Industry disrupter is not a term that is widely used to describe Microsoft these days. But during much of eWEEK’s 30 years of covering the IT industry’s pulse, particularly the 1990s and early 2000s, the company—first headed by CEO Bill Gates—was often exactly that.
The software maker from Redmond, Wash., was undeniably instrumental in helping push PCs into the mainstream. History-making products such as Windows 3.1, 95, XP and 7, helped cement Microsoft’s operating systems as the standard by which others were judged.
Windows became a familiar sight on business and consumer PCs of all kinds. Microsoft software products dominated the PC market, and more importantly, the company laid the foundation for a vibrant consumer Windows application market that empowered developers and accelerated early Internet adoption.
But the way that the Microsoft fought its way to the top of the PC market with its operating systems and applications, and chased the Netscape Navigator Web browser out of the market with Internet Explorer brought the company much criticism and eventually led to a federal antitrust judgment in 2000, United States vs. Microsoft Corp., that found that the company was engaging in “abusive” market practices.
As part of the settlement in the case, Microsoft had to submit to years of federal oversight of its business practices to show that it was no longer engaging in monopolistic practices.
It would be hard to argue that the settlement appreciably slowed the company’s growth or in itself threatened Microsoft’s position on top of the enterprise PC software market. However, other forces started to come into play by the middle of the 21st century’s first decade that showed Microsoft no longer enjoyed an unassailable position as a producer of PC applications and operating system.
Today, even as the company continues to rake in profits, Microsoft is facing many competitive challenges that it didn’t foresee when it was fighting that antitrust case in 2000. There are questions now whether Microsoft can maintain its position as a technology leader at a time when the industry has moved beyond the PC as an essential business computing platform. Now, some of the company’s past stumbles offer some intriguing perspective on how the company is trying to navigate shifts in the IT landscape.
One of biggest market changes that Microsoft has had to contend with appeared when Apple launched the iPhone in 2007, which opened the floodgates to a massive market for touch-enabled smartphones. Microsoft, meanwhile, limped along with its aging, less-than-intuitive Windows Mobile platform until 2010 when a more modern Windows Phone OS hit the scene.
Similarly, when Apple shipped its market-leading iPad in 2010, the best Redmond could muster was Windows 7 on clunky “tablets” from partner OEMs until the company’s sleek Surface slate arrived in late 2012.
The company, able to weather past technology trends such as the graphical user interface or Web browsers, with a slow and steady approach, watched as smartphones and tablets displaced the PC in just a few short years as the computing device of choice for both consumers and business users. The post-PC era was in full swing.
Worse, in the current bring-your-own-device (BYOD) climate, personal and work devices are often one and the same. As a result, a growing number of businesses are letting their employees supply and use their own mobile computers, which may not necessarily include devices powered by Windows.
eWEEK at 30: Microsoft Shapes PC Standard, but Stumbles in Post-PC World
Microsoft also fell behind in mobile apps. The Google Android and Apple iOS app stores are home to millions of apps that generate billions of downloads. Microsoft’s anemic Windows Store app marketplace today is still a shadow of its massive PC software ecosystem. As more software companies and developers adopt a mobile-first approach, Microsoft risks taking a backseat to Google and Apple in terms of new software innovations.
Fortunately for the software giant, it isn’t exactly standing still.
Microsoft is currently finalizing its $7.1 billion acquisition of Nokia’s handset business. While Windows Phone’s share of the global smartphone market hovers in the single-digit range, it is making encouraging gains in some emerging markets and Europe.
Taking a page from the mobile playbook of Apple—a company with its own device manufacturing unit—Microsoft is banking on Nokia to put the “device” in its new Devices and Services strategy. On the tablet front, Surface is picking up steam after a disastrous debut that led to a near-$1 billion write-off.
Nonetheless, Microsoft has a long way to go if it hopes to catch up to Android and iOS.
Microsoft hesitated again while Amazon made an early bet on cloud computing, with the 2002 launch of Amazon Web Services. It goes without saying that today the online retailer is known as much for its cloud computing services as for its e-commerce and digital media business units, at least within the IT industry.
Similarly, Microsoft watched from the sidelines as customer relationship management (CRM) specialist Salesforce.com championed cloud-based delivery models for enterprise software with its mantra of “no software” and its claim that selling boxes of shrink-wrapped software was a dying business model. Salesforce grew rapidly as its market view came to pass even faster than anyone could have imagined. Today, it’s raking in big revenues and edging ever closer to profitability.
