Companies and stockholders like growth, though. Much of Microsoft's focus on growth has been to develop products and services to enter new markets. This is the kind of successful innovation that Microsoft is lacking. I'm not faulting Microsoft for trying things and failing at some of them; that's the nature of business. Not every idea turns out to be as great as it seemed in the strategy and planning meetings. At some point, though, there need to be some successes.
Microsoft's track record on new-market innovation has been dismal. In music players, they fumbled around with PlaysForSure and Zune while Apple sewed up the market. Nearly every aspect of their Internet strategy has languished or outright failed while Google has used this decade to grab an incredible lead. Netbooks caught Microsoft flat-footed as they designed Vista for big powerful PCs with wide-screen displays. Microsoft made some good early headway into the smartphone market with Windows Mobile, but Apple's iPhone showed the weaknesses of Microsoft's offering.
Microsoft's XBox business is an example of market share success. However, it's taken an investment of more than $4 billion so far. The business went briefly into the black for a couple of quarters last year, but this most recent quarter saw the XBox division back in negative territory. Yes, they are slugging it out there with Sony and Nintendo, but remember that Nintendo has been very profitable with the Wii. It is likely to be a long time before Microsoft crawls out of that XBox money pit. At least they have something to show for it though.
The innovation problem in my view is not due to a lack of money or technical talent. Microsoft's war chest is huge, they invest heavily in R&D, and their staff is smart. That leaves the issue of leadership and management. Maybe innovation is being sabotaged by too many vested interests at Microsoft, or perhaps the company just has the wrong people in leadership positions. Whatever the problem, it's real.