Outmoded Microsoft

There was a time when the IT industry, and indeed the business media, was in awe of Microsoft. Financial results, new product releases, anti-trust lawsuits or even Bill Gates’ latest ‘state visit’, whatever it was, the world was watching.

It is, then, a remarkable sign of the changing times that so little attention has been paid to the company’s trials and tribulations over the past few months. Perhaps the lack of attention can be put down to its waning influence; or perhaps, just as likely, it is because the world now sees Microsoft as so nearly invincible that any problems it experiences are expected, ultimately, to amount to nothing.

Nevertheless, financial results aside, 2007 has already been a year full of ominous signs for the company. For dramatic effect, let’s start with the big numbers. From mid-January to early March, Microsoft’s shares tumbled by 11%, wiping $34 billion off its value – a value equivalent to an EMC, a Business Objects and a Cognos lumped together.

The reason for the fall is straightforward enough: analysts had calculated that Vista, Microsoft’s new version of Windows, would make the company more money, more quickly. In fact, business and consumer response to Vista has been muted, as has the impact of Office 2007, the new release of its Office suite.

If their new forecasts are right, then that is bad news indeed for Microsoft. But perhaps a more structural change is underway: maybe enterprise buyers really are wondering whether they ultimately do want to use Microsoft software on their desktops, and possibly even on their servers. True, they will probably buy Microsoft products this time round but they might be delaying while they think about it.

Certainly, there are some real threats to the company emerging. The most obvious one came this month from Google, which launched business versions of its online applications. Until now, Google has said that it has little interest in the corporate market, saying its application services (such as online calendaring, email, spreadsheets and word processing) were aimed at individuals and small enterprises.

But that is clearly a marketing position: Google is trialling its Applications Premier Edition with no less a corporation than General Electric. In an apparent effort to appease Microsoft, Eric Schmidt, Google’s CEO said his company would limit itself to services that can be used "by every person in the company."

Meanwhile, IBM announced that its WebSphere middleware and portal building software – used almost exclusively by large companies – will soon be able to integrate and deliver up to 4,000 Google ‘gadgets’ – or as we in the enterprise sector are used to calling them, web services. Today, these include language translators, package delivery tracking, podcast searches, Wikipedia information, YouTube postings and the like. Tomorrow, they will surely include a raft of business applets.

But there is arguably an even bigger threat to Microsoft: VMware. As a feature in this issue of Information Age makes clear, the virtualisation companies (primarily VMware and Xen) are beginning to realise that most devices participating in a virtualised environment ultimately won’t need an operating system at all – and that includes the desktop PC or thin client and most of the back-end servers.

The threats to Microsoft are not just technical. In Brussels, the European Commission is applying more pressure. Having already fined Microsoft nearly $1 billion for abusing its monopoly in operating systems, and for failing to comply with a settlement order, the Commission is now starting a new action that could lead to fines of nearly $4 million a day, backdated to December 2005.

This dispute, too, goes to the heart of Microsoft’s business model. The Commission says Microsoft should give patented software to rivals such as Sun and IBM in order to enable them to produce open source software to work alongside Microsoft’s. In the realm of pricing, Microsoft says it needs to charge enough to ensure a return on its vast investments; the Commission says there is insufficient innovation to justify the fees that Microsoft is currently charging.

None of this is going to stop the Microsoft machine in its tracks. Indeed, the company’s sales for the year to June 2007 are expected to rise by $5.5 billion to $50.55 billion, with profits rising even faster. And with $22 billion in net current assets, only regulators can stop Microsoft buying its way out of any problem.

But put all this together – in desktop and server operating systems, in office and business applications and services, in email and systems management – wherever you look Microsoft not only has real competition, but looks distinctly unfashionable.

Ian Cowley

Ian Cowley is the managing director of printer cartridge company cartridgesave.co.uk. By taking a systematic trial and improvement approach, Cowley and marketing director Sean Blanks have created a Sunday...

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