Microsoft's Golden Age: Going, going ... gone?

With Bill Gates giving up his day-to-day role at Microsoft, a big question is whether the company's best days are behind it.

Oracle and SAP AG may still be bigger in enterprise applications, and Oracle in databases. Both IBM and Hewlett-Packard may reap more IT dollars overall. But in the ways that really count, Microsoft remains the king of the IT industry.

Now, though, Microsoft is at a major crossroads, as co-founder Bill Gates prepares to step away from his day-to-day job at the company. Although Gates has long been disengaging from Microsoft -- he turned over the CEO position to Steve Ballmer in January 2000, and his retirement plans were announced two years ago -- his departure raises questions about whether the software vendor's best days are behind it.

For example, Forrester Research CEO George Colony wrote in a June 16 blog post that Gates' "constructive monopolism" had created a set of de facto IT standards -- to the benefit of users as well as Microsoft.

Gates wasn't a technology innovator, Colony wrote, but he "possessed the competitive drive to force his technologies into monopoly positions in the marketplace." That drive, Colony added, has been missing from Microsoft in recent years as Gates has focused less on the company and more on his philanthropic activities, allowing rivals like Google and Apple to steal the IT spotlight.

With Microsoft approaching corporate middle age -- the company was founded 33 years ago -- it faces more threats than ever to its long-held and fiercely defended IT alpha dog position. The Microsoft-controlled standardization of IT is being challenged by proponents of open document formats, while open-source software, Web 2.0 technologies and software-as-a-service (SaaS) offerings are nipping away at Microsoft's lucrative Windows and Office franchises.

Chief among the threats is Google. "When Microsoft looks at Google," said Rob Horwitz, CEO and head of research at consulting firm Directions on Microsoft, "it sees a younger, beefier and more suntanned version of itself, and it says, 'Wow.'"

Google Docs, an online rival to Office, is a dagger aimed at the heart of one of Microsoft's top profit generators. And collectively, Google's lineup of cloud computing technologies is designed to smash Microsoft's desktop dominance.

Unlike Microsoft, Google "doesn't have to deal with any legacy issues," said Creative Strategies analyst Tim Bajarin. "That's why they can be a bull in a china closet and experiment."

Bolstered by its huge Web advertising business, Google can also afford to bide its time. Most of its would-be Microsoft-killers are still technically in beta and hence free to users.

Google is "trying to deny Microsoft revenue by getting corporations to stop renewing their enterprise agreements with Microsoft," said Enderle Group analyst Rob Enderle. "Even if [Google doesn't] make any money, Microsoft can't make money."

For now, Microsoft appears to be perfectly healthy. The company is expected to post a profit of US$16.4 billion on revenue of $58 billion for its 2008 fiscal year, which ends June 30. That would represent double-digit growth from fiscal 2007.

Also, the respective market shares of both Windows and Office remain above 90 per cent, and the company's US$10billion-plus server and tools business -- which includes Windows Server, SQL Server, Visual Studio and System Center -- continues to grow, as yet unopposed by any offering from Google.

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Eric Lai

Computerworld
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