It’s easy to understand why Microsoft was standoffish during cloud computing’s early days. Why risk killing its lucrative cash cows, which made billions for the company in software license sales?
Microsoft would go on to announce Windows Azure in 2008, years after rivals such as Salesforce and Google established their footholds on the cloud market. Today, while Microsoft may not spring first to mind when discussion turns to the cloud, it is catching up.
Microsoft’s portfolio now includes the cloud-enabled Office 365 suite and its Dynamics CRM Online 2013 offering. Its infrastructure-as-a-service capabilities are growing by leaps and bounds to include support for Linux as well as host of virtual machine and virtual network options.
Not every Windows release was a success. Although Microsoft could be confident of selling millions of copies of each Windows version as a practical matter—traditionally, most consumer PCs ship with the latest edition of Windows—some were deemed outright failures despite their substantial installed bases on new PCs because enterprises and a majority of consumer PC owners refused to upgrade to them. It’s a situation that is somewhat reminiscent of the fabled Star Trek odd/even movie curse among science fiction movie aficionados.
Released in 2000, Windows ME (a.k.a. the Millennium Edition and number 2 in eWEEK’s Top 10 Microsoft Flops) threatened to shred all of the goodwill that the company built up with Windows 95 and 98. For many an unfortunate Windows user, the buggy, crash-prone upgrade became the delayed manifestation of the Y2K bug that dominated headlines the year before.
A year later, Microsoft would release Windows XP. A hit in every sense, particularly after the SP2 update, XP continues to endure even as Microsoft cuts support for the OS. Things were going well until the ghost of Windows ME resurfaced in the form of Windows Vista.
eWEEK at 30: Microsoft Shapes PC Standard, but Stumbles in Post-PC World
While fast and powerful, Vista failed to get enterprises to upgrade or consumers to switch in large numbers. A lag in support for the operating system’s driver model made adopting Vista a dodgy proposition for customers worried about backward compatibility for business applications, while incessant security dialogs soured the experience for many users.
Microsoft made it up to the Windows faithful with the launch of Windows 7 in 2009. An optimized and reworked version of Vista, Windows 7 emerged as another success story that attracted both consumers and enterprises, generating strong sales after its release.
There was no such luck with Windows 8, however. (Sense a pattern yet?) After a splashy debut, Microsoft’s attempt to bridge the worlds of desktop computing and mobile tablets amid plummeting PC sales failed to excite, much less get businesses to bite. While innovative in many regards, the touch-enabled UI was a lost on users whose systems that lacked touch-screens.
Windows RT, its ARM-compliant counterpart developed mainly for its Surface tablet, was met with muted demand, due, in part, to its incompatibility with Windows’ massive x86-based software library. Surface, which was Microsoft’s stab at catching up with Apple’s massively successful iPad, fell short, at least initially. Already, industry watchers are expecting Windows 9 (code-named Threshold) to set Microsoft on a better course.
Steve Ballmer is set to retire in 2014, as soon as a replacement CEO is found by the company’s board. Although he presided over some big successes, Ballmer never could quite step outside of Bill Gates’ shadow during his 13-year tenure.
Gates, the company’s first CEO and co-founder, remained influential long after he handed the reins over to Ballmer in 2000. He remained as chief software architect until 2006 and still serves as chairman. Ballmer would discover that a complete changing of the guard, sometimes necessary when faced with new and unforeseen challenges, is tough to accomplish when the past clings so tightly to the present.
As one of the leading figures in the development of the personal computers that helped democratize computing, Gates’ image as a legend loomed large over Microsoft, and in many respects still does as the company nears the 40th year since its founding. But it grew so rich and powerful selling software for the enterprise PC market that the company reacted slowly to the profound market changes brought about by cloud computing and mobile devices.
Currently, Microsoft is searching for a new CEO that with the vision and management experience to follow through with its reorganization effort aimed at creating a devices and services company that operates as a tightly aligned “One Microsoft.” The search has yet to yield a new CEO amid worries that Ballmer and Gates will meddle, proof that old legends die hard.
The challenge for the next CEO is to honor Microsoft’s past but not be shackled to it. As the industry moves ahead on the cloud, mobile, big data, wearable computers, the Internet of things and other innovations, Microsoft needs a leader that can navigate the so-called post-PC future.
But that’s a worry for another day. As Ballmer prepares to say his final good-byes, he leaves behind a company that can still book record sales and add billions in quarterly profits to its coffers. The question remains whether Microsoft can use this massive war chest to reinvent the company so it can meet the demands of a rapidly changing market to win a chance to endure for another 40 years.