Can Microsoft Continue to Innovate?

Windows Phone 8Microsoft entered the 21st century in such a dominant position in the computing world that it was the subject of numerous anti-trust lawsuits. The company’s Internet Explorer web browser controlled more than 90% of the browser market share as recently as 2004. The company’s Office productivity suite was the must-have application for all business desktop computers. Microsoft dominated the age of the desktop PC. Unfortunately for Microsoft, the era of the desktop computer is over.

Microsoft is proving to be a non-player in the technologies replacing the desktop computer. Windows Phone is the operating system of choice on merely 4% of smartphones. Only 1.5% of tablet devices utilize Windows. Microsoft is a virtual non-entity in the cloud computing market. In short, Microsoft appears to be losing the battle for the future of computing.

Even within the desktop computing space, where Microsoft still controls greater than 90% market share, the company has struggled to bring consumers along to its newer offerings. Windows XP, introduced in 2001, has proven to have an astonishingly long shelf life. As late as April 2013, some usage metrics still showed more than 30% of desktops worldwide running XP. With the exception of Windows 7, uptake of the newer Windows operating systems has been lackluster.

Users have rejected Windows 8 so harshly the company quickly retooled it with a version 8.1, designed to more closely approximate the older Windows user interface. This defeat is particularly stinging for the OS giant. Microsoft had hoped that Windows 8 would be its bridge to a successful tablet computing operating system. Established users rebelled against the loss of the older desktop OS they were comfortable using.

Microsoft has also struggled to find traction in older parts of the computer business. Microsoft is a non-entity in the mainframe and cloud computing markets. It holds about 1/3 of the server market. Microsoft holds less than 1% of the supercomputing market.

It should be noted that Microsoft is nowhere close to dead. Microsoft reported about $60 billion in cash on hand. While some of that cash has to be held against future litigation, most of it is free for new investments and to pay dividends. Microsoft still has about 2/3 of the netbook market. While Windows Phone has failed to capture consumers, the operating system has been well-reviewed by critics. Microsoft has secured a long-term commitment from Nokia to produce smartphones.

Microsoft has gained traction in other areas. One bright spot for Microsoft has been the video game console market. Xbox 360 has sold more than 75 million units, besting Sony’s PlayStation 3 and holding up against the Nintendo Wii. Microsoft Office remains unchallenged. While Microsoft is far from overwhelming Google in search, the company’s Bing offerings, powering both the Bing and Yahoo search engines, account for more than 28% of searches.

Microsoft is far from done. It is well-capitalized. It has a number of solid profit centers. Microsoft will continue to fight on for the future of mobile computing.