These are anxious times for the world’s largest software company. Microsoft has watched as long-time nemesis Apple has reinvented the smartphone and tablet businesses, carving out most of the industry’s profits for itself. Today, Apple is worth two-and-a-half times as much as Microsoft. Not bad for a company Bill Gates, then Microsoft’s CEO, helped save from ruin 15 years ago.
Then there’s Google, whose Android operating system has the potential to become the Windows of the mobile era. Google’s share price touched new highs on Monday above US$750, giving the Internet giant a market valuation just shy of Microsoft’s. Analysts are attributing the strong performance to the fact that Facebook has turned out not to be the big threat to Google in online advertising that some pundits had predicted.
But the overwhelming success of Android is helping, too. Recent research shows Android now powers more than two-thirds of the world’s smartphones. Android is approaching the sort of market share traditionally enjoyed by Microsoft on PCs.
The worry for Microsoft must be the powerful ecosystems Apple and Google are building around their platforms. These ecosystems of applications and services lock in consumers, in much the same way as the dominance of Windows locked in people in the PC era. The power of Google’s early market-share success with Android cannot be underestimated. Reining it in will be difficult.
Yet Microsoft is the one company in the technology industry that never gives up. And in some cases that stubbornness pays off — even if it takes years. Witness, for example, its Xbox gaming console and its war of attrition with Sony and the PlayStation. Slowly but surely, Xbox is winning.
Of course, as computing becomes increasingly mobile, the stakes are much higher. In the consumer market, Microsoft’s core Windows franchise is under threat. In the corporate environment, Windows and PCs will continue to dominate for the foreseeable future. But that’s no longer a growth market. And, given the weak global economy, corporate IT decision makers are under constant pressure to reduce costs, and that means that upgrade cycles have slowed. As Apple has shown, it’s in the consumer market that all the action is happening. But it’s in this market that Microsoft has fallen behind.
Cue Windows 8. Microsoft’s new operating system — the interface is based on Windows Phone for smartphones — is a radical departure for the company. Even the Start button, a feature of Windows since 1995, is gone, replaced with an interface of “live tiles”. Whether consumers will take to it remains to be seen. So far, Microsoft hasn’t exactly set the world alight with Windows Phone. Perhaps Microsoft’s problem is the same one IBM had all those years ago: even if it’s unfair, the perception is that it has become the safe option, the uncool option.
Unlike IBM, which was able to reinvent itself as a services company when the world moved away from mainframes to Windows-powered client-server computing, Microsoft needs to be a strong player in the new world of mobile. Rivals like Google smell blood in the water. As the world moves to cloud computing — where applications and services are delivered over the network (usually the Internet) rather than from a local PC — there’s an opportunity to wrest control of key markets, including office productivity software, from Microsoft.
Microsoft is trying hard to reinvent itself. But it’s got one hell of a battle on its hands. — (c) 2012 NewsCentral Media
- Duncan McLeod is editor of TechCentral; this column is also published in Financial Mail