Microsoft's 5 Biggest Weaknesses

For all its success as the world's biggest maker of PC operating systems and office programs, Microsoft's position as the dominant provider of software to consumers is at risk.

While Windows still powers the vast majority of desktops and laptops, the emergence of mobile devices and increasing reliance on the Internet have shown consumers and businesses alike that much of what we call personal computing can be done without touching a single Microsoft product.

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Microsoft is still a giant, with $70 billion in annual revenue and an amazing 11 products that earn at least $1 billion a year. But it faces challenges in search, Web browsing, mobile devices, Web server software, and even the desktop operating system market.

In this article, we will examine what we think are Microsoft's five biggest weaknesses, a list we came up with in conjunction with the analyst firm Directions on Microsoft. We provided the list and supporting facts to Microsoft's public relations firm on Aug. 15. Microsoft declined to make executives available for interviews, but provided responses to some of our questions via e-mail. We'll include Microsoft responses at the end of each section.

1. Search

Let's start with the easy one. If you use the word "Google" as a verb, you know how far Microsoft's own Bing search engine has to travel before it can be called a success. Microsoft's earnings reports break the business down into five product divisions, and the Online Services Division powered by Bing and MSN is the only one that consistently loses money, including $2.6 billion lost over the past 12 months.

Microsoft's 5 Biggest Weaknesses
Bing, which also powers Yahoo and offers a fancy iPad app, often gets high marks in studies that rate the effectiveness of search engines, yet Google captures about two-thirds of U.S. market share and more than 80 percent of the global market.

Microsoft rarely masks its hatred of all things Google, which makes most of its money on search advertising while investing in other products that eat into Microsoft market share, like Chrome and Android.

But with Bing, "They're so far behind, it's a long slog," says Wes Miller, a former Microsoft Windows program manager who is now research vice president at Directions on Microsoft. "People innately think of Google for search. How do you replace Kleenex? They're going to have to keep burning money for the foreseeable future until they can come up with something that out-Googles Google."

Microsoft cares about search because of advertising revenue, and also because Google has become synonymous with the Internet in almost the same way Microsoft became synonymous with personal computers.

Microsoft's response: "This is a long-term game for Bing," Microsoft said via e-mail. "Bing continues to be focused on creating a great consumer experience, solid execution and steady market share growth. The most recent comScore market share report shows that Bing is continuing to make gains in the U.S., reaching 14.4 percent explicit core search share in June. Overall, Bing increased market share by more than 50 percent since launch."

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