Microsoft must fight to remain influential, say analysts

Microsoft is far from dead -- its lock on the enterprise remains safe -- but it must focus on consumers to stay relevant

Stormed by a shift to tablets and smartphones and threatened, even in its enterprise bastion, by new demands from workers, Microsoft may lose its place at the table reserved for major technology players, an analyst argued today.

But it's not in danger of disappearing, either overnight or as far as forecasts predict.

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What is at risk, unless it turns around what by all appearances has been a faltering mobile strategy, is its importance in the industry, one it's dominated for decades, said Carolina Milanesi of marker research firm Gartner.

"To be relevant, to continue to play an active role from a ecosystem standpoint, they need to win the consumer battle," Milanesi said. "To remain relevant, to remain an influencer, consumers need to seek out their products."

Milanesi's argument stemmed from forecasts that Gartner published last week showing traditional PC sales, the platform that Microsoft has long dominated, and will continue to, remaining virtually flat over the next five years.

Through 2017, sales of PCs will climb just 5 percent, Gartner predicted. Meanwhile, tablet sales should more than quadruple in that same stretch, and before 2017, will outnumber PC sales. At the same time, mobile phone shipments, most of them smartphones, will continue to climb until, in 2017, they will number 2.1 billion, 22 percent more than currently.

Technology's growth over the next five years, then, will be in tablets and smartphones. PCs, in contrast, will, after a dip this year, first struggle to regain 2012 sales volumes then climb ever so slowly.

Those forecasts fueled blogger, pundit and media interpretations, creating a brouhaha last week as Microsoft naysayers looked at the numbers and said the company was a goner, destined for the history books. Others defended Microsoft, saying the PC was far from dead, still would have a part to play in five years -- and beyond -- and that the Redmond, Wash., company had a long life ahead of it.

Both sides scored points, if sometimes ignoring any nuance, Milanesi seemed to say in an interview this week.

"If," she said, stressing the word, "Microsoft does not make progress in consumer, then it risks losing its relevance."

She based that on the explosion in tablet sales, and a belief that increasingly, most people will be satisfied with what they get from a tablet and will use it as their primary computing device. In turn, that means PCs will become increasingly less important to consumers, resulting in fewer sales overall and longer intervals between system refreshes.

"It used to be, consumers went to the store every few years, selected a PC, which had Microsoft [Windows] on it," Milanesi said. "But if consumers aren't seeking out [Windows devices], then PCs become something that IT hands them [at work]. Microsoft cannot go about its business by leaving it in the hands of IT. Microsoft has to change. They need to put more focus on consumer than the enterprise."

Microsoft's future as an influential technology company rests on its ability to convince consumers that it can move beyond its comfort zone of the traditional PC and compete in tablets and smartphones. (Data: Gartner.)

Other analysts agreed.

"This is all about how much of Microsoft's future is tied to Windows. You want to be in the growth market. But PCs are not the growth market," said Patrick Moorhead of Moor Insights & Strategy, pointing to the relatively flat sales projections of traditional computers.

"This is the classic innovator's dilemma, where one has so much market share that you believe you're risking [that] by doing something different," Moorhead continued. "Microsoft has had Origami and some decent smartphones, but they flushed that thinking and those people out the door."

But even if Microsoft fails to corral enough consumers, there's still an enormous business left to it: the enterprise.

"Because of the huge installed base of Windows, and sales that will continue to grow gradually, Microsoft will remain relevant in the enterprise," said Frank Gillett of Forrester. "We aren't done with PCs. I'm not ready to count them out of a role to play."

In the enterprise, however, Microsoft faces new challenges. as workers flex their muscles by bringing in devices of their own choosing, which in many cases will not be powered by a Microsoft OS. "They'll still be the dominant operating system, but even on the enterprise side they'll have to deal with BYOD [bring your own device]," Milanesi said.

None of the analysts were overly optimistic about Microsoft's chances of making the transition from a commercial-first company to one that, if not consumer-first, at least could stay in the game against Google's Android and Apple's iOS, the mobile operating systems capturing growing numbers of consumer dollars.

"The game isn't over," Moorhead said. "The question is how big can Microsoft play in the next generation of end-point [systems]? So far, their prognosis doesn't look good."

"This next era will be 'mobile + PC,'" said Gillett, who rejected both the "post-PC" and "PC plus" labels assigned by Apple and Microsoft, respectively. "But Microsoft faces an uphill battle outside the PC."

Moorhead, Gillett, and Milanesi all cited the disappointing debut of Windows 8 and Windows RT on tablets, and Microsoft's inability, even after several years, to make solid gains in smartphones with its Windows Phone operating system, for their pessimism. And Milanesi's forecasts -- which assume that five years from now, about four-fifths of Windows devices sold will still be PCs, not tablets and phones -- weren't much help.

But they also said Microsoft was showing some encouraging signs, notably "Blue," the code name for both a refresh of Windows this year and for an multiyear initiative designed to dramatically increase the development and release tempo of the platform to put it on a more equal footing with the pace of mobile operating systems.

Microsoft has time to correct its course, although that window is closing.

"2013 is still a transitional year, I think, even from a consumer perspective," said Milanesi. "But 2014, starting with this year's holidays, is where we need to see some momentum from Microsoft. Blue getting to market and different form factors may be the start."

Last month, Microsoft relaxed a Windows 8 and Windows RT certification rule to allow lower-resolution devices, which analysts said signaled that smaller, less expensive Windows tablets are in the offing.

Gillett, of Forrester, echoed Milanesi's timeline. "Things will be sideways until next year," he said. "It's still so early in Windows 8 and Windows Phone 8."

But any way they looked at it, the analysts saw Microsoft at a point that will make or break its influence. If it can regain its mojo by grabbing consumers' attention, it will continue being a critical part of the technology landscape. If it can't, well....

"They need to get this," said Milanesi. "Users now have a choice, and Microsoft needs to fight for their user base." And the fight must be different, as this shift will be unlike others Microsoft's managed. "With tablets, there's a fundamental shift of behavior happening."

That shift, more toward content consumption with less emphasis on the creation that's been the domain of PCs, has been fueled by vibrant app ecosystems, a wide range of device form factors and prices, and an attention to ease-of-use -- all which Microsoft arguably has yet to show it can pull off.

"I'm very concerned about how they're going to dig themselves out of this hole," added Gillett. "They've made major changes before -- Bill Gates' call on the Internet, for example -- but they've never had to do it under this kind of pressure. They were once in a dominating position, but what works when you have 90 percent of the market doesn't work when you have 30 percent."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers, and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

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This story, "Microsoft must fight to remain influential, say analysts" was originally published by Computerworld.

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