La División de entretenimiento se dará de lado, se venderá a alguien como Sony o posiblemente a Barnes & Noble o, incluso, se reducirá muchísimo. Sin posibilidad de crear beneficios, esta sección se verá como una gran distracción a la hora de intentar salvar Windows (y los líderes de Microsoft han demostrado durante mucho tiempo que no tienen ni idea de cómo conseguir aumentar sus beneficios).
Microsoft consigue más del 75% de sus beneficios directamente de Windows y Office. Menos del 25% proviene de sus servidores y aplicaciones por lo que la compañía no gana absolutamente nada de la división de Xbox/Kinect, mientras que pierde enormes cantidades de dinero con la parte online.
No importa cuánto le gusta a la gente los productos que no son de Microsoft, sin los históricos Windows y Office, la compañía no se sostiene, por lo que el fracaso es inevitable. En este punto, ni si quiera un nuevo CEO puede salvarla y si mantiene su dinero invertido, prepárese para perderlo.
Microsoft needed a great Christmas season. After years of product stagnation, and a big market shift toward mobile devices from PCs, Microsoft’s future relied on the company seeing customers demonstrate they were ready to jump in heavily for Windows8 products – including the new Surface tablet.
But that did not happen.
With the data now coming it, it is clear the market movement away from Microsoft products, toward Apple and Android products, has not changed. On Christmas eve, as people turned on their new devices and launched their first tweet, Surface came in dead last – a mere 2% compared to the number of people tweeting from iPads. (Kindle was second, Android third.) Looking at more traditional units shipped information, UBS analysts reported Surface sales were 5% of iPads shipped. And usability reviews continue to run highly negative for Surface and Win8. Including CNNMoney’s well thought out article about why transitional products like Surface have an inherent, likely insurmountable design failure.
PC sales declining
This inability to make a big splash, and mount a serious attack on Apple/Android domination, is bad news for Microsoft especially because we now know that traditional PC sales are well into decline. Despite the big Win8 launch and promotion, holiday PC sales declined over 3% compared to 2011 as journalists reported customers found “no compelling reason to upgrade.” Ouch.
Looking deeper, for the 4th quarter PC sales declined by almost 5% according to Gartner research, and by almost 6.5% according to IDC. Both groups no longer expect a rebound in PC shipments, as they believe homes will no longer have more than 1 PC due to mobile device penetration, a market where Surface and Win8 phones have failed to make a significant impact or move beyond a tiny market share. Users increasingly see the complexity of shifting to Win8 as not worth the effort; and if a switch is to be made, consumer and businesses now favor iOS and Android.
Microsoft’s monopoly over personal computing has evaporated
From 95% market domination in 2005 share has fallen to just 20% in 2012 (IDC, Goldman Sachs.) Comparing devices, in 2005 there were 55 Windows devices sold for every Apple device; today explosive Apple sales has lowered that multiple to a mere 2 (Asymco). Universally the desire to upgrade Microsoft products has simply disappeared, as XP still has 40% of the Windows market – and even Vista at 5.7% has more users than Win8, which has only achieved a 1.75% Windows market share despite the long wait and launch hoopla. And all future market growth is coming in tablets, which are expected to more than double unit volume sales by 2016. Microsoft is in a tough spot.
These trends mean huge challenges for Microsoft.
Microsoft makes more than 75% of its profits from Windows and Office. Less than 25% comes from its vaunted servers and tools. And Microsoft makes nothing from its xBox/Kinect entertainment division, while losing vast sums in its on-line division (negative $350M-$750M/quarter). No matter how much anyone likes the non-Windows Microsoft products, without the historical Windows/Office sales and profits, it’s hard to see how long Microsoft can remain sustainable.
What can we expect next at Microsoft?
Ballmer appears to have committed to fight to the death in his effort to defend & extend Windows. So expect death as resources are poured into the unwinnable battle to convert users from iOS and Android.
As resources are poured out of the company in the Quixotic effort to prolong Windows/Office, dividends should steadily diminish.
Expect substantial layoffs over the next 3 years. They could even reach 50-60%, or more, of employees.
Expect closure of the long-suffering on-line division in order to conserve resources.
The entertainment division could be spun off, sold to someone like Sony or possibly Barnes & Noble, or dramatically reduced in size. Unable to make a profit it will increasingly be seen as a distraction to the battle for saving Windows, and Microsoft leadership has long shown it doesn’t know how to profitably grow this business unit.
As more and more of the market shifts to competitive cloud infrastructure Apple, Amazon, Samsung and others will grow significantly. Microsoft, losing its user base, will demonstrate its inability to build a new business in the cloud, mimicking its historical failures with Zune (mobile music) and Microsoft mobile phones. Microsoft server and tool sales will suffer, creating a much more difficult profit environment for the sole remaining profitable division.
Missing the market shift to mobile has already forever tarnished the Microsoft brand.
No longer is Microsoft seen as a leader. Instead it is rapidly losing market relevancy as people look to Apple, Google, Amazon, Samsung, Facebook and others for leadership. The declining sales and lack of customer interest could lead to a tailspin at Microsoft not unlike what happened to RIM. Cash will be burned in the struggle to save what Microsoft sees as the core of the company.
Is failure already inevitable? Steve Ballmer played “Bet the Company” on the long-delayed release of Win8, losing the chance to refocus Microsoft on other growing divisions with greater chance of success. Unfortunately, competitors already had enough chips to simply bid Microsoft out of the mobile game – and Microsoft’s ante is now long gone – without holding a hand even remotely able to turn around the product situation. Now Reuter’s reports on a new book by a former Microsoft exec challenging the quality of Ballmer’s leadership from the inside.
The future is looking very difficult for Microsoft–and for your investment if you own Microsoft’s stock.
