The technology industry has a distinct, fast-paced environment based on quickly developing and evolving trends, furthered massively by the extremely savvy nature of the consumers and triggered by extreme competition. Microsoft's (MSFT) position in this industry has weakened lately. There are a number of reasons for the weakened competitive position of the company.
Financially, the results for the first quarter appear acceptable, and cheap funding is likely to benefit the company. However, MSFT has faced mainly strategic issues which have put it in a weaker position in the industry. Microsoft needs a combination of innovation and execution of effective strategies to regain its position in the market.
Why is Microsoft Lagging Behind?
It is a fact that Microsoft has lagged behind its competitors in the industry in the recent years. The primary reason for this decline is associated with the company's strategy in the face of changing trends. Apple (AAPL) probably has been the most active and innovative player in the sector over the past five years. When we compare the two companies, we see that Microsoft has missed the complete wave of trends that have occurred in the technology industry. Firstly, the drifting trend of 'search' was not utilized by the company, and then the wave of 'social' media was completely ignored.
However, there is one front where I think the company has identified potential, and more focus is being given to this segment: the mobile devices business. Microsoft's hardware in the tablets market has not done well, but its software has had substantial success. According to IDC, tablets using Microsoft platform grew the most in the past year, and market share went above 7%. The platform is the third most popular behind iOS and Google's (GOOG) Android. Windows phone is another product which can bring in considerable business for the company.
Microsoft was not putting much effort in promoting its WP8 phones, an ill-advised strategy, taking into account the stake of the company in WP8 phones. Microsoft's success is related to the hardware manufacturers, such as Nokia (NOK), which sells about 80% of WP8 phones worldwide. Recently, the company has helped Nokia promote its new handset, which I believe is the step in the right direction, and with Microsoft's help, its partners will be able to sell more WP8 phones. Furthermore, the company should also try to add more hardware manufacturers to the platform in order to achieve better penetration and reduce the dependence on one hardware manufacturer.
Being a software developer for more than one industry gives the company some diversification. However, the biggest component of the company's market, personal computers, has been on a decline, which has weighed heavily on the performance of Microsoft as well as hardware manufacturers such as Hewlett-Packard (HPQ).
Microsoft's Cloud Computing
Cloud computing is another segment of the industry that is contributing heavily towards the growth of some technology giants. Amazon (AMZN) has benefited heavily from its early entry into the sector, and Google is also trying to get a foothold in this lucrative segment. Microsoft is probably the best-positioned company to take advantage of this boom due to its solid infrastructure and global presence in the segment.
Microsoft is lowering its prices and has also been involved in a battle with Amazon to hire each other's employees. Josh Waldo, Microsoft's Senior Director of cloud partner strategy, believes that the company 'dwarves' its competitors. In order to compete with bigger players like Amazon, Microsoft has opened itself to public operations, which will definitely improve the position of the company. At the moment, Amazon is the leading player through its A.W.S, and Microsoft along with Google and Hewlett-Packard, is trying to take a bigger portion of the pie. Cloud computing will make Microsoft's business much more flexible and provide appropriate diversification to reduce risks.
Although Microsoft's core business segment, Windows OS, is not performing as well, other segments of the business are providing decent support. The diversification of company's business activities has served its purpose by limiting the damage done by one business segment. The performance of other segments appear to be robust as the new segments, specifically mobile and cloud, are growing, and Microsoft's competitive positioning is likely to trigger and sustain growth. Therefore, if the company's other business segments are able to maintain their momentum, the company is likely to further its growing position in the market and become a valuable investment.