Microsoft revenues decline

What does it mean when the industry's biggest behemoth demonstrates that it's as vulnerable as anyone else?

It's interesting that just as Apple announced surprisingly positive quarterly results, Microsoft announced its first decline in sales revenues in 23 years. While Microsoft is not in any kind of risk of viability or rapid downward spiral, this week's earnings announcement demonstrates that the company is susceptible to the same market forces as others. Microsoft has had a monopoly or near-monoploy position for more than a decade with Windows and Office, and despite that, it is seeing its business impacted by a downturn in PC purchases, among other factors.

In a company as large as Microsoft, the revenue decline is not about a single product like Vista or even a series of missed ship dates. Rather, it speaks to more fundamental issues in the industry, and getting one more hyped up "bet the company" rev of Office or Windows is not going to fix things. The market has been changing for many years, and Microsoft needs to get ahead of the curve on innovation to drive revenues and profits back on track.

[ In other financial news this week, Apple reported that profits jumped 15 percent on the strength of the iPhone and iPod Touch. | Keep up on the day's tech news headlines with InfoWorld's Today's Headlines: First Look newsletter. ]

Having competed with Microsoft many times in my career, I think it's clear that it does its best work when faced with competition. This time, there is no shortage of competitive threats. Microsoft is in so many different markets, from enterprise datacenters to consumer Web products that there is almost no area in which there is not a formidable foe. With the likes of IBM, Oracle, SAP, Apple, Nintendo, Google, Yahoo, et al, Microsoft has plenty of challengers to fuel its fire.

But perhaps even more confounding to the company are the bigger trends around open source, netbooks, and cloud computing. These technologies are changing the battleground in ways that erode Microsoft's historical advantages. There is a risk that Microsoft becomes irrelevent to the next generation of developers. After all, if you're learning the LAMP stack in college or a startup, what's the appeal of Microsoft's platform? It seems unlikey that Microsoft is going to have lower cost or better scalability. Ease of use? Maybe.If Ballmer, Muglia, et al can ralley the troops to become more disruptive and less reactive, then it can change the course of the company and the industry. I expect Microsoft will come out swinging.

Copyright © 2009 IDG Communications, Inc.

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