Microsoft announced its fourth quarter results this week. In fact its performance contributed to the fact that for the first time in the current downturn the software market (measures as vendor revenues on a rolling 4 quarter basis) declined – by 2% in Q2 2009.
I thought I’d take the opportunity to update you on the company’s direction. A picture of the development of Microsoft’s revenues by division is shown in Figure 1.
All lines are showing substantially worse results than in previous quarters, with Client suffering the worst fall (-29%) followed by Entertainment… (-25%). Servers and Tools (-6%) performed best of all during the quarter. Microsoft’s strong links to computer hardware explains its poor showing in the client area, where I expect the Q2 decline will be at least as steep as the -17% experienced in Q1. Its currently stronger performance in the Server and Tools area is despite the fact that the server market is in even steeper decline (-23% in Q109). Microsoft is undoubtedly gaining from the greater role software plays in x86 (compared with Unix and mainframe) server markets. However it will find it hard to improve its business here in view of the huge decline in this area (I expect a 26% decline for server hardware revenues worldwide in 2009).
As leader of the software market Microsoft is doing worse than its competitors (see Figure 2), although all are suffering poorer results during the downturn.
I expect the sector to decline by 13% to $609 billion in 2009. Microsoft is also doing worse than other Web 2.0 suppliers (see Figure 3) on a rolling 4-quarter basis.
For the rest of this article I thought it would be worthwhile looking at the various announcements Microsoft has made during Q2 2009 to see its direction.
Microsoft Continues To Collaborate With Other Suppliers During Q2 2009
As before Microsoft announced a large number of collaborative activities with other organisations during the quarter. In particular:
- April – It announced it was working with Perot Systems and Philips Healthcare on e-health solutions and its initial partners for its Online Services, including Accenture, Avanade and HP’s EDS along with over 4,000 others around the world
- May – it announced that it was working with NetApp on virtualisation solutions for customs and freight brokering applications, with Agree Technology to deliver ‘Super Teller’ to the Xiamen International Bank, it renewed its cross-license agreement with HP and expanded their alliance in Unified Communications and Collaboration applications, it reported that it was working with Netflix on improving TV delivered to PCs and announced its Social Enterprise Alliance
- June – it introduced a new CRM scalability benchmark with Intel, announced it was continuing to work with Novell on interoperability between Windows and Linux, with the University of Miami Miller School of Medicine and the City of Miami on improving diabetic care using collaborative technology and it set up a national and local TV advertising Alliance with NBC Universal in the US.
At the beginning of July it was reported to be in discussions with Yahoo to share in Web search activities, although the lack of a joint announcement suggests that Yahoo is still against a partnership, at least for the time being.
Microsoft Was Light On Acquisition Activity In Q2 2009
In May Microsoft agreed to acquire BigPark, a Canadian on-line gaming company and in June that it was purchasing the assets of Rosetta Biosoftware from Merck. However, over all it was less active in this area than other large software companies, especially at a time when Oracle is in the process of acquiring Sun Microsystems.
Microsoft Was Light On Cloud Computing Announcements In Q2 2009
In April Microsoft announced it was working in collaboration with HP’s EDS to sell and deliver Cloud communications and collaboration Services. It also demonstrated Data Centre, client and Cloud Computing management at the Microsoft Management Summit in Las Vegas. Its Tellme subsidiary also demonstrated Cloud voice applications for call centres. However it has not announced any Cloud initiatives since April, despite the increased releases from its competitors and OEM partners. I have noted elsewhere that Cloud Computing is one area in which vendors can try to beat the downturn as it helps end-users to shift from capital to operational expenditure during the downturn. On the positive side companies such as DataScape Online indicate that Microsoft is more advanced than many in allowing its products to be sold as Software as a Service (SaaS).
Microsoft Continues To Advance Corporate And Social Responsibility In Q2 2009
Microsoft continued to announce new CSR initiatives during the quarter. In particular:
- April – It introduced the Citizen Safety Architecture to help governments improve public safety and address security threats. It also announced its ‘Imagine Cup 2009’, a competition for students around the globe.
- May – It launched an Open Government Data Initiative, introduced a prototype online career planning application for students in Alabama and announced that it was working with Feeding America to help fight hunger.
- June – It launched its Higher Education ICT task force along with UNESCO
As other vendors are finding out, continuing to show consideration for various stakeholders is a good way of maintaining a good reputation during poorer economic times, as well as in helping communities in emerging countries who are suffering more than emerged ones during the downturn.
Microsoft Is Getting Ready For Windows 7 Launch In October 2009
Microsoft is a strong product-oriented company. Its announcements included a number of substantial new releases during the quarter. For instance, in April Microsoft it launched a public beta version of Exchange 2010, its BizTalk Server 2009 and the first release candidate of Windows 7. In May it introduced its Bing search engine, while in June it announced a launch date of October 22 for its Windows 7 operating system. It also expects to ship Windows Server 2008 R2 at the same time. In June it also launched Bing Travel and its on-line Hohm application, which is designed to educate American consumers on energy efficiency issues.
What Should Microsoft Put In Its New Strategy?
In my last article on Microsoft I suggested a number of directions I expect it to address in its strategy for its new financial year which started in July. Looking at its latest results it seems more important than ever for it to address a number of themes which will help it reverse the downturn in its revenues. For instance:
- Cloud Computing – I know it is investing in a number of Data Centres in EMEA to allow it to offer its own SaaS and other services. Its collaboration with a 4,000 partners in the Online Services area (mentioned above) indicates that it is getting ready for a major push. De-emphasising its dependence on computer hardware is one way of avoiding continued declines linked to the huge reduction in hardware spending this year.
- Operating Systems – Obviously Windows 7 will be a major launch. The fact that it is coming relatively quickly after Vista may a tacit recognition the failure of that product to enthuse its users. It would also be sensible for Microsoft to concentrate on skinnier versions of its new operating system in order to participate in the decoupling of hardware and software and the growth in self-service and SaaS from a client perspective. It will also need to work out how serious a threat Google’s newly announced operating system will be to its business in coming years.
- Resolving Its Differences With the EU – In July Microsoft announced that it had suggested ways of conforming to the EU’s rulings on browsers embedded in its operating systems, which have been the subject of a number of legal actions over the last few years. It will be keen to avoid recurring legal action, which resulted in substantial fines in the past.
Of course I expect Microsoft will continue to look at its costs and survival tactics during this deep current downturn. I would welcome your opinions on how well equipped it is and what other issues you think it faces during the rest of 2009 and beyond.
Filed under: Microsoft, Software Tagged: | Accenture, Agree Technology, Avanade, BigPark, Bing, Biztalk Server 2009, City of Miami, Datascape Online, downturn, EDS, EU, Exchange 2010, Feeding America, HP, Intel, Martin Hingley, Merck, Microsoft Citizen Safety Architecture, Microsoft Imagine Cup 2009, Microsoft Open Government Data Initiative, Microsoft Social Enterprise Alliance, Microsoft Tellme, NBC Universal, NetApp, Netflix, Novell, Oracle, Perot Systems, Philips Healthcare, Rosetta Biosoftware, Sun, UNESCO, University of Miami Miller School of Medicine, Windows 7, Windows Server 2008 R2, Xiamen International Bank, Yahoo
