How Can Microsoft Stay Competitive?

| About: Microsoft Corporation (MSFT)
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So, you've been wondering what Microsoft (NASDAQ:MSFT) has been up to in order to stay competitive in today's tech arena. It has, in fact, been up to something: an online document storage service.

Microsoft recently announced the launch of Office Live Workspace, which allows users to store, share and collaborate their offline Microsoft Office documents via their online service. (Yawn.)

Attention Microsoft: this isn't what users want or need. This service may have had some use a few years ago, but it is clear that we are rapidly moving toward a Web-based Office world. Adobe (NASDAQ:ADBE) seems to understand this industry trend with their recent acquisition of Virtual Ubiquity.

What do users want, and how can Microsoft stay competitive in a rapidly changing industry? To answer that question, I think it's a good idea to understand that Microsoft is in many different industries; some it's excelling in, and some it's not doing so well in. Upon closer examination, it only makes sense that Microsoft should operate independently in the different sectors of the industry that it's currently in.

Microsoft's Hypothetical Future: Organizational Spin-offs

In order to maximize their effectiveness and effectively compensate shareholders, Microsoft should start spinning off its divisions into separate organizations. This type of break-out was rumored during the lawsuits in the late nineties, and I think it makes mores sense now than ever.

Here's a look at what these hypothetical spin-offs might look like:


Microsoft OS - Vista, Windows Server

The operating system has always been Microsoft's #1 flagship product behind the Microsoft Office suite. Vista will ultimately be their largest-selling operating system of all time... Within the next decade, however, we will begin to see a major pull away from desktop-based operating systems as Web-applications become richer, more fully-featured and more services are made available online.

Microsoft Gaming - Xbox Platform, Gaming, Xbox Live

The Xbox has been a tremendous success for Microsoft. Fueled by Blockbuster games such as the Halo series, which puts most block buster movies to shame (Halo3 did $170M in sales in the first 24 hours) this is a market which can only continue to grow.

Microsoft Network - Live, Search, Maps, Web Portal & Online Content

Microsoft should take all of its online initiatives and put them here, consolidate MSN and Live into one brand, and then hire the best and the brightest to ramp it up. This is where Microsoft needs the biggest help; they are always a step behind here, playing catch-up every step of the way. Most of their online initiatives are laughable, and these are problems that money can't fix; they need to start looking at recruiting top-talent and innovation or they will always be another "Me Too" player in this arena.

Microsoft Applications - Microsoft Office (online and off), IIS, Encarta, Sharepoint, etc.

Microsoft Office is the most well done, successful office suite in the world, and while I don't think it's going away anytime soon, I do think it's days are numbered in its current form. Similar to the traditional Desktop OS, the Microsoft Office suite is not yet on life-support, but with web-based office applications gaining in popularity, Microsoft really needs to be putting more effort into porting their applications online if they want to survive. Microsoft should make it a major initiative to take a look at all of their current off-line software and begin figuring out what makes sense to move to the web, and what doesn't.

Microsoft Developers - Visual Studio, .NET Framework, SQL Server, etc.

Microsoft is very strong here. Thousands of companies rely on Microsoft's .NET development tools to build Websites, Web applications and off line desktop applications. This has been a successful product offering from Microsoft and has created tens of thousands of IT jobs around the world. As more companies build out more technical services, Website enhancements, etc., I can only see this sector getting bigger in the years to come.

Microsoft Business Services - Consulting Services

Technology Consulting and Support is another area of business that has done well for Microsoft, not only because they push Microsoft products but because their consultants are so well versed in bridging the tap between business and technology, which is a problem that all modern businesses face at one time or another.

Conclusion

In order for Microsoft to stay competitive, it needs to become more agile and able to adapt its business toward future trends. Microsoft's current cash cows, the Windows operation system and the Office suits, will no longer exist in their current form in 10 years. Some of Microsoft's other offerings will only continue to grow, and some will be on their way out their door unless some major progress is made soon.

I think many of Microsoft's lagging business units have accounted for their rather lackluster performance in the last year. Analysts have been going crazy comparing Microsoft to Google without really examining what inside Microsoft Corp. is working, and what is not. If the market focused on what Microsoft has been doing right as an organization I think shareholders would be feeling a little better about their current situation.

Disclosure: none