In the past few weeks, no other company has made as much news as Microsoft has made. It is going through some drastic change.
Exit of CEO Ballmer: One of the most controversial leaders tech has announced his decision to step down, after a long stint at the helm. No one has a clue of who the successor will be. The employees are already celebrating Ballmer's exit though.
An activist hedge fund has stormed into the board: On September 3, Microsoft announced that ValueAct that owns 0.8% of Microsoft will get a board seat. The $12 billion hedge fund has already started to call shots and might twist the hands of executives even more.
Nokia purchase: On September 3, Microsoft also announced that it is going to acquire the erstwhile mobile giant, Nokia in a $7.2 billion deal.
Battle for the future
I'm less worried about these and more worried about the fact that Microsoft is no longer setting the pace in technology. It is not the past, but the future that Microsoft (and its shareholders) should be most worried about right now. Tech companies are like sharks; they have to move and hunt aggressively to survive.
As an ex-Microsoftie, nothing is more infuriating than the lost opportunities. Let us look at some of the major trends that is taking hold of the tech world. Microsoft has wasted its strong position in each of these.
Wearable Computing. Apple, Samsung and Google are now trying to take computing to a whole new level, beyond just laptops and phones - into your sunglasses and watches. While Microsoft was the pioneer at this (with its Spot watches) it has no such trick up at its sleeve in the near future. A lot of promising wearable computing ideas have been internally crushed over the past 10 years of mismanagement.
Battle for your TV. Years ago when I first joined Microsoft, senior execs were talking about owning your living room. In their imagination, Windows entertainment center would take over your TV. But, it did not happen. In fact, at a time when the battle for TV is heating up among Google, Apple and Sony, Microsoft has thrown its towel.
Platform and Marketplaces. Microsoft was a pioneer in the app marketplace. Microsoft launched a marketplace for apps along with Windows Vista, back in 2006. Since, then it has been completely pushed out of the platform/marketplace battle. Amazon & Apple are vying for the book & music market place, Apple & Google are fighting for the app marketplace.
Reduced importance of Microsoft tools
As the cloud tools and smartphone apps are rapidly evolving, Office and Windows are becoming less critical to both consumers as well as enterprises. Most startup entrepreneurs I know, don't find a need for the Office or any other Microsoft tool. As these startups grow up to replace the incumbents, Microsoft technologies will gradually be pushed out.
Upstarts such as Box & Zoho are gunning for cloud based document creation, while Google docs and iWork have already replaced a sizable chunk of the work we previously did with Microsoft Office. As the competitors are eating Microsoft's lunch in the core markets, Microsoft has to envision a future where these tools would no longer be the market leaders to claim a premium margin.
While the big enterprises are still buying Microsoft's tools & servers, a disruption there might not be far along. It takes less than a decade to make a complete change in the enterprise market.
The examples of DEC, SGI and Novell should warn Microsoft that a company can rest on past laurels for only so long even when it has big enterprises locked. In mid 1990s Microsoft pulled the Netware rug under Novell's feet (with its NT) when NOVL was busy focusing on Wordperfect & Borland. Microsoft's competitors in Office and Enterprise tools could pull the same trick now.
A distracted Microsoft
The problem with Microsoft is that it is too reactionary. Amidst all the distraction from Nokia acquisition, dividend setting and managing the activist investors, Microsoft is getting even more lost in its vision for the future. It gave up its lead on entertainment and games (with Xbox and Mediacenter) to make unsuccessful foray into search and tablets. It is being pushed to a footnote in the major tech battles. It is becoming irrelevant in the talk about future technologies.
In the past 12 years, Microsoft stock has moved nowhere and that is a reflection of the capability of the management. The sad part is that the future doesn't look any better. None of the rumored potential CEO candidates have demonstrated an understanding of these evolving markets to help take Microsoft into the future.
Bill Gates had a really strong vision of the future (a PC on every desktop). None of Ballmer's rumored successors have spelled out such a clear vision in their existing roles. They are predominantly managers and not leaders or visionaries.
MSFT stock: 12 years of listlessness
In the absence of big visionaries, Microsoft is no longer a player in our discussions of the future. This is the thing that Microsoft's shareholders have to really worry about. Valuations are not about dominating the past. It is about dominating the future. Unless Microsoft brings a radically different approach in its vision of the future, its stock would continue to stay as a laggard.
Disclosure: I'm an ex-Microsoft employee and I grew my career there. Currently I have no open position in either Microsoft or its competitors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.