For the past month or so, many have been looking to Microsoft to provide some guidance on Windows 7 sales. Some seek for evidence that the new OS will help lead the PC market out of the economic slump. Some are simply looking to see whether the feel-good vibes of Windows 7 will catapult it past previous Windows versions and reestablish the venerable money machine in the wake of what is widely regarded as the Vista debacle.
To date, Microsoft has been pretty vague, and its public utterances about the topic have even been sometimes contradictory. The software giant has yet to provide actual numbers, but in its most positive statement about Windows 7, it noted that sales of the new system has "already sold twice as many units" as any previous Windows versions in the same time frame.
I'm not sure that's hugely relevant. When it was released, Windows Vista also outpaced sales of its own predecessor, and that version of Windows went on to become one of the highest profile duds in Microsoft history. And comparing Windows 7 to XP isn't fair either: The market for PCs today, at 1 billion units in use worldwide, is roughly twice the size as the market Windows XP faced in 2001. So it's really unclear how well Windows 7 is doing.
Some may be wondering why any of this matters, and looked at broadly anyone can see that Windows 7 has, at the least, banished the bad mojo Microsoft allowed to linger during Vista's lifetime. Fair enough. But with the computer industry moving quickly into the coming cloud computing era, Microsoft's established platforms matter more than ever.
Microsoft: A Platforms Company
Microsoft, as I've noted, is a platforms company. And platforms matter. Windows, Windows Server, and Office are the company's biggest platforms and they together still account for over 80 percent of Microsoft's revenues (using the figures from the most recent quarter). And while these products are still performing at a high level, they are also all legacy products in the sense that all of them predate the cloud computing era. Heck, they all still ship in cardboard boxes.
Looking at the platforms of the near future, desktop operating systems, server operating systems and servers (like Exchange, SharePoint, and the like), and desktop productivity applications will no longer dominate the market as they do now, and if these products still represent 80 percent of Microsoft's revenues 5 or 10 years from now, something has gone horribly wrong. Don't misunderstand, they'll all still be important. But just as the big three TV networks ceded market share to a host of cable competitors and, later, other sources of video entertainment, so too will Microsoft's legacy platforms cede share to the platforms of the future.
These future platforms, of course, are cloud-based services (include data storage and virtualization), mobile devices, and hosted servers. Microsoft has its hand in each of the product categories, and it also offers an important and often overlooked hybrid strategy in each that can and should set it apart from purely cloud-based offerings from Google and others. But Google isn't Microsoft's only competition here and as we look forward, there are signs that Microsoft is ceding control in some markets that could prove incredibly important.
Opportunities and Threats
In the market for cloud-based services, Google comes immediately to mind, but Google's offerings assume that the computing world of the future will be accessed completely through a web browser, and while that's likely to be true for low-end offerings, anyone used to the rich, full-featured world of the modern PC will quickly realize the limitations of such a strategy. And it is here that Microsoft can do the most good: By integrating its mature and well-liked Windows 7 product with online services of all kinds in a future Windows 8, Microsoft can easily head off any competition from Google on the low-end (and any competition from Apple at the costly, consumer-oriented high-end). One should assume this is exactly what they're doing.
Server offerings. Windows Server and Microsoft's many server offerings, I feel, will move into a future of mixed use, where some servers are hosted on premise but more and more are hosted online, by Microsoft and its many partners. If Microsoft can offer these servers affordably to customers, it should be able to fend off Google's immature offerings. That said, Google today is where Microsoft was 15 years ago with NT. It will be interesting to see how Microsoft reacts now that they're on the other side of the cost and functionality equation.
Office. Microsoft's Office products laughed off free competition from OpenOffice.org and others and should continue to be successful in the face of Google Docs and other online productivity solutions. But the key here is going to be pricing and availability: Office Web Apps is a good start, but it should be more functional and less of an add-on. I suspect v2 will address this need, and in the meantime Microsoft will offer its traditional Office 2010 Starter product—which includes stripped down versions of Word and Excel—in a decidedly non-traditional way: It will be offered with new PCs for free.
Mobile devices. Looking at mobile devices, it's not hard to see that Windows Mobile is in trouble, facing serious platform competition from such companies as Apple (iPhone), RIM (Blackberry), and Nokia (still the market leader, but currently stuck on an aging platform). But the presumptive champion of this market, oddly, is Google, whose Android system, despite having virtually no market share at all, is seen as a major player going forward. Here, again, Microsoft will need to pull out all the stops, and as I've opined in the past with such things as Office and hosted Exchange, a huge price drop is in order. Don't be surprised to see Microsoft simply give away Windows Mobile in the future. It may already be too late.
Speaking of hosted Exchange, when I interviewed executives from Microsoft last year about its Business Productivity Online Suite (BPOS), which includes hosted versions of Exchange, SharePoint, Live Meeting, and Office Communications, the company was surprisingly aggressive: They predicted that the majority of Exchange installs, in particular, would be hosted rather than on premise, within just a few years. I agree with this, and it is here that Microsoft's hybrid model will see the most success as businesses of all sizes begin the slow transition from on premises servers to hosted services wherever possible. There will always be a need for on premises servers, of course. But the mix will trend dramatically to the hosted side, and Microsoft is in a great position to capitalize on this change.
Looking ahead, platforms will continue to matter, to Microsoft and to the wider industry. But Microsoft will need to move aggressively to address the rise of cloud-based platforms that will slowly push aside its legacy platforms and become just as important from both revenue and unit perspectives. How aggressively it moves will be determined, of course, by the needs of its customers. I expect things to change very rapidly, and by the time Windows 8 ships in three years, I think we can expect to see Microsoft's hosted services join the big three—Windows, Windows Server, and Office—at the top of the heap. It's going to be a wild ride.