But don't count the company out just yet -- it had some solid breakthroughs in 2012. There were also several misfires. Here's a look back at Microsoft's biggest hits and misses of the past year.
Microsoft's 4 Big Hits
1. Windows 8
Microsoft has taken a lot of heat for Windows 8, and early sales are likely below expectations. Critics complain that the OS, with its Live Tiles interface, is too difficult to learn. But Redmond should be given credit for its bold move to introduce a truly innovative platform that separates Windows 8 devices from the iPad and me-too Android tablets.
Granted, Windows 8 could use some tweaking to make it more user friendly, and sales and distribution have been anything but smooth. But the software itself is rich, technically impressive (how about those seven-second boot times?), and secure. It should eventually make Microsoft a player in tablets while keeping its PC franchise intact.
2. Yammer Acquisition
Microsoft in June bought out business social networking and collaboration specialist Yammer for $1.2 billion. On its own it would have been a smart deal, as biz collaboration is one of enterprise software's hottest categories. But the deal makes even more sense given the synergies Microsoft can achieve by adding Yammer to its existing collaboration technologies.
Among the products that will benefit from getting bits and pieces of Yammer added in are Dynamics CRM, Skype, Sharepoint and Office 365.
3. Xbox SmartGlass
For the past couple of years, Microsoft has dribbled out a host of new products that appeared to have little connection to each other. Windows Phone, Windows 8, Live, Bing, Kinect, Azure and so on. Enter Xbox SmartGlass, a game-changing technology that ties it all together and promises to make Microsoft relevant again in the consumer market.
SmartGlass is a collection of apps and embedded technologies that form an ecosystem, one in which digital content can migrate from one platform to the next, be it a phone, tablet, desktop or home theater. In a demo at E3 earlier this year, SmartGlass pulled together the capabilities of Xbox 360, Kinect and Windows 8 tablets to show how it can take gaming to the next level. With Madden NFL 13 running on one screen, a user drew up plays on a Win8 tablet, which the game then executed on an HDTV. Pretty cool stuff.
4. Hardware Entry
With the introduction of the Surface tablet this year, Microsoft stole a page from Apple's playbook to become a vendor of integrated systems. It was a smart move. Software margins are declining and hardware is a commodity, but by bundling Microsoft can continue to ensure decent profits.
From a technical standpoint, CEO Steve Ballmer said it best at the company's shareholder meeting last month: "What we've said to ourselves now is that there is no boundary between hardware and software that we will let build up as a kind of innovation barrier." Up next? Watch for a Microsoft-branded smartphone.