Paradigm Shift

 

While Microsoft seems to be positioning its server business to take advantage of what it sees as the future of processor architecture, cloud computing and virtualization, its recent moves on the consumer side also hint at a paradigm shift of sorts.

In an April 5 research note, Jefferies & Co. analyst Katherine Egbert suggested that Microsoft has begun to emerge from a "Dark Ages" period between 2004 and 2007, when a combination of weak product cycles, lawsuits and reduced research-and-development spending forced it to lose ground in various areas to companies such as Google and Apple.

"Microsoft was historically a successful fast follower, but the anti-trust area brought a dip in R&D and several weak product cycles," Egbert wrote in that report. "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."

The resolution of Microsoft's EU antitrust case in the beginning of 2008, Egbert added, marked a rise in investment in "non-desktop based services" that in turn led to products such as Natal, Azure, Office 2010, Bing, Windows Phone 7 and Xbox 360. However, even these new products will not "significantly impact revenue growth for several years," although they will increase Microsoft's addressable market, or the total potential market for a particular product or service, by 53 percent.

"They must rely on innovation and a traditional fast follower strategy to try and stay relevant," Egbert wrote. "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."

Microsoft is also working with companies such as Ford to develop technologies beyond the mobile and desktop sphere, including energy-monitoring software for vehicles.

Before Microsoft could reach that point with its consumer products, however, it went through a round of bloodletting over the past 18 months that saw the systemic elimination of many legacy products, including Encarta, Soapbox, Money Plus, Popfly, MSN Groups and PerformancePoint Server 2007. Other products were completely rebranded, such as the company's Live Search becoming Bing.

Much of Microsoft's focus in both its business and consumer endeavors is the cloud. "We shipped Windows 7, which had a lot that's not cloud-based. Our inspiration now starts with the cloud," CEO Steve Ballmer told an audience during a March 4 talk at the University of Washington. "Windows Phone, Xbox, Windows Azure and SQL Azure ... this is the bet for our company."