Troubling times for Microsoft

Microsoft is under pressure from all sides. On the Web, Google is eating its lunch. In smartphones and tablets, it’s struggling to gain traction against Apple and others. And amid all this, its traditional PC business is shrinking. By Duncan McLeod.

Fans of the open-source Firefox Web browser, developed by the Mozilla Foundation, have long enjoyed the “Easter egg” in the software that takes a dig at Microsoft and its browser, Internet Explorer (IE). Typing in “about:mozilla” in the address bar has always brought up some clever, pretend-religious phrase that suggests the independent Web browser is making headway.

In the latest Firefox version the text reads in part: “And they built a new world in their own image as promised by the sacred words, and spoke of the beast with their children. Mammon awoke, and lo! It was naught but a follower.”

Mammon and the beast both symbolise Microsoft, which Firefox’s developers would have us believe is now no more than a follower in the browser market it once dominated.

There is truth in this. According to figures from StatCounter, Google’s Chrome has overtaken IE as the world’s most popular Web browser, with market share in January of 31,4% across desktop and mobile devices. IE, whose market share was once north of 90%, is second with 26,4%.

But it’s not only in browsers where Microsoft has come under intense pressure over the past decade. Fifteen years ago, the company dominated the technology industry. But with the Web and the rise of the use of consumer technology in business — especially smartphones and tablets — its power and reach have been reduced significantly.

Microsoft’s waning influence is perhaps illustrated most dramatically in its share price and its market capitalisation versus those of its rivals. At its peak in December 1999, Microsoft was worth US$615bn. Admittedly, that was three months before the dot-com bubble burst, but its share price has languished ever since, while the valuations of Apple and even Google have surpassed it.

The principal challenge Microsoft faces is that the PC — where it still dominates with Windows and, in corporate environments, with Office — is no longer what’s driving consumer demand for technology.

Gartner research shows that worldwide PC shipments in the fourth quarter of 2012 fell by 4,9%. Analyst Mikako Kitagawa says tablets, like Apple’s iPad, have “dramatically changed the device landscape for PCs, not so much by cannibalising PC sales, but by causing PC users to shift consumption to tablets rather than replacing older PCs”.

In emerging markets, millions of users — and possibly even billions — may never use a PC. Rather, they’ll get online using smartphones, whose cost is plummeting.

Microsoft is all too aware of these threats. The latest version of Windows has been redesigned from the ground up for tablets and other devices with touch screens. Microsoft is attempting, too, to mount a comeback in the mobile phone market with Windows Phone, though it faces an uphill battle against Apple at the high end of the market and against Google, with Android, across the board.

In emerging markets, it recently unveiled 4Afrika, a $70m initiative aimed at getting tens of millions of Windows Phone-based smart devices in the hands of young Africans, developing technology skills and assisting small businesses. Of course, these are things Google has been doing for some time.

The question is why it took the company so long to react. In the 1990s, when Microsoft woke up to the threat of the Web, Bill Gates set about retooling the company for a new era — and succeeded. Can it do it again under Steve Ballmer, Gates’s successor? Ballmer is trying hard, but the challenges are bigger now. And Microsoft is a larger, more bureaucratic place than it was when Gates ordered his troops to the battle stations 15 years ago.  — (c) 2013 NewsCentral Media

• Duncan McLeod is editor of TechCentral; this column is also published in Financial Mail