Microsoft shares cratered nearly 5 percent last Friday after the company announced a decline in sales of its Windows computer operating system. Its mention of 21% higher revenue in sales of Microsoft Office and Xbox didn't do much to mollify freaked out investors.

Hello? Where's the Harvard Business Review case on how this company has not only been missing boat for the past half-decade (or more) but why the boat it's in right now is sinking?

(Image credit: snatching defeat from the jaws of victory)

Microsoft has always been a provider of an OEM product to computer hardware manufacturers. It's a big one -- arguably the most important one, since Windows is the software that enables computers to think and remember -- but it wasn't conceived as a consumer products company. It reaped windfall profits from an industry that was all but genetically predisposed to buy its operating systems. Its leaders saw that this cushy arrangement wasn't permanent, though, and likely saw it even before we did. So it invested some of those zillions into other businesses, like game consoles, mp3 players, mobile phones, and a host of worthy experiments (it recruited Ray Ozzie in the mid-200s, who'd founded Lotus Notes and had done really cool online collaboration things at Groove).

The problem is that none of those experiments have turned out to be worth much of anything.

All the while, Microsoft treated its Windows OS like the cash-cow it was, rolling out new versions every 18 months or so for no other reason than it needed a reason to make its customers buy newer versions of the product. Many of these iterations were not only unnecessary but actually worse than the systems they replaced (Vista, anyone?). Its approach helped encourage users to assume an OS was a given unless something went wrong, at which time it was a burden. Microsoft turned its flagship product into a brand name with no experiential upside, and an endless capacity to take the blame on the downside. This should be a textbook case about how to destroy a brand.

I have been arguing for a few years now that Microsoft should have invested its money in making Windows the most amazing, irreplaceable, valuable system for making any and every thinking electronic device perform wonderfully...from the biggest most brainiac desktops to RFID chips that did nothing more than regularly chirp their existence. Imagine if Windows were the go-to OS for everything? This was not only possible, but Microsoft was uniquely positioned to accomplish it. It had the money and the brainpower.

Instead, it chose to ignore this opportunity and pretend that OS was just one of its many divisions. The business media played along, as did the industry analysts and academic institutions that are supposed to see what's going on. Somebody at Forrester or wherever should have pulled the emergency cord in 2000 when Windows ME was introduced into the market and promptly crashed any pretense that the next OS was better than the last. Perhaps this was a public indication of an illness within Microsoft that predated it (it must have, since it took years to come up with that clunker).

So now here we are, well into 2011. More devices are running leaner OS (with more thinking and remembering happening via teeny apps or in the cloud), and the company's erstwhile competitor now rules the roost with its chronically closed and utterly successful ecosystem of devices, programs/apps, online services, and its own OS. Microsoft is starting to show the hurt in its profits, and no amount of funny advertising or marketing expenditure can change this reality problem inherent in its brand.

There's still a good many years left in its OEM business, of course. The company could continue to milk it -- I mean, jeez, I should be so smart and fortunate to suffer such failures as it has -- or it could develop an actual business strategy that had some teeth.

Operating systems aren't one of many things the company does...its the most important thing it does, and it should be the thing it does best, not worst. So I'd say skip the games, music, phones, and every other distraction, and marshall every resource now to make its software the soul of every thinking and remembering device in the same way that Intel aspires to be the functioning heart. It should stop pretending to be a consumer products company and focus on what it should have focused on all along.

I wouldn't put my money on that happening, though. They're just too smart for that. And, for what it’s worth, I sometimes wonder if Google isn’t following down the same path...developing every conceivable business its megazillionaire founders can imagine instead of continually reinventing the core search business that pays the bills?

Image1 by: SeattleClouds.com

Original Post: http://www.dimbulb.net/my_weblog/2011/05/microsoft-shares-cratered-nearly-5-percent-last-friday-after-the-company-announced-a-decline-in-sales-of-its-windows-computer.html