An interesting and insightful analysis.

The other threat to Microsoft is the future of the operating system itself. This comes in two forms...

In the data centre, the hypervisor layer, currently dominated by VMware with Microsoft trailing behind, will become the primary hardware abstraction layer.

On the desktop, with the growth of Software as a Service, the browser will have increasing sominance over the OS and we will start to see the user facing side of operating system functionality move into the browser.

As you noted MS has a 29 billion dollar warchest. That's a whole lot of flexibility. Opposed to the flexibility 29 billion affords, the article noted a degree of inflexibility in Microsoft's position. Microsoft has done a through job of covering all the bases on it's playing field without foolishly straying onto unfamiliar turf. Like a baseball player with sound fundamentals Microsoft has stayed within it's game. As it's technology matured it began to target different market segments using different product labels and pricing structure while staying with what it's done best, i.e. software. Granted it's moved into marginal areas but it's done so while remaining in a position to leverage it's existing knowledge base. Microsoft has demonstrated the ability to cut unproductive product lines.

If you consider the fall Big Blue took when it tried to shove Micro Channel Architecture down the market's throat and lost big time while taking the collateral damage done to OS/2 then I think Gates and Ballmer deserve a nod for a job well done. Presently Sony seems bent on replaying IBM's arrogant disregard for consumers and other market players and may well suffer a similar fate, at least in terms of it's gaming console.

In terms of the desktop much of the technology is now mature enough that innovation is no longer the main characteristic of front runners. MS Office is now a platform and continues to innovate in terms of speech recognition while it challenges market adversaries like Adobe. Overall with 29 billion in the bank and a huge market share Microsoft may be following the best path.

Litigation is business as usual. Bill Gates' dad was a successful lawyer and no doubt Microsoft has excellent legal counsel. Perhaps the best way to extend and embrace is just to take in new technology, patents be damned, and accept litigation for IP infringement as part of doing business. It may pay to present the best case in court then settle on a sum that allows usage of the IP.

Google reminds me of reading about stocks from the 60's. There were a class of stocks called GoGo stocks. They were hip, happening investments VC people couldn't get enough of. Of course when the big corrections came the GoGo stocks were the first to go. Information and advertising are on the thin skin of the bubble. A bubble burst in Y2K another one is balloning outward. Google won't die but it'll take a much bigger hit than MS will.

Over a year ago I positioned Apple to take 3 to 5 % of MS' desktop business over a 5 to 8 year period. I still see that happening but even with that and other infringements on it's turf MS will do well continuing on as they now are.

at least they don't murder penguins.. so there must be some hope for them, Google on the other hand..

I think it's a little difficult to say Microsoft has backed the wrong horse in the HD format wars. Granted the Neilson ratings do show that HD-DVD is falling behind but there are still many battles to be fought before one trumps the other. Of course you can always follow this link and see that Wal-mart has already declared a winner: HD-DVD

http://news.digitaltrends.com/talkback184.html

I hope Steve Balmer remains the head of Microsoft for many years to come. He's doing a great job.

Things are just a bit more complicated then the writer realizes. Also, there are a few understandable mistakes.

I worked for Microsoft in the Windows division working on the digital media stuff for almost 10 years. I lead the first review of DRM (forced on MS by the labels). We looked at Intertrust's stuff. It was total crap. Not one thing worked or had a real promise of working. Intertrust, which was run by a group of lawyers, unfortunately patented every possible DRM scenario. As Intertrust was folding their hail Mary was to settle with MS for $25M. As this was occuring Sony and Philips bought them and MS was forced to settle for much more money. Sony and Philips bought Intertrust because they were pissed at MS for threatening their MPEG2 royalty monopoly.

The reason MS started a media division was to 2 fold. One they wanted to enhance the media capabilities of Windows and 2 if they included an MP3 and MPEG2 decoder license on Windows it would have cost over $600M per year in royalties. Coupled with fact that these were already outdated technologies 10 years ago and that there weren't designed for low power processors and it is hard to make the claim that it was a bad idea to start this business. Yes it is true that MS only has 2 patents for VC1 but this is because of the patent cycle. Over the next 7-10 years they are projecting over 100 patents. Btw, Dr. Gary Sullivan, who sits on the VC1 codec team chaired the H264 video committe. Finally, VC1 was tremendously successful in driving down the cost of H264 for Windows. The license is a few million dollars per year. Had MS not done VC1 the projected royalties for the PC for H264 would have been over 1B per year so even though it looks like they are losing money in the overall scope of things they aren't.

