Bloodied Microsoft retains IT power

As least once a year, some financial analyst questions the long-term relevance of Microsoft, a company famous not for its innovation but for its history as a fast follower that learns from the mistakes of market pioneers.

That question of relevance is even more relevant post-October 2010 as Microsoft launches massive campaigns to win consumer hearts with Windows Phone 7 and Kinect for Xbox 360. At the same time, thousands of Microsoft solution providers assess whether or not they should maintain their elite Gold Certified designation under a rigorous new Microsoft partner program.

Some smaller partners say the marketing value isn't worth the extra training and certification expense. But for Guy Baroan, president of Baroan Technologies, an IT solution provider in Elmwood Park, N.J., the answer is "yes." Baroan Technologies actually let its Gold status lapse a couple of years ago but now plans to renew it. While acknowledging that Microsoft isn't an innovator, Baroan said it has enough resources to make solid products and needs to take a loss-leader position in certain markets. Indeed, it's hard to ignore a $62.5 billion software company.

"If anybody thinks Microsoft is not going to be relevant, they are crazy," he said. "Microsoft needs to have their footprint in everything. They need to know what is going on in the industry. If they are involved, they will have enough knowledge about the real opportunities that exist and how to stay relevant. If they are not involved, they will never know."

Finally: Microsoft progresses in search, mobile efforts

Some numbers that illustrate Microsoft's progress during 2010: Let's start with the eagerly anticipated Windows 7. According to Forrester Research Inc., the operating system is now used on approximately 10% of commercial desktops in North America and Europe. Adoption plans are aggressive, though, with close to 90% of businesses expecting to upgrade within 18 months, which means there should be a lot of action in 2011. In short, Windows 7 appears to be at least dulling memories of the lackluster Windows Vista release nearly four years ago.

Microsoft scored a win in search engines in September 2010 when it overtook Yahoo as the No. 2 search engine in the United States with a market share of 13.9%, according to The Nielsen Co. The good news is that it's up 30% year over year. The bad news is Google Search still owns a 65.1% share of the market. The mix should change with the next monthly tally. Starting in late September, Yahoo started using Microsoft Bing for search, and Google Instant Search also came online.

From a consumer standpoint, Microsoft hit the one million mark for Kinect for Xbox 360 sales within 10 days of launch in early November and it projects five million unit shipments before the end of the year. Analysts are waiting to see how long it takes the company to hit the same milestone for Windows Phone 7, which also hit stores this month, although early forecasts are lukewarm.

M.J. Shoer, president and virtual chief technology officer for Jenaly Technology Group Inc., a VAR based in Portsmouth, N.H., said bad memories associated with inadequate releases of Windows Mobile will make Windows Phone 7 a tough sell for businesses. "The iPhone delivered a blow to everyone, and Google responded first and very well," Shoer said. "Microsoft is the third responder. You have to wonder, have they lost an opportunity."

Still, solution providers say Microsoft needs to be in the mobile market because it is critical for Microsoft's most important upcoming transition — the cloud computing movement. It is critical, they say, for Microsoft to build its brand name with next-generation business users.

Wounded Office cash cow

"Microsoft has a very serious problem on [its] hands," said David Bennett, president of IT solution provider Connections for Business in Hollywood, Fla. "Its largest source of revenue is Microsoft Office. Even if you have a contender like Google that is not as robust, they are making steady inroads into users' conscious. Microsoft is very worried."

Some solution providers suggest that Microsoft's ability to offer all options of delivery, including on-premise, Infrastructure as a Service (IaaS), Software as a Service (SaaS) and Platform as a Service (PaaS) — accomplished with the Azure development offering — is its biggest strength.

"It is sort of like asking whether IBM is relevant," said Shoer. "The fact is that they are, and I don't think cloud will make the Microsoft Office business disappear." But, Shoer admits Microsoft's cloud message is sometimes confusing.

Derek Downs, vice president of advanced collaboration solutions division of network integrator INX Inc. in Houston, said Microsoft's experience with Xbox live gaming services could be instrumental as the company transitions to cloud services -- if it uses the benefit of that wisdom wisely.

Another of the company's biggest strategic weapons moving forward, he said, is SharePoint, which has become entrenched as a document repository in many midsized and large businesses. "Because of this, Microsoft will be very, very relevant moving into the cloud," Downs said.

Microsoft's other key weapon is its massive partner channel, said Oli Thordarson, CEO of managed service provider Alvaka Networks Inc. in Irvine, Calif. "Microsoft has scores of emotionally and financially devoted VARs and solution providers out there. Sure, Google and others have their fanatical, mostly not-for-profit prosumers [early adopters], but don't count out the deep bench that Microsoft has in place. Likewise, if this channel feels screwed or disenfranchised, there is a lot to come unraveled for Microsoft if the Microsoft devotees jump ship."
It's another reason to watch carefully as Microsoft partners decide whether or not to go for the Gold during the new certification renewal process.

About the expert
Heather Clancy is an award-winning business journalist in the New York area with more than 20 years experience. Her articles have appeared in Entrepreneur, Fortune Small Business, the International Herald Tribune and The New York Times. Clancy was previously editor at Computer Reseller News, a B2B trade publication covering news and trends about the high-tech channel.

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