Microsoft's mixed scorecard
The software giant still dominates the desktop, but finding new markets has proven tricky.
The Redmond, Wash.-based company remains the largest software company in the world and one of the two or three most influential in the technology market. Still, with success has come size, and the giant has not moved as rapidly into search or music as smaller competitors.
"Microsoft is doing of good job of executing on an incredibly wide variety of opportunities, but it is not like it once was when the whole world was a green field opportunity," said Nathan Myhrvold, CEO of Intellectual Ventures and former chief scientist at Microsoft. "There is a huge tendency to think Google can do no wrong and Microsoft is a dowdy has-been, but neither is correct."
Here's a laundry list of Microsoft's strengths and weaknesses:
Search and online services: Microsoft is the clear bronze medal winner here. Google has established itself as the search leader while Yahoo has aggressively tried to build a loyal following through acquiring sites like Flickr. Microsoft has improved its own search results, but changes imposed on MSN and Hotmail have yet to reel in the younger competitors.
"They're up against some formidable competition and changes in the marketplace as a result of software as a service, open source and Web 2.0," said David Smith, an analyst at Gartner. "Microsoft products and strategies today--as manifested by their existing products--are not well aligned with those movements. They're moving in that direction but they are nowhere near it yet."
PC operating systems: Microsoft still controls more than 90 percent of the market for operating systems for PCs. Apple Computer has seen its worldwide market share creep up slightly to 2.3 percent, but Apple's share is in reality only about one-third of what it was in 1997. Linux has also not made much of a dent in desktops yet.
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Nonetheless, problems loom. Vista, the next big version of Windows, has been delayed several years and won't hit until the first part of 2007. Microsoft has not come out with an operating system that has prompted industry-wide upgrades since Windows 95 was released 11 years ago. Since then, businesses and individuals have upgraded computers when their hardware got old or to insulate themselves from problems like the Y2K bug, according to most analysts.
Don't expect a major rush to upgrade this year either, analysts said. A major upgrade cycle transpired in 2004 and 2005, according to Gartner and IDC. Thus, a big hardware replacement wave isn't due until 2007 or later.
Microsoft asserts that the features of Vista will spur upgrades. Gartner, however, is already throwing cold water on that and telling customers to upgrade gradually.
Desktop applications: The 90-plus percent market share holds here too, but Microsoft does have to continually bat away the gnats. Google is now touting Web-based versions of spreadsheets and will likely come out with other applications, though Google's applications have their skeptics."It is not an alternative to Microsoft Excel in any way, shape or form," Myrvhold said of Google's spreadsheet. "I suspect that that spreadsheet would not be a competitor to a 1987 version of Lotus" 1-2-3.
One of the more interesting efforts by Microsoft in applications is its Windows Live services. With this, Microsoft and its network of developers will create applications that will then be hosted or delivered via the Internet by Microsoft. In a lot of ways, Windows Live combines ideas touted by Google, Sun Microsystems and Salesforce.com, and allows for free software supported by ads. The question now is whether it works.
"It's a new way for MSN to capture advertising revenue," said Matt Rosoff, an analyst at Directions on Microsoft.
"Our live initiative is very, very important," Ballmer said Wednesday. "It is a transformation, this going from software to software and services."
Corporate software: Here is where Linux has really shined. Microsoft trails the open-source community in software for high-performance computer clustering and some other server technologies, Ballmer acknowledged in a speech in May. The company, however, is working hard on catching up and will rely heavily on its network of developers.
"It is hard to beat open source for cost of acquisition. It is not hard to beat open source on total cost of ownership," Ballmer said in May.
While Microsoft's Exchange e-mail software dominates the marketplace and its operating system is widely used in corporate servers (despite inroads by Linux), it has had problems with other types of enterprise software. The Microsoft Business Solutions Unit, which is dedicated to products like corporate financial software, turned its first ever profit several quarters ago, but has so far fallen short of expectations when Microsoft jump-started its corporate applications business with the acquisition of Great Plains Software five years ago.
Security: Gates turned Microsoft's focus onto security in early 2002 with his infamous "Trustworthy Computing" memo. Since then, Microsoft products arguably have been getting more secure with each new release, but the problem never goes away. Improving security occupies a huge amount of energy and resources at Microsoft.
The company is also getting into the security software market, challenging stalwarts like Symantec and McAfee, and will try to turn security from a siphon of resources to a generator of profits. But it still struggles with regularly issued patches to fix security issues.
Consumer electronics: Mixed success here. The company scored big by coming out with the Xbox 360 last year. It didn't build enough of the consoles for the holidays in 2005, but that problem disappeared. Sony also chipped in by delaying the PlayStation 3 until November 2006. The PlayStation 3 will also debut for about $100 more than an equivalent XBox 360. Because component prices continually drop, Microsoft has room to further undercut Sony.
On the other hand, Microsoft trails Apple in portable music players. Ballmer has said the company has to simplify and improve the experience for consumers, and the company did receive high marks for its latest news:link id="6074744">Media Player software.
Recruiting: For the past few years, the software industry has clearly not been the hot spot to get a job. Instead, college recruits have been flinging themselves at Google, Yahoo and a host of software start-ups. Google has also snagged a number of premier scientists, including the controversial hiring of Kai-Fu Lee from Microsoft. Nonetheless, Microsoft has been expanding in places like India. Microsoft Labs also remains one of the largest private research institutions and has landed big names, such as IBM's Rakesh Agrawal, as well.
New markets: Emerging nations, the next big market for PC companies, could prove tough. Microsoft has come out with a pay-as-you-go system for acquiring computers, a plan that seems well geared toward poor nations. The company can also tout the compatibility of its software: by adopting Microsoft PCs, schools in India will be able to train their students for careers in computing.
Linux, though, could begin to make inroads here as well. Intel has even designed cheap Linux desktops for PC makers.
Another potential area could be robotics. Microsoft Research has set up on incubation around robots.
Still, "we're not going to get anything out of that right away," Gates said recently.
Joris Evers and Elinor Mills contributed to this report.