign of the Windows OS.

The billion dollar question

Microsoft could certainly make a lot of money and retain a measure of relevance for years by simply keeping Windows and Microsoft Office on life support. Even if there's a slow bleed siphoning off its revenue drop by drop, Microsoft could still have a very profitable business for a decade. But, Microsoft doesn't want to fade into the background and just cash checks. It wants to be a flag bearer for the tech industry. Otherwise, the company wouldn't be messing around with distractions like a search engine or the Xbox.

The big question is not whether Microsoft can continue to milk the cash cows of Windows and Office. Even if Microsoft maintains its high market share in both categories, the two products are destined to become far less profitable, due to the OS sliding into the background and much stronger Web-based competition in productivity software.

Microsoft's recent scrappy behavior shows that it has embraced the underdog role and decided to play offense again. But does Microsoft have any more touchdown passes left in its arm? That, more than anything else, will tell us whether Microsoft has truly gotten its swagger back.

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