Microsoft Chasing The World
By: David Utter
The company dominates the global operating system and productivity application markets with Windows and Office, respectively, but their strategy has broadened to the point where the company is a follower in several markets.
Microsoft (MSFT) began its march to the top of the technology world decades ago, when Bill Gates and company convinced IBM to license DOS for its personal computers. This was a non-exclusive license, so Microsoft could license DOS to other PC makers.
At that time in the early 80s, Microsoft and IBM worked closely together. Their split came years later, when Microsoft launched Windows to compete with IBM's OS/2. Today, IBM's PC business belongs to Chinese PC-maker Lenovo. Meanwhile, Gates has stepped down from his chief software architect position to focus more on his philanthropic efforts.
People leave corporate positions throughout the business world every day. Gates' departure comes at a time when his company seems to be trying to find its way in a world where numerous technology markets exist, rather than just personal computing.
They are following Apple (AAPL) into the digital music market, which Apple dominates in a style one could call Microsoft-like. Microsoft's Zune player will cost a lot of money to develop, and a lot to market, with no guarantee of success.
From a feature standpoint, Microsoft's Internet Explorer browser trailed competitors like Firefox and Opera for quite a while. Only with IE 7 will Microsoft finally deliver tabbed browsing, a relatively simple way of organizing one's Internet usage that has been around for years.
Then there is software-as-a-service. Microsoft looks like it is following everyone. Google (GOOG) and Yahoo (YHOO) notably come to mind, but the real pressure has been coming from Salesforce.com (CRM). Microsoft's business software division, Dynamics, has been less than stellar in its performance, while Salesforce keeps expanding its AppExchange with new SaaS products.
The Xbox 360 may get a boost if Sony does release its PlayStation 3 at a dramatically high price. Microsoft's game console has been losing money per unit since its debut and drags on the Home and Entertainment division in the financials.
A high price from Sony could nudge holiday shoppers to a less expensive Xbox 360; of course Nintendo looks likely to launch its Wii console this year, and it should be cheaper than the 360 as well. Maybe people will buy both the 360 and the Wii, as Microsoft has suggested could happen.
CEO Steve Ballmer has felt the heat, as it looks like the pressure from Wall Street convinced him to announce a $40 billion stock buyback. That's a substantial sum of money, even for Microsoft's deep pockets, just to placate powerful money managers on the Street.
The company still makes a lot of money each quarter on its core business. They are chasing even more money with their new initiatives. Getting away from one's fundamentals is a risky strategy, but Microsoft's sales provide a buffer for failure. At worst, they will drive the competition to improve their offerings to stay ahead of the Microsoft juggernaut.
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