A Microsoft Picture Worth 1000 Words

Microsoft is a company driven by its history, and by its core products. Nothing makes that point quite as well as this chart, which shows how dependent Microsoft is on Windows and Office. In comparison, all the other products and services are a drop in the bucket.Windows 7 has definitely injected some life into Microsoft's revenue, thanks to increased consumer spending in the past few months. The two products that have been the heart of Microsoft for 20 years just won't quit. However, that just emphasizes how dependent the company is on its Windows+Office dynamic duo.

Looking at the other components of Microsoft's revenue, the contribution from the Server and Tools Division wasn't as sprightly. That makes some sense; consumer spending usually leads the recovery and business spending lags it. Although that division isn't Microsoft's gold mine, it's been a pretty steady performer over the years.

Then there is the rest of Microsoft's business. Take Entertainment and Devices, for example. A decade-long investment in Xbox finally started to turn a profit last year, but it's a small profit. Microsoft's software game titles, mice, keyboards, and the like just don't add that much to the bottom line.

Microsoft's online efforts are what should really scare the company. There's nothing wrong with long-term investments, but the company has yet to show a reasonable roadmap to become a contender in online services. It's not even clear how long it will take their online efforts to merely break even.

In the meantime, companies like Apple and Google are threatening Microsoft's two cash cows. Every Apple computer means one less Windows license sold. Every organization that switches to Google Apps shows others that life after Microsoft Office is possible. Mobile devices are strongholds for Apple and Google, not Microsoft.

So the question is, what exactly has Microsoft been doing in their R&D and strategic planning for the past decade? Is there some project waiting in the wings that can bring Microsoft back as a contender, or should Microsoft just face the reality that everything else the company does will never approach the profitability of Windows and Office?