You also confused the EDD group with Windows. EDD (Xbox and Zune) have had a few other things added to it such as MSTV and a lot of the Digital Media Division people. MSTV has done a great job locking up the market for the IPTV stuff. Unfortunately they underestimated just how stupid most people are that work for a telco. I can say this because I have first hand experience. They are truely and pathetically stupid. For example expecting the codec optimization cycle to take months when MPEG2 took 15 years. Yes that stupid. Never the less there isn't another company that can really deploy that type of system and the telco's don't have any choice, they have to deploy this so eventually MS will ge their money.

HDDVD - the porn companies don't want to use Blu Ray because the production disc failure is 10x what the HDDVD failure rate is. MS has locked up the porn market so I don't expect Blu Ray's lead to last. MS doesn't want to use Blu Ray btw because of the cost of Java and some of the other crap. Also, Sony makes a ton of royalties on Blu Ray and so they are paying the "adoptees" i.e. Dell to adopt it.

In terms of your article though I agree that Ballmer has to go. The whole thing is a little stale. Maybe it is just time for a change.

This must be the first time in history those two words have appeared in the same sentence.

MS has created an OS environment which does have a lot of positives. It has also saddled it with quite a few process-intensive background tasks - and a whole truckload of useless stuff.

My suggestion ? MS should get back to its roots. Forget Vista and give the consumers an OS that is worthy of the word.

If Open Source coders donating their free time can bring us an OS installer with hundreds of options to choose from, MS should one-up them and make an installer that allows the user to choose each and every single option he wants. With the caveats and usual warnings, but the OS should be totally configurable without any hidden strings (no Frontpage folder you can't get rid of because the system says it needs it).

Of course, just as with some Linux distros, MS can have the "general user" installation, which gives XP as we know it today. Several other install options are easy to think of, but it is the fact that an über-geek mode would be made available that would simply knock everybody's socks off.

If MS gives that, not only it cuts the legs off of every single monopoly lawsuit it has coming its way, but it also puts a major dent in the teeth of the Linux fans and it polishes its image to a sharp shine.

Oh sure, it might not retain dominance in the Media Player for very long, nor will it keep IE at #1 position for decades to come, but given that MS has the lock of DirectX, plus the immense legacy situation in its favor, I think that with a true OS not masquerading as a total desktop ownership thing, it will keep its dominant position on the the desktop for decades yet.

Come on Steve, see the light.

Even if Microsoft ever pushed out a Linux distro I would have thought it would be a kiss of death to Linux. Given that so much of the Linux culture is derrived from an anti-Microsoft dialectic, I would imagine they would lose developers in droves. It would be a bitter pill to swollow knowing that as a Linux developer you'd be working for Microsoft for nothing while they sit on $29 billion. On the other hand it might be a business strategy, if Microsoft wanted to kill dead the Linux momentum. Oh the irony of Eric Raymond indirectly evanglising for Microsoft, now that I would pay to see...

I'm not big MS fan but looking at the results they've done more OK! Article should have been written after the results, not before (waste of time).

The point is that microsoft made almost all it's it's money either from new users getting their first computer or by the continuous upgrade cycle.

The computer market is reaching stagnation. most people buying a computer for business or home use are replacing an older one. These people are a bit more tech savvy and not so desperate to throw money at resellers as previous generations. The lack of any new compelling application means that users are only upgrading when they feel their current machine can no longer cope with it's current workload. For some users this could be a long long time.

The reason for continuous upgrade is because the new version offered real advantages over the previous one. Often because the previous version was crap. With XP a just-about-good-enough OS (when used with third party security software) the advantage of upgrading to Vista isn't clear. Don't forget despite the security everybody still advises all the anti-virus and stuff. If this wasn't the case MS wouldn't be threatening business user with the end of XP licence availability.

All this points to a reduction in revenue stream that will not get better in the future. At some point MS will need to find profit elsewhere.

The most proffitable cow Windows will be killed by Symbian and Linux ...

I just realized that after using 5 minutes my brand new N95 ...

With this kind of devices and

Google Linux Desktops for 200€ why would you bother buggy software anymore ...

Google services in ever pervasing networks are always on ... no maintenance needed ... all your data is stored ...centrally .. no tweacking needed not Registry cleaners or whatsoever ....sh..t

The question is when Intel is going to realize that and jump to the Linux field ... even Nokia with Symbian has done it already ...

and when Nokia starts to produce wireless adaptors for your tv's or LCD monitors you will forget about Windows