Tablet Tipping Point Means The End Of Microsoft (As We Know It)

So Microsoft is facing a scenario in which not only is it selling fewer Windows licenses, but it's also forced to charge significantly less for those it does sell. Thus, Friar expects Microsoft to post Windows sales gains of just 3% in its current fiscal year--less than half the already anemic growth rate Goldman projects for the PC industry overall.

So if Microsoft as we know it isn't around in a couple of years, what sort of company should have taken its place? If CEO Steve Ballmer and his peers are reading the tea leaves correctly, it should be one that recognizes the days of selling operating systems and office apps to consumers for hundreds of dollars a pop are fast coming to an end in the face of so much free and downscaled competition. Electronics makers and their customers have lots of cheaper, better options now.

Microsoft must allow OEMs to preload consumer versions of Windows and Office onto products at no charge to ensure a dense ecosystem of Windows-powered devices, and it must focus on being the leader in the paid, back-end software that lets those devices communicate with, integrate with, and connect to the cloud.

That is, it needs to become mainly an enterprise software company that makes most of its money through Windows Server, SQL Server, Azure, Exchange, and related products and support services. That would make for a much smaller company in terms of revenue and workforce, but one that would be significantly more focused and nimble than what currently resides in Redmond.

Microsoft isn't the only vendor at risk from this transformational shift. Traditional hardware heavyweights like Dell, Hewlett-Packard, and chipmaker Intel could be in for a rough ride as well, writes Shope.

"We believe that 54.7 million tablets will be shipped in 2011, and we expect the vast majority of these devices to run the ARM architecture with either iOS or Android as the operating environment," says Shope. "If this is the case and our tablet forecast is anywhere near accurate, this would be the first time in three decades that a non-Wintel technology has made legitimate inroads into personal computing."

Think about all of the implications of this for a moment, then discuss.

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