Where Can Microsoft Grow In 2010?

The year 2009 proved a milestone for Microsoft, but not a good one. In April, the company had its first-ever quarterly loss; it responded with a slow-motion removal of the bandage, shedding about 5,000 positions over the course of last year. Is there some hope that 2010 can be better for Microsoft?One thing that does look rosy for Microsoft is Windows 7. It's been well received and favorably reviewed in the short time it's been out. Given XP's advanced age and the low uptake on Vista, chances are good that 2010 will be the start of something good for Windows 7 sales. The popularity of Windows 7 will help to erase the bitter taste of Vista, but it won't necessarily translate into increased growth or revenue for Microsoft. Many businesses may be entitled to upgrades they have already paid for via support contracts, and most Windows licenses are delivered with new PCs.

Tiny and inexpensive netbooks have been one of the few types of PC hardware to experience growth over the past year; Microsoft has managed to keep Linux away and bring them in the Windows family with aggressively low prices on Windows XP. Microsoft's netbook strategy with Windows 7 has been to offer a crippled low-priced Starter edition. That strategy may already be backfiring on Microsoft, bringing Linux back into play.

As the mobile devices get smaller, things get worse for Microsoft. All the consumer buzz is around iPhone and Android, with businesses still leaning towards BlackBerry and Windows Mobile losing market share. Windows Mobile 7 may arrive in 2010, but if so it will be very late in the year. There's a new smaller-than-netbook sector called the smartbook that doesn't look like it will be friendly to Windows -- the hardware prices are so low that they can't justify a Microsoft surcharge. Taken together, mobile seems like a sad story for Microsoft this year.

Office 2010 will supposedly ship in June, meaning that it probably won't be around long enough for corporate America to test and deploy it in 2010. There's also the possibility that businesses will decide that 2010 is the time to move to a web-based solution like Google Apps. The city of Los Angeles made that move in 2009, and it may be the start of a trend that could hurt Microsoft.

Microsoft's Internet and consumer efforts don't look like they'll contribute much to the bottom line in 2010. Bing is improving but still far behind Google -- and still burning cash. Zune had its chance during the holidays and didn't deliver. XBox is the singular bright spot, breaking into the black in 2009 after years of red ink. The new Microsoft retail stores will help to showcase Microsoft's consumer offerings, but there aren't going to be enough stores to significantly affect sales in 2010.

Cloud computing is another place where it's just too early for any real Microsoft profits this year. Azure should be taking paying customers in 2010, but they'll mostly be pioneers who get billing discounts and free Microsoft hand-holding in return for desperately needed success stories. It's also not clear whether many corporations are willing to put their operations in the cloud without some track record of security and reliability. Only time will deliver that.

Overall, there don't seem to be a lot of bright spots in 2010 for Microsoft. It seems like the company's best hope for a good year is that a rising economy improves sales of their bread-and-butter business products like desktop Windows, Office, Windows Server, Exchange, and SQL Server. It's not glamorous, but it could be profitable.