For a firm that just announced quarterly net income of over $6 billion on revenues of $20.5 billion, both huge increases over the results from the year-ago quarter, Microsoft is facing a surprisingly shaky Monday. Wall Street hammered Microsoft stock on Friday amidst questions about the firm’s ability to navigate the transition to more mobile computing, and a $900 million Surface RT write-off certainly didn’t help.
Would-be analysts are coming out of the woodwork, highlighting everything they believed that Microsoft got wrong and offering up advice about how the firm can right the ship. But for all the hand-wringing out there at the moment, two salient facts are too often ignored. First, Microsoft is an enormous company, a money-making machine with several $1+ billion businesses and more than 1.5 billion active users of its products. And second, Microsoft has been through this before. More than once.
Although past successes don’t guarantee anything for the future, experience still counts. And perhaps more than any other tech company, Microsoft has successfully transitioned through a changing market time and time again.
A few examples.
The GUI popularized by the Mac in the mid-1980s was going to steamroll MS-DOS and then Windows until Microsoft hit pay dirt with Windows 3.1 and relegated the Mac to a backwater market from which it never really emerged. That process took over eight years. And Windows, with over 90 percent usage and market share today, has been number one for over 20 years.
In the late 1990s, Netscape and the World Wide Web were going to “reduce Windows to a set of poorly debugged device drivers,” according to industry seer Mark Andreessen. Despite incredible competition from Apple, Firefox, and Google, Microsoft’s Internet Explorer (IE) is still more frequently used than all other web browsers combined. And Netscape? Historical footnote.
In late 2007, open-source darling Linux made its one viable attempt at the desktop PC market in the form of the netbook, a low-cost offering that undercut Windows because the OS was free. By February 2009, more than 96 percent of netbooks included Windows, not Linux.
So here we are, on the cusp of a transition from the traditional PCs of the past to a new form of mobile computing that is perhaps best encapsulated by Microsoft’s new “devices and services” mantra. Apple, seeing nothing but modest success with Mac, has instead focused on its iOS mobile devices, which have been enormously successful. Google, which has no PC past, is also focusing on mobile devices, mostly Android, but also the screwball Chrome OS, which is a solution to a problem no one has. And Microsoft? Microsoft has done what Microsoft has always done (see those previous three examples): It has adapted Windows to meet a new challenge.
So far, it hasn’t paid off. Windows 8 and Windows RT were poorly received by the public, because the initial releases of those systems—I think we can all agree now that another year in the making might have paid off handsomely from a usability perspective—were awkward, jarring experiences that meld the classic Windows desktop with a new mobile OS I still call Metro. So Microsoft is doing what Microsoft always does: It is plugging away, refining what came before, and responding to feedback.
And that, folks, is really the theme here. What’s happening now is nothing new. Microsoft has been through this before.
Again, there’s no guarantee of success. Long-time Microsoft enthusiasts will point to the failures of products such as Zune and Media Center as examples of why we can’t possibly trust the firm to get it right this time. Except for one thing: Windows isn’t Zune. Windows is Microsoft’s core product, it’s most significant product. Microsoft will chop, whittle, and mold Windows until it gest it right. This one is too important.
Too, Microsoft has historically done its best work when the competition has been breathing down its neck the most fiercely. That IE example I used above? Let’s not forget that when Microsoft achieved dominance in the web browser market, it then let IE fester almost unchanged for years. But when viable competition did emerge—first Firefox but more notably Google Chrome—the firm responded like an awoken giant. And not only has it stemmed the losses but recent versions of IE are, as important, technically excellent and well received by users.
And Microsoft isn’t the only tech company struggling in the transition to mobile devices. Google’s dominant ad platform—its only real source of income—is struggling on mobile devices too, and Google’s ownership of Android—the dominant mobile platform—hasn’t helped change that one bit. Meanwhile, many reports suggest that Microsoft makes more money directly from Android than does Google, thanks to Microsoft’s pervasive patent licensing.
This is not a stupid company, folks, and it has a record of getting it right over time. And yet here we are, freaking out over a quarter in which Microsoft earned net income of over $6 billion on revenues of $20.5 billion. So what's a $900 million write-off to a company that big?
A learning experience.