Microsoft could reclaim its flagging market share in many consumer areas with a new wave of products, including Windows Phone 7 and Bing, according to a new report from research firm Jefferies & Co. These products represent the possible fruits of increased Microsoft spending in research and development. However, while software such as Bing and Project Natal will definitely allow Microsoft to compete more aggressively in certain segments, it will be years before these products, if successful, translate into appreciable revenue streams.
Microsoft's new wave of products, including Windows Phone 7 and Project
Natal, have the potential to help the company regain market share in the
consumer segment, according to a new report from research firm Jefferies & Co.
In addition to representing a potential source of future revenue, that report
adds, these products are significant because they represent the fruits of
Microsoft's R&D spending following its "Dark Ages" from 2004 and 2007.
"Microsoft was historically a successful fast follower, but the anti-trust
era brought a dip in R&D and several weak product cycles," Katherine
Egbert, an analyst with Jefferies & Co., suggested in an April 5 research
note. "Bing, Azure, WP7 and Natal
are the first post anti-trust products. Their success will be key in
determining if Microsoft can recapture the consumer's imagination."
Egbert suggests that the period between 2004 and 2007 represented
"Microsoft's Dark Ages," years in which "anti-trust litigation that was marked
by dramatically reduced R&D investment, extensive fines and management
turnover." The percentage of revenue during this period dipped below 15
percent, and the products launched-including Vista, Zune
and Live-refused to maintain a beachhead in either the popular imagination or
market share. Meanwhile, companies ranging from Google and Apple to Facebook
and Research In Motion were managing to take substantial market share in their
respective marketing segments.
"It seems reasonable to assume that the EU and other litigation was a major
distraction, which diverted significant resources away from R&D and caused
some rethinking of the company's business strategy," Egbert wrote. "However,
based on what we see with Azure, Windows Phone 7, and Natal,
it seems that perhaps Microsoft is again comfortable in its skin, retracing its
roots as a fast follower."
The resolution of Microsoft's EU antitrust case in the beginning 2008 also
marked an uptick in investment in "non-desktop based services" that directly
translated into products such as Natal, Azure, Office 2010, Bing, Windows Phone
7 Series and Xbox 360.
While Windows 7 has sold some 90 million copies since its October 2009
release, according to Microsoft, Egbert suggested that many of these new
products coming on line will not "significantly impact revenue growth for
several years." In her estimation, though, the new products increase
Microsoft's addressable market, or the total potential market for a particular
products or services, by 53 percent. The question remains whether Microsoft can
make up ground lost during its "Dark Ages" to competitors such as Google.
"They must rely on only on innovation and a traditional fast follower
strategy to try and stay relevant," Egbert concluded. "They have a lot of
market share to protect and their competition is well-entrenched. We don't know
yet if this new crop of post-litigation products can help Microsoft recapture
the imagination of consumers and shift the attention of application developers
back to its platforms."
In addition to Project Natal and other endeavors, Microsoft
has been exploring new technologies with companies such as Ford. On March
31, the two companies helped open the New York International Auto Show by
announcing that future Ford electric vehicles would be able to leverage
Microsoft Hohm, a cloud-based energy-management tool, to determine optimal
times and places to plug in a vehicle.
Microsoft is attempting to expand the reach of Windows 7 into businesses,
where uptake has been slower than for the consumer market. On March 30,
Microsoft announced that it will extend its Windows 7 Enterprise Trial program
until Dec. 31, 2010,
allowing IT pros a 90-day period in which to test the operating system.
However, Microsoft also finds itself embroiled in legal drama that again has
the potential to distract it from its main lines of business. On April 1, a
federal appeals court declined Microsoft's request for a multiple-judge review
in its intellectual property lawsuit against small Canadian IT company i4i,
which alleges that Microsoft Word 2003 and 2007 violate its custom X M
L-related patents. That case already resulted in a nearly $300 million judgment
against Microsoft, which the company is fighting to overturn-even
as it battles other small companies, including VirnetX, over other
Nicholas Kolakowski is a staff editor at eWEEK, covering Microsoft and other companies in the enterprise space, as well as evolving technology such as tablet PCs. His work has appeared in The Washington Post, Playboy, WebMD, AARP the Magazine, AutoWeek, Washington City Paper, Trader Monthly, and Private Air. He lives in Brooklyn, New York.