Nick Wingfield in the WSJ suggests that Microsoft has “turned the corner.”
Specifically, he thinks it’s gone from being a bloated bureaucracy that builds bad products (Vista), blows billlions on pie-in-the-sky dreams (MSN), and wastes months trying to buy dying companies (Yahoo)…and will now return to being the old lean, mean competition-stomping machine.
- Windows 7 looks good and corporations are pysched to buy it
- Bing has been praised
- Ballmer just took Yahoo’s Bartz to the cleaners in the Yahoo search deal
- XBox is clocking PlayStation
- Google Apps haven’t slowed the Office juggernaut much
So is Microsoft about to return to the good old days?
We don’t think so. Windows 7 will likely do well, and the company will print money off its back for at least a year (which should drive the stock higher). The corporate software business should keep rolling for a while, as should XBox.
But we are not at all convinced that Microsoft will ever build an impressive Internet business, even with the Yahoo deal. We also think the main competitive advantage that allowed Microsoft to build such a dynasty–the Windows monopoly–will continue to erode. Microsoft is nowhere in mobile, which is a huge future growth area. It’s barely there in netbooks, another major industry growth engine.
Google Apps and other cloud-based services will continue to get better, and as they do they’ll chip away at the Office monopoly. Microsoft may now process 30% of the search market, but this is very different than owning and profiting from 30% of the search market. (Google would be a bit less profitable if it only kept 12% of its search revenue). Windows will become less and less important, from everyone to consumers to office workers.
So Microsoft may be enjoying a competitive renaissance. But it’s no longer in the sweet spot of the market. And it has yet to demonstrate that it can make the transition.
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