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12/26/2013
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Michael Endler
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Microsoft In 2013: 7 Lessons Learned

If a key to success is learning from your mistakes, Microsoft should be well positioned for 2014.
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This was an up and down year for Microsoft.

January opened with Microsoft still licking wounds suffered the previous fall, when Windows 8 arrived with a thud and the much ballyhooed Surface RT somehow managed to fare even worse. After holiday sales failed to lift sagging computer shipments, many critics rang in the new year by blaming Microsoft for the PC industry's woes.

In retrospect, this criticism was somewhat overblown. Windows 8 didn't do any favors for Microsoft and its partners, but falling PC sales have had more to do with consumer preference for tablets than with desktop users' disdain for Win 8's Live Tiles. Even so, Windows 8 and its struggles remained the dominant Microsoft narrative for most of the year.

In fact, the OS overshadowed the fact that certain Microsoft ventures were having one hell of a year. Windows Azure not only grew into a formidable and fairly open cloud platform, but also matured as the backbone for a variety of successful ventures, including Office 365 and Xbox Live. It's no coincidence that Satya Nadella, the executive who oversees Microsoft's cloud business, is frequently named as a leading candidate to be its next CEO.

Investors began to take notice as Microsoft's cloud divisions continued to accrue business from enterprises and governments. The company's stock began to inch higher as winter turned to spring, and when CEO Steve Ballmer announced a companywide reorganization, most commentaries emphasized the upside. But then Windows 8 reared its head again.

Even though investors became optimistically cautious, Windows 8 adoption remained weak. The poor performance didn't show up in Microsoft's bottom line until July, when, a week after confirming the reorganization, the company missed Wall Street estimates and took a nearly $900 million writedown on unsold Surface inventory.

Microsoft had positioned the Surface line as the Windows 8 standard bearer, and critics called the tablets' failures an indictment of both Microsoft's device strategy and Win 8 in general. Goodwill among investors disappeared overnight. "We built a few more [Surface] devices than we could sell," Ballmer would later concede.

Ballmer caused the next big wave when he announced in August that he would retire within the next 12 months. Investors immediately signaled their approval, sending the stock up.

Since then, the ups and downs have continued. Windows 8.1 garnered better reviews than its predecessor and restored faith among some longtime Windows users. Still, Win 8.1 adoption hasn't exactly soared, and the Start button still doesn't have a real Start menu. The Surface 2 and Surface Pro 2 appear to be performing better than Microsoft's first-generation tablets, but it's still obvious they're getting killed by iPads. If this weren't the case, Microsoft surely would have trumpeted a few Surface sales figures, like it has for recent Xbox One milestones.

Most commentators have agreed that the company needs fresh leadership, but should it be someone who can facilitate Ballmer's vision or someone who will focus on enterprise customers? Was the Nokia device business acquisition a mistake or a sign that Microsoft is finally getting serious about mobility? The Microsoft board has indicated that the next CEO will follow Ballmer's One Microsoft blueprint, but some influential shareholders are reportedly wary of the company's strategy. At least a few allegedly have called Bill Gates a corrupting influence in the CEO selection process.

Luckily for Microsoft, it's a very rich company, and that lets it weather storms that would bankrupt lesser companies. How much the company has learned from the aforementioned missteps will become clear in coming months and years. Will it beat Amazon in the cloud? Will it be able to build an ecosystem that competes with Apple or Google? Will Office remain the dominant productivity platform? What are Microsoft's plans for wearable devices? Will Microsoft unleash disruptive advances in voice-controlled natural language technology? What about Cortana, Windows Phone's rumored answer to iOS's Siri and Android's Google Now?

For all the uncertainty, though, some of the lessons are clear. Click the image above for a slideshow of seven things Microsoft learned in 2013.

Michael Endler joined InformationWeek as an associate editor in 2012. He graduated from Stanford in 2005 and previously worked in talent representation, as a freelance copywriter and photojournalist, and as a teacher.

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robzilla
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robzilla,
User Rank: Strategist
12/26/2013 | 12:35:09 PM
Surface 2 overpriced still!
Microsoft always seems to make mistakes that would ruin another company and then work them out.  Windows ME, Windows Vista, Windows 8 were failures then Win XP, Win 7 and now Win 8.1 seem to fix those huge blunders. Windows 7 is still the best desktop OS Redmond ever produced. Making the os lighter and touch friendly was long over due and done in a way that lacked any respect of its usrt base. The failure of Windows 8 was simply how it was done.  More steps between 7 and shoild have occured to allow z migration and forcing people to use tiles on a desktop was a disaster that alienated most users. Also the cost of ot its surface tablets was a joke. Considering MS was a huge underdog in this market they should have dumped these tabs near cost. $500-$600 and up for a tablet is just way too much. What if the Surface RT had a pricr of under $200 and pro started @$300? You would have had a huge adoption of the technology and complaints woild mot have been as wide spread then as successive versions come out ramp up the price and features and grow your app ecosystem.  Add value and charge for it but at first you need to take a loss or at least not expect to make a huge profit right from the start. I would like to buy a surface butvfor the cost I can get a nexus 7 that will do most of what the rt can for half the price. Microsoft needs to be aggressive at first to push adoption and then as with all their failures and successes once they have a large enough user base can push out updates to fix issues and make a great product. Have an hp fire sale and see what happens.  Microsoft can afford to make mistakes because of their user base and usually they come around.  
J_Brandt
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J_Brandt,
User Rank: Ninja
12/26/2013 | 10:42:15 AM
Win7 vs Win8 & Tablets vs PCs
I had no desire to move from Windows 7 to Windows 8 but a crashed laptop forced my hand.  Even without 8.1 I have managed to reach a coexistence/avoidance zone with Metro.  And I have been pleasantly surprised that for most things, Windows 8 works for me like a faster Windows 7.  I have not invested in a MS tablet, I have an Android-powered Nexus.  I love it  - but as an auxiliary device, as a consumption device.  I still don't see how anyone can live with the compromises of a tablet to do daily production work.  Maybe I'm old school (or just old), maybe it's the three large monitors on my laptop, maybe it's generational, who knows. :)
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