The computer world has changed in fundamental ways, and Microsoft (MSFT) is being left behind. Clients have been simplified. Tablets and phones and e-book readers limit the ways you can interact with content; they limit the command structure.
But it has always been part of Microsoft's DNA that there are many, many ways to do something, and this has been clear to me, as a reporter, looking at some of the beta code coming out for Windows 9 and Windows Phone. Much of it looks like Linux – not Android Linux, command line Linux.
Microsoft has done some interesting work on interfaces over the years, like its Surface system, which you can see in many TV studios. And Kinect, which is pretty cool. But it still sees the world through the eyes of the PC, a device for creating content rather than just displaying it. It still sees its capabilities as things others should exploit and monetize, not itself.
The Microsoft business model has always been based on OEMs and developers acting at arm's length. It has angered the latter over the years by launching software in competition with existing products, but it has never sought to control Hewlett-Packard (HPQ) and Dell (DELL) (for example) the way Apple (AAPL) controls OEMs like iPhone maker Foxconn. Nor has it sought to take a 30% royalty on software and content bought for Windows, as Apple has done successfully with the iPhone and iPad.
Microsoft has many of the pieces needed to compete in this new world. It has a mobile division; it has a cloud; it offers an extensive set of online services. No other computer vendor has as popular a gaming platform as the Xbox. It has cash with which to control production, and it has distribution channels. What it seems to lack is both the will to change how it does business, and the knowledge of what that entails.
Amazon.com (AMZN) and Google (GOOG) are both following Apple's lead. Amazon's Kindle is becoming as powerful a platform in its space as the iPhone, and there are continuing reports the company will introduce a tablet tied to its cloud services. Google has both a cloud and the Android platform, which it's now taking more control of through the acquisition of Motorola Mobility (MMI).
Microsoft's participation in this new world is limited to its deal with Nokia and its tax on Android, based on existing patent rights. Meanwhile the PC market it dominates is circling the drain, made obsolete by the rise of tablets and smartphones.
Much has been made – even by me – of Microsoft's price multiple of 9-something, while it sits on over $52 billion in cash and short-term investments. Take out the cash and the PE multiple on the business starts to look like Ford (F) – tough.
The world has moved on. It wasn't that many years ago that Microsoft was worth a lot more than Apple Inc. – it now trails in that all important measure by $150 billion. IBM (IBM) is within $10 billion of it. Google is about $40 billion behind.
History is not kind to companies that miss the technology boat, that become enamored of how they do things and don't see that the world is moving beyond that. Microsoft needs to make some big moves, and soon. Certainly within the next year.
The company that once transformed the world must now transform itself, or it will find itself parked in Hewlett-Packard's garage with the rest of the antiques.