How Microsoft will change forever and thrive again

As PC prospects decline, the tech giant moves toward a hybrid, cross-platform future with opportunities in the server closet and the cloud

Microsoft has been in business, in one form or another, for 37 years. In the tech world, that's an eternity.

Which isn't to say Microsoft has remained static over that time. Regulatory pressures, strategic shifts in software and hardware, the rise of new breeds of competitors such as Google and Amazon have ensured that Microsoft isn't remotely the same company it was just 10 years ago. Give it another five years, and Microsoft could be doubly unrecognizable -- especially considering its current crossroads.

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It's tempting to say the past five years has seen Microsoft's desktop-centric strategy slowly give way to a pell-mell free-for-all made up of equal parts desktop, server, mobile hardware and software, cloud services, and auxiliary systems like the Xbox. Truth is, intention has always been present. It's only now, thanks to major upheavals in consumer tech and the cloud, that Microsoft's broad-spectrum plays are becoming more evident and critical.

Make no mistake: Redmond has always had a foot in multiple territories. This time around, cohering its strategy in these disparate areas could mean a major transfiguration of one of the few technology companies that can never be counted out.

Here's a look at the sweeping challenges Microsoft will face and how the company will need to respond to maintain its relevance in the years ahead.

Microsoft Windows: The future is hybrid

Any bellwether of Microsoft's long-term evolution would have to be found in its flagship product: desktop Windows. If the latest iteration of Windows surfaces anything about a latent strategy coming to the fore, it can be summed up in one word: hybridize.

In the time since Microsoft released Windows 7, the personal-computing market has been upended. PC sales are down, phone and tablet sales are up, and it has never been more evident that a full-blown desktop tower -- or even a clamshell notebook -- is no longer necessary to stay connected.

Microsoft's response has been twofold. First, create a new version of Windows in the short run (Windows 8), and power it with a new set of programming APIs (Windows Runtime, or WinRT) aimed at the long run. Second, equip the OS with an interface suited for low-power, touchscreen devices, the hottest-selling form factor for personal computing.

Andrew Brust, founder and CEO of analyst firm Blue Badge Insights, puts it this way: "In terms of spanning the desktop and touch-first worlds, it's clearly the only logical choice Microsoft had. They have an existing (and huge) customer base and an existing (and huge) ecosystem of software. They need to service those customers and be compatible with that software, and they also need to forge into tablet territory. They're doing what they must. The question is whether it will work."

So far, the payoff has been mixed at best. Sales of Windows 8 have been slow, with adoption projected to resemble Windows Vista more than Windows 7 -- although Windows 8 is making a better show than Vista did in its first months of release. Enterprises don't have much interest in Windows 8 either -- they're only now catching up with Windows 7 anyway, while Windows XP's support window is nearing its close for good. And complaints about the Modern UI side of Windows 8 are legion, since it takes away about as much as it adds in.

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