Not long ago, Microsoft ruled the computing empire with near-monopolies in PC operating systems, web browsers and productivity applications. The company’s reign, however, was dominated by discord. Competitors complained about Microsoft’s predatory business practices. Users bemoaned the company’s software as a necessary evil.
Fast forward to 2013. Once revered and feared, Microsoft is a shell of its former self. Far from the software and technology leader it used to be, the company now makes repeated missteps in emerging markets such as cloud computing, mobile, search and social.
Still, Microsoft remains one of the most profitable companies in the world thanks to the cash generated by the huge install base for Windows, Microsoft Office and Windows Server technologies. However, even those moat businesses may be under siege.
IBM Makes Enterprise Move
This week, perhaps smelling blood in the water, IBM fired a shot across Microsoft’s bow as it announced plans to invest $1 billion in Linux to unseat Microsoft in the enterprise. Microsoft has an estimated 45 percent of the server market, but Linux is coming on strong with nearly 21 percent market share, according to IDC.
IBM’s investment coupled with Linux traction in the growing cloud infrastructure market and high performance computing (HPC) threatens Microsoft’s venerable $20 billion Server and Tools business. Microsoft’s Active Directory technology, which provisions and controls user access to enterprise systems, is another linchpin to Microsoft’s hold on corporate IT. But here, too, the future is unclear, made hazy by competing cloud-based directory services.
Mobile Juggernaut Blindsides Desktop Business
Meanwhile, plummeting PC shipments in recent years are putting pressure on Microsoft’s desktop bastion. The much-anticipated Hail Mary pass that was Windows 8 failed to stem the PC tide as consumers and businesses alike increasingly adopt more mobile technologies. In large part, this trend has nothing to do with Microsoft. It just so happens that the company is on the wrong side of the trend, making products that no longer enjoy rising demand.
Of course, Microsoft refuses to relinquish what remains of its empire — nor should it. Rather, the company is aggressively working to pump life back into its stagnant Windows operating system. The strategy calls for an update to Window 8 for the desktop (Windows 8.1), a Windows-based Surface tablet and the acquisition of Nokia to help bolster Windows Phone and regain, or at least share, the throne in mobile computing.
Early results of these efforts are mixed. The Surface is falling flat, and the Windows Phone OS shows small market share gains with mid-to-low priced phones outside the U.S. market. As for the upcoming release of Windows 8.1, it has yet to create any excitement.
Self-inflicted Wounds Hamstring Office
With Microsoft under attack in server rooms, on desktops and on the go, surely it can take refuge in its software cash cow, the Microsoft Business Division, right? Wrong.
The largest of the company’s three divisions — accounting for nearly $25 billion in annual revenue — the Microsoft Business Division is led by the Microsoft Office Suite. For over two decades, Office has been the standard for office automation. But Office’s position as standard bearer is at risk.
While pervasive in businesses around the world, Office has seen little innovation in return for the upgrade checks-in-the-mail payments customers have endured. And stalling its move to the cloud didn’t help matters because now, Microsoft Office 365 must play catch-up to Google Apps for supremacy of cloud-based office suites.
Apple, Google, Startups Eat Office 365’s Lunch
Also concerning is that the Microsoft office suite just recently became available on Apple’s iOS with the release of Microsoft Office 365. More concerning is that Office 365 is still not available on what is arguably the world’s most popular operating system — Android.
Microsoft’s mobile delays have spawned hundreds, if not thousands, of mobile office productivity competitors, including Evernote, Box and Polaris Office. Joining these start-up vendors and multiplying the threat to Office 365, Apple and Google plan to give away their mobile office suite apps for free. That’s bound to preempt any significant Microsoft mobile office presence on platforms other than its own. With most of the computing growth happening away from desktops, Microsoft’s Office suite is not poised for growth.
Is it time for Microsoft to push the panic button? Or for investors to sell MSFT? Probably not. After all, the company generated over $20 billion in profits its last fiscal year. But throughout history, great empires rise and subsequently fall, from the Roman to the Russian and Mongol. With the latest blows against it, is the great Microsoft empire entering its final stages?