The conventional wisdom among the technology elites these days is that Microsoft’s time has passed. Microsoft’s big cash cows are Windows and Office. The thinking goes that Windows is made irrelevant by most applications moving to the web, which works equally well under all operating systems, and that Office is threatened by Google Docs and similar suites that are good enough for most consumers.
But to analyze this argument, you need to look at the major market segments that Microsoft serves. You have to separate out the consumer side of the Microsoft business from the corporate side.
On the consumer side, I have little doubt that Microsoft’s time has passed. Windows was never an operating system that was appropriate for a consumer. Among the family members I support, Windows is an ongoing nightmare. We are already seeing good alternatives in the mobile environment that will also make better operating systems for desktop computers. I have written about how I believe the iPhone OS is the beginning of a sea change in computer operating systems.
Most consumers never had a use for Microsoft office unless they use it for work, consulting or school. The typical consumer hardly ever uses programs other than their web browser. The exception might be image management software, and even that is quickly moving to web-based solutions or client-server desktop software (see Phanfare).
On the corporate side the story is different. Knowledge workers absolutely need access to the file system and extensible systems, where Windows shines. Engineers need to write programs for their computers. Microsoft has the best solution in the world in Visual Studio. Nothing comes close. And there are hundred of solutions that are based on Windows including reservation systems, restaurant management systems, point of sale systems, ticketing systems, etc. Many of these applications work well enough and if it ain’t broke…
Office is similarly protected. Web-based spreadsheets are like toys compared with the prototyping that companies do using Microsoft Excel. For presentations, no speaker in their right mind would walk into an important meeting or conference without a presentation solution that is completely stand alone, and the best one out there, the one where you are most likely to find someone else with the software when your computer goes dead, is Powerpoint. Sure you can use a PDF file, but you will lose all the animations.
For better or worse, Outlook is still the standard for workgroup messaging. People like and use the free-busy data to find slots for meetings.
Word is their weakest link in the mainstream suite. With more and more communication moving online, a program that specializes in printing a document on paper seems somewhat irrelevant.
I believe the consumer side of the business is at serious short-term risk for Microsoft, but the corporate business will hang on for a while longer.
When they do lose the corporate business, they will lose it first with scrappy entrepreneurs and small businesses that are very cost conscious. We are already seeing signs of this. Many startups today use Google docs and Gmail and decline running and Exchange server. They may even run linux. Although more likely, they use Macs. Tech elites love Unix and there is no more elegant end-user solution based on Unix than Mac OS. But even in these cloud-based, open software love-ins, if you look hard, you will find the CEO is often still modeling cash flows using Excel and sending pitch decks to VCs using Powerpoint. Will that change? Sure..but the web has further to go there and it will take a while.
Fundamentally, running software as as service (SaaS) is a lower margin business than shrink-wrapped software. In both cases, you have the development expense, but with SaaS, you have the service delivery component. With shrink-wrapped software, you just delivered the bits. SaaS has higher capital costs too since the service is running on hardware that we own or lease.
It is very possible that Microsoft will have to adapt to living with permanently lower margins when they move to SaaS, and there is no doubt that they won’t have the pricing power or profits they had in their salad days.