Microsoft growth difficult to see

Stan Beer
Sunday, 30 July 2006 16:32

Opinion and Analysis

You know you really have to start worrying about the well-being of a company when it openly holds up competitors as pinnacles of excellence.

In the case of Microsoft, it really was a little disturbing to hear CEO Steve Ballmer talking with reverence about his competitors last week.

For Ballmer to talk of a Sony or a Yahoo! or a Google or an IBM mainframe software business that "lives inside of us" was slightly pathetic. 

It's even more pathetic to hear that Microsoft's strategy going forward appears to be a scatter gun approach to being in every market that shows the promise of grwoth and hoping to score a hit or two.

According to Ballmer, Microsoft wants to be a "multi-core" business with its toes dipped in all the IT growth areas, including areas where it is still a minor player.

And a minor player is what Microsoft seems destined to remain in the internet search space compared to the likes of Google and Yahoo! unless the company can reinvent itself with the Windows Live Search push. While Google continues to rake in mammoth profits, Microsoft's MSN business lost money last year

Other new areas where Microsoft hopes to make a splash are the still unprofitable Xbox business and the upcoming music player business, where Microsoft has taken on the gargantuan task of readying itself for an attack on the Apple dynamic duo of iPod and iTunes.

Microsoft has already revealed the name of its player, Zune, due to be released for the holiday season. However, the business model and the nature of the Microsoft music store are still under wraps.

Some have speculated that the Zune sales model will be the same as Apple's closed iPod and iTunes dual-pronged approach to selling music. Others say that the model will be open.

Regardless of the Zune model, Microsoft admits that it could take five years before it makes an impact on the market and Xbox won't make a profit until 2008.

Thus, Microsoft looks like continuing to lose money in all the key new markets that the company is looking to for growth.

Meanwhile, in the legacy desktop and server areas where Microsoft is profitable, the server and database tools business grew at an impressive rate last year but the Windows and Office businesses had just single digit growth. Microsoft is looking to the release of Vista and Office 2007 early next year to change this but there are indications that the transition for many users will not be an automatic process - especially for Office.

The upshot of all this is that Microsoft may have difficulty pulling itself out of its current stagnant growth position for some years to come.