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When will Microsoft regain its identity?

Don Reisinger thinks Microsoft has lost its identity and doesn't know if it's a software company or an online firm. And as far as he's concerned, that's a major problem.

Remember the days when everyone knew that Microsoft was a software company? The company's focus was placed squarely on Windows, Internet Explorer, and Microsoft Office, and no one even considered the possibility of it becoming an online firm or providing any other service outside of the software industry.

But now, everything is different.

Instead of focusing all its attention on the software space, Microsoft has decided that it needs to split its attention into different markets in order to stay successful in the industry. Now, it's not only a software company, but it runs a video game business, and has consistently tried to cement itself in the online space. And even in that online space, it can't decide if it wants to focus all its time on Live Mesh, search, or advertising.

Microsoft focusing its attention in other markets isn't necessarily a bad thing. After all, it's one of the most important and prominent companies in tech and to think that it shouldn't expand outside software is ludicrous. But the main problem I have with Microsoft's identity problem is that it doesn't know how to focus.

Is Microsoft a software company or is it a video game company? If it's neither, is Microsoft an online firm that wants to compete with Google? At this point, Microsoft would probably say that it's all of those. But in reality, I just don't think that the company has what it takes right now to successfully manage all three segments.

As a software company, Microsoft is wildly successful. It's still the de facto leader in the operating system market and Office is still the chosen standard for businesses and students, alike. And if Microsoft focused all its attention there, it would probably be just as successful.

But it decided (rightfully so) that the future is on the Web and so, in an attempt to capitalize on that, has started to shift its focus away from software and place it squarely on the Web.

Back when Microsoft decided that software was central to its success, it allowed companies like Google and Yahoo to capitalize and gain a stranglehold online while it maintained its lead in the software market. But after realizing it was making a mistake, it started a few years ago to focus its attention online and try to make up lost ground.

And given its laughable search market share and its inability to make any headway in the advertising market, I think it's safe to say that Microsoft committed a major blunder.

And now, it's happening all over again.

As soon as Microsoft started focusing most of its attention online, Apple gained significant ground in the OS market. For years, Apple was allowed to run roughshod over the OS space and win a PR battle that Microsoft didn't even know it was fighting. And thanks to the constant hounding of Mac vs. PC ads, the mainstream was made aware that Microsoft wasn't holding up its end of the bargain with Windows.

Suddenly, after allowing Apple to operate unabated for so long, Microsoft had an epiphany and started airing ads to compete with Apple and help fix some of the negative PR it was experiencing with Vista.

But once again, it was too late.

Aside from Windows and Office, Microsoft isn't a leader in any other major market it competes in. Sure, it's a player, but whether it's video games or it's search, Microsoft can't establish itself as the leader in any other sector.

Now, I'm not suggesting that Microsoft should go out of other markets just because it's not the leader, but I think it needs to decide what kind of company it is. Apple has decided that it's a hardware firm, Google has decided that it wants to stick with online services and mobile platforms. Microsoft has decided that it wants to compete in practically every market, but it's abundantly clear that it simply can't--it focuses too much of its attention in one place and loses ground elsewhere in the process.

With all these issues, Microsoft is still an incredibly successful company and we can't lose sight of that when comparing it to others in the industry. But I do think that it's fair to say that Microsoft executives and management simply aren't capable of juggling two things at once and that could eventually lead to its downfall.

Running a business in one market is tough enough. But if you decide that you want to compete in other industries, you better be prepared to manage each part of your business as effectively as possible. If you can't, it will come back to haunt you.

And for all its profit and all its cash, I think Microsoft is learning that lesson right now.

Check out Don's Digital Home podcast, Twitter feed, and FriendFeed.