Microsoft Moves Beyond the Desktop

The world's largest software developer is defending its strategic shift to refocus its attention web services and consumer goods. At its summer annual meeting for financial analysts who have been stumped by the shift, Microsoft CEO Steve Ballmer defended the company's recent decision to push more research and development towards new technologies in web services and product development in consumer goods as opposed to maintaining the established products such as the Windows operating system and the Office software product line.

Over the last twenty-five years, Microsoft built itself as the world's premiere provider of software for both commercial and personal use. Its landmark product, the Windows operating system is installed in over eighty percent of the desktop computers in use today. Its Microsoft Office line of productivity software is used on an equally global scale. With such a position, it is no small wonder that financial analysts who track Microsoft and other software companies found the recent decision of Microsoft a little confusing.

The growing concern from analysts resolves around whether Microsoft will abandon its core businesses in pursuit of new aims and ultimately underperforms in all areas. With Microsoft's recent push into digital music players with the Zune, and its video game player the Xbox; investors are finding the terrain on the Redmond campus rocky at best. It is not a question of execution but of the company being spread so broad that they will neither be great in the new initiatives nor in the old, established ones. Ballmer tried to calm the tensions in pushing the need for analysts to understand that the shifts in technology would force Microsoft to compete globally in multi-arenas as opposed to the two that it maintains today.

With web services growing, Microsoft's hand is forced as other players, including Google push web services via their websites. Google has a suite of productivity software available for free on their website. With Google and others making web services available to the masses, Microsoft, according to Steve Ballmer must compete in every area where a threat would devalue one of its products.

In Google, Microsoft finds a competitor that needs to be watched intensively. Five years ago, Google was just a search engine, whose simplicity drew massive evangelists. Since then, Google has pushed itself into different markets including productivity with its Google Docs and Spreadsheets application. With Google, users are able to make their documents immediately available for anyone to view, edit, or print from the Google site. Google is also looking to make Microsoft's Outlook as irrelevant as it is Microsoft's Word and Excel applications with its Google Calendar and Google Talk applications.

For the behemoth that Microsoft is, responsiveness is something that has always made it successful. When the Internet's popularity started to rise and Microsoft was left without a browser application to compete with the Mosaic (ultimately Netscape), web browser, Microsoft went out and acquired a browser and pushed its innovation and relabeled it, Internet Explorer. By integrating it into Windows, users began to use an Explorer-based application with every time they flicked their computers on. This continuity in application forced software developers to sue Microsoft.

In spite of losing the legal case, Microsoft continued to grow and prosper as more consumers used their products than their competitors. This is why in the first six months of the year, over sixty million licenses for Microsoft's newest operating system, Vista had been purchased. It is also how Microsoft is able to leverage the funding of its research and development on the continued revenues from its established brands, Windows and Office. Steve Ballmer also admitted to analysts that higher than expected revenues from these two sources subsidize the new research and development of new technologies on the Microsoft campus.

Ballmer is convinced as is Microsoft Chairman, Bill Gates that the future of Microsoft hinges on its ability to lead in web services and consumer goods. With applications and products continuing to intertwine and become multi-function, the need for Microsoft to be in on the development cycles is paramount to their established practice of integrating new technologies into existing brands. Without such a move, and the playing field being level, Microsoft knows that competition will increase and they will lose the leverage that has been a major driver of success for them since they began in the early '80s.