April 24, 2009

Perspective - Is Microsoft facing its Ozymandias moment?

Nice article on Microsoft. For the first time ever Microsoft has recorded a drop in quarterly revenues and according to PC-Week (oops make the E-Week) Microsoft seems reluctant to embrace netbooks as a potential business strategy.MS stock is up today.

Source - Charles Arthur with the Guardian

Oh dear, Mini-Microsoft – the anonymous blogger inside Redmond who has agitated for years for the company to slim its staffing down and focus on results – is not pleased. The other day he walked over to the new building called "The Commons" on the Microsoft campus and revelled in its size and grandeur: " I walked around admiring the scope of the project, thinking 'This is what Windows built. This is what Office built'."

Then reality intruded. "I then reflected on the irony that it's Mr. Robbie Bach's Entertainment and Devices moving into the new campus with The Commons. Windows and Office funded this extravagant place for the folks who managed to burn through $8,000,000,000USD+ on the Xbox, be shown how it's done right from Nintendo with the Wii, dash the Zune against the juggernaut iPod, and have the iPhone drop-kick WinMobile to Mars."

Mini is a man with a mission, but unfortunately despite the layoffs that have been put into place, his is looking about as futile as the Zune's efforts to unseat the iPod, or Windows Mobile's to grab the attention of the public over the iPhone. Microsoft has cut precisely 800 jobs in total this year.

Perhaps, though, perhaps something is going to happen now that Microsoft has recorded its first-ever drop in quarterly revenues – down by 6% – with net profits profits down 32%. It's an Ozymandias moment: is that structure that Mini is marvelling at going to be a testament to past wonders, like the statue's feet in the sand?

Where has the money gone? A lot of it has gone out of the Windows franchise. Look at the raw numbers: the Servers and Tools division did better than Windows client for revenues (at a shade over $3.4bn), though not for profit, where Windows client generated $2.5bn against $1.34bn for Servers and Tools. And of course the Entertainment and Devices – so hated by Mini-Microsoft – lost $31m, while Online Services lost $575m.

The question everyone is asking themselves is: does this mean that Microsoft's hegemony in the operating system market is finally, after a decade and a half (beginning with Windows 3.1 in 1992), over?

Well, there are reasons why it might be, and reasons why it's probably not.

Let's look at reasons why it might be. First, sales of PCs are declining – expected to fall by about 10% this year. But sales of netbooks are roaring ahead. The problem for Microsoft is that netbooks either run on Linux (perhaps 20%) or Windows XP Home, which is officially a zombie operating system that the company declared dead, buried and not to be updated way back in June; even system builders aren't meant to be able to get licences for it.

Well, tell that to all the netbook makers whose products are all over the shelves of shops like PC World. XP sure doesn't know it's dead.

The problem that poses is that Microsoft gets less for each XP licence than for each Vista licence; Vista is just too fat to fit on a netbook, and disk and RAM sizes there aren't growing fast enough for it to squeeze onto them before Windows 7 comes along.

Now, Windows 7 looks like it will just about squash into the netbooks of later this year. But even there you have a problem. Netbook OEMs probably won't want to pay the full licence for Windows 7; doing so would push up the cost of these price-keen machines too far. So they'll probably get a Windows 7 Starter Edition, which only lets you run three programs at once. As Jack Schofield noted, "Netbook users are generally not multitasking freaks, but whether they'll find this restriction acceptable remains to be seen."

I suspect that once word spreads, it won't be: even my sub-teen daughter thinks nothing of running a browser, email, instant messenger, word processor, presentation program and a music player on her (non-Windows) netbook. The problem with trying to force people into a three-program straitjacket is that they will curse Microsoft, not the netbook maker, and move to living life through their browser. If they do that, Microsoft will largely be the loser, because it is far from the dominant player online. Alternatively, Ubuntu might fill the gap instead: everyone's got warm words for the latest version. (How is it on a netbook?)

The only bright light for Microsoft is that the recession has to end sometime – doesn't it? – at which point it can hope that businesses will begin buying PCs again, and perhaps soon even PCs running Windows 7, which we should expect some time this year.

Sighs of relief all round at Redmond? Well, perhaps. The horrible interregnum of Vista's rule since 2006 has poisoned the Microsoft brand. The rise of "good enough and definitely cheap enough" free alternatives to Microsoft Office, such as OpenOffice, is a threat in small businesses (though not at all, obviously, in the big businesses which, as the figures show, are still buying Sharepoint and Windows Server licences).

However this means Microsoft is still leaning heavily on its past. When one looks to the future, for all the King Lear-ish bluster from Steve Ballmer about how it's going to do dramatic things in search, Microsoft just isn't there. It's making noises about Azure, while Amazon (Amazon?!) and Google have moved far ahead as the providers of choice of cloud computing for small and medium businesses; its Xbox franchise still lags far behind Nintendo's for both numbers sold and profitability; and while people might have gotten upset that Apple sold a few copies of Sikalosoft's Baby Shaker, that pales in comparison to one billion apps downloaded from the iPhone App Store. Nobody's talking about a Windows Mobile app store. Well, Microsoft is, but nobody outside Microsoft.

And there's the corporation's problems in a nutshell. As long as PC sales roll along, as long as corporations aren't cutting budgets, it's fine. But once it's forced to create new profit (not just revenue) centres, it flounders.

How long will Windows survive? Probably as long as PCs. How long, though, is that? As smartphones become more pervasive, there's a temptation to think that PCs will become relics, statues' feet in the desert.

I don't see it, though. Much as people want Microsoft and Windows to vanish – and hell, if XP were wiped from the earth then there'd be a lot less spam and millions fewer botnets – the reality is that computers need operating systems. Unix has proved itself a doughty survivor since the 1960s, with descendants everywhere from mainframes to digital music players. As long as we need an OS, we'll find we'll have Windows. But perhaps not such a profitable version for Microsoft. Like the record companies, its best times might be behind it; and that will only become apparent in retrospect, starting today. Mini-Microsoft may marvel at what Windows built. But nothing is forever. Look on your works, ye mighty.

I met a traveller from an antique land
Who said: "Two vast and trunkless legs of stone
Stand in the desert. Near them on the sand,
Half sunk, a shattered visage lies, whose frown
And wrinkled lip and sneer of cold command
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them and the heart that fed.
And on the pedestal these words appear:
`My name is Ozymandias, King of Kings:
Look on my works, ye mighty, and despair!'
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away.

Percy Bysshe Shelley »

Posted by staff at April 24, 2009 11:36 AM