Microsoft's Model Is Not Working Anymore

This week's contrast between Apple and Microsoft couldn't be any sharper. Both companies announced their quarterly results in the past week, and the simple summary is that Microsoft was down and Apple was up. The story behind those opposite financial directions, however, reveals some disturbing and continuing weaknesses in Microsoft's business model.This past quarter was notable for Microsoft because it was the first time in the company's entire history that year-over-year revenues declined. Sure, the global recession has impacted Microsoft, but in retrospect it's been an increasingly dry decade for Microsoft when compared to companies like Apple, Google, and Amazon.

Apple has been cranking out hit after hit this decade. It's increased its market share in personal computers, but more importantly has successfully entered (or created) new markets by combining its iPod and iPhone hardware with online stores for content and applications. Apple isn't alone in its success, though. Amazon is bringing life back into the e-book market with its Kindle reader, which also delivers content through an online store. Both Apple and Amazon have built products with this model and managed to grow in the past quarter despite the recession.

Microsoft is becoming increasingly invisible to consumers. Remember those recent Microsoft ads where people buy PCs because they're cheaper than Macs? They're not buying Microsoft, they're buying Hewlett Packard or other brands of PC hardware. Microsoft isn't on center stage; they are barely appearing in their own advertising! Companies like Google, Apple, and Amazon have products and services that put those brands in the user's minds every day, and in a positive way. When people do think about Windows, it's often with anxiety or frustration regarding their broken printer driver or the latest virus alert.

Still, Microsoft has a huge pile of cash that can tide them through a downturn, and even offer a chance for strategic acquisitions. Cash seems to have been a curse for Microsoft in some ways. I'm convinced that it has egged the company into bad decisions and eliminated the urgency to make course corrections in losing strategies. A year ago, Microsoft nearly blew its entire wad of cash acquiring Yahoo; who on the face of the planet could look back and say that deal should have gone through? (Yahoo stockholders, I guess.)

There's no doubt that Microsoft will be with us for a long time to come, but the company is just not innovative anymore. In sectors that value consistency such as the enterprise market, Microsoft may not be hurt too much by a slow-but-steady business model. Microsoft aspires to do a lot more than just sell Windows and Office, but the current leadership doesn't seem to have any idea how to do it. For that reason alone, a change at the top would be worth a try.