Microsoft – Threats and Opportunities


It is an industry legend and the company, along with Apple that started the PC revolution.  It brought technology to our desks and to our homes. It created a lot of young millionaires.  It was a shining star in the technology industry.  That was now what seems a long time ago. The Microsoft of today is one  that is a lot different from the one I joined in 1991 as a young, wide-eyed, fresh out of college customer service representative.  Then everything was new as PC’s were just starting to take off.  We were wiping out the typewriter.  In those days we were still talking about our different lines of business at Microsoft in terms of making our first billion.  Today Microsoft has annual revenues in excess of 70 billion.  Despite this growth, at times Microsoft can appear like an old and tired company.  One longing for a past glory, a glory that likely will never come again.  When you look to the horizon there are storm clouds gathering that could lead to catastrophe, but at the same time there are opportunities that could lead to greater horizons. Let’s have a look at what those different threats and opportunities are.

Google:  No company has the potential to hurt Microsoft more than Google.  They are threat numero Uno.  Ray Ozzie addressed  this in one of his first memo’s at Microsoft.  Google was using its ad revenues derived from search to fund software development projects, like business productivity applications.  Google  was changing the playing field and redefining the competitive landscape.  Google’s bet is pretty simple.  We live in a connected world, a world that is getting evermore connected with each passing minute.  If we assume we will have ubiquitous connectivity 24/7, whenever and wherever we want we need a simple device that can connect us, ala a Chrome Book (kills Windows).  Then you just need some cloud based applications for business productivity like Google Docs (kills Office).  Then you have just shaved off $25 billion in Microsoft’s earnings.  Not to mention ISV’s would flock to Google and the city of Redmond would file for bankruptcy similar to Detroit.  I assume someone in Redmond has figured this out, but these days when Microsoft is competing on so many fronts it seems hard for Redmond to prioritize.

Three Screen:  One of those great ideas that at a high level made and still makes sense.  Who can provide an experience for the PC – Phone – Television and it is all integrated?  Microsoft has the teams and technology to do it.  When this was first discussed it was around 2007.  The problem?  The TV platform was still nascent and Windows Phone 6.0 was a piece of junk.   Microsoft has since then released a new user experience in Windows 8, added a compelling tablet, and now have a competitive smart phone.  What is missing is TV, the holy grail of user experiences.  The three big companies – Microsoft, Google and Apple are all trying to create an experience that changes the consumer paradigm.  This is a big bet by all involved but the rewards could be immense.  If one figures out the TV experience and then can seamlessly integrate with other devices, well then the world will be their oyster.

Apple:  The obvious villain.  Microsoft versus Apple.  Gates versus Jobs.  Despite all its recent success I think Microsoft’s failing here happened because of one single reason:  Microsoft was not focused on the consumer.  They became like the Republican party and did not understand basic demographics.  While Microsoft was focused on the enterprise a new generation of consumers was being born and raised, with technology present from the first day they opened their eyes.  In the old days the belief was you were a software company or a hardware company.  Apple changed that school of thought and created a new market, an experience company.  Though I maintain Google is the biggest competitive threat, I think what Apple did really hurt Microsoft as a company. Not just financially but psychologically   It seemed every time Microsoft tried to say anything negative about Apple they looked foolish.  The “I’m a Mac, I’m a PC” ad campaign was so dead on and the response from Microsoft was so minimal.  Apple humbled Microsoft and remains a significant threat to their future.

Enterprise Customers: If you can think of one major impact Steve Ballmer had on Microsoft it was the transformation of the company from a consumer company to an enterprise company.  It made sense from a Steve standpoint.  Enterprises sign large deals to long-term commitments and provide a stable cash flow.  They are predictable.  Consumers are fickle and change directions quickly, loyalty is earned, but never guaranteed.  So the enterprise business has grown to tens of billions o f dollars.  That being said there still is room to grow in the enterprise.  Sharepoint became a billion dollar business and Lync looks like a sure bet to join that crowd as well. The Microsoft Azure Cloud offering could turn the corner and potentially be the largest new business.  An interesting area is consulting services.  Efforts have been made in the past to make this more of an IBM global services model.  This would go against Microsoft’s partner driven model, but these days that seems under threat anyway.  If they did do this I have no doubt this could be a multi-billion dollar business.  If Microsoft decided to focus on the enterprise excessively that would be a successful venture.  The risk of course if Microsoft ignored consumers they would be at risk, since so much of enterprise IT is being driven by consumers.

Xbox:  Whenever the subject of Microsoft futures comes up people inevitably say the Xbox is the future direction Microsoft.  Probably because it is the one group that has a cool factor associated with it unlike the other door knobs, called Product Groups at Microsoft.  With that being said if Microsoft wants to revitalize and market its three screen vision Xbox has inadvertently taken the lead as the platform to bring all three screens together.  Xbox rose at Microsoft because it operated outside the corporate structure.  They were not part of Windows or Office’s legacy.  They were new, fresh and exciting.  In my view they should own all things consumer.  However the rumblings I hear over in Redmond is they are being brought more into the legacy corporate fold.  If I knew what the grand vision.of doing this was I may support it, but since I don’t all I can say is “leave well enough alone”. I would have expanded their playground rather than constrict it.  I would brand as much stuff “x” as I could; Xphobe, XMusic, Xwhatever..would have used the logo, but that is an opportunity I think Microsoft will bypass.

Focus or lack there of:  One thing that I think kills Microsoft and maybe the biggest threat is just what seems to be a lack of focus and cohesive message from the company.  I remember in one week they had a big Windows Phone launch followed by the Xbox Kinect.  The Windows Phone got absolutely no momentum out of the launch.  If a kid hears you launch a cool new phone followed by a big announcement around Windows Server what are they supposed to think?  The marketing folk at Microsoft view this as two different audiences so they don’t intersect, but in the end they do.  IBM does not have this problem because everything they do is targeted towards the enterprise.  Could they split the company into a consumer entity and a enterprise entity and create a wholly owned subsidiary…called Xbox?  Retain ownership while spurring creativity? Increasing overall revenues with a new focused approach? Just a thought.

There you have it, in many ways it’s the “is the glass half full or half empty” argument  In many ways a threat is an opportunity it is just a question of how you attack it.  Could Microsoft do to its competitors what they are doing to it?  Sun Tzu, the Chinese author if the “The Art of War”., written around the 500BC period., wrote “when confronted by superior forces one must change the battlefield”.  This is what Ray Ozzie wrote about when talking about Google using ad driven revenues to fund software development.  Microsoft needs to do two things: Seize the opportunities and take the leadership position and embrace the threats to provide for a brighter future.  Another option would be for Microsoft to read about history because they are history.  Your call Microsoft.

Good Night and Good Luck

Hans Henrik Hoffmann January 30th 2013

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