Microsoft's Golden Age: Going, Going ... Gone?

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Challenges Ahead

But the continued strong showing is something of a mirage, according to Enderle. Microsoft is focusing "way too much on revenue, not on customer loyalty," he said. "It's good in the short term but badly damages you in the long run."

And Horwitz noted that Microsoft hasn't managed to come up with a new hit product "in nearly a decade," despite pouring about $7 billion annually into research and development. Search technology is a prime example, and Microsoft's frustration in that arena is epitomized by its unsuccessful effort to buy Yahoo Inc. to help it compete against Google.

In addition, Microsoft's efforts to match up against Google, Salesforce.com Inc. and other online application rivals are being hampered by the very success of Windows and Office products. Instead of following a pure SaaS approach, Microsoft has adopted a strategy it calls "Software+Services" that's designed to incorporate and protect its existing products.

The company's contortions to preserve its star players show how a large installed base can be a "ball and chain," Horwitz said. He predicted that within five to 10 years, Microsoft will be forced to fundamentally overhaul both Windows and Office - potentially giving customers an opening to switch to rival offerings.

There are internal issues as well - such as the bureaucracy and complacency that sheer size can breed. Enderle, a former IBM employee, drew parallels between the two companies. "Microsoft's current problems," he said, "are like IBM's in the early 1990s: It's getting in its own way."

But that doesn't mean Microsoft is doomed to a downward spiral. In the past, it has shown an ability to face down threats, including WordPerfect, Lotus, IBM, Novell, Netscape - and even the U.S. Department of Justice.

"I'm not expecting Microsoft to fail by 2015," Enderle said. Even the slow adoption of Windows Vista could have a silver lining. "You've got a development team that's been slapped upside the head," he said. "They're motivated to do something dramatically better."

And IT executives such as Jim Prevo, CIO at Green Mountain Coffee Roasters Inc. in Waterbury, Vt., remain wary about casting their lot with Google and SaaS.

"I like Google, but I don't see it in the same class at all as Microsoft's apps," Prevo said. As for SaaS offerings, "I'd be tying my wagon to a bunch of different horses for various business processes," he said. "If any one of those providers was to go belly-up, I'd have an urgent problem."

Moreover, Horwitz noted that Google itself is already contending with the same kind of monopoly concerns and industry jealousy that Microsoft has faced.

But like other vendors before it - such as HP and IBM, as well as NCR and Xerox - Microsoft may have to make some big internal changes in order to continue thriving in the years to come.

Enderle points to HP and EMC Corp. as vendors that Microsoft could emulate. EMC has a product quality and customer loyalty unit that reports directly to CEO Joe Tucci, while HP is doing well financially because its CEO, Mark Hurd, is "focusing very sharply on operations," Enderle said. In contrast, he said he views Ballmer as a "super sales guy" who has been loath to show underperforming executives the door.

This story, "Microsoft's Golden Age: Going, Going ... Gone?" was originally published by Computerworld.

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