Microsoft has been known since the start for its software, its operating system Windows changed how we were able to use pc’s while software like Office ended up being used by nearly every pc user around the world. You might argue that things are changing and that it’s far from clear how those will be able to compete in this new cloud based era. I would agree. Certainly, the domination that Windows has enjoyed will probably never be the same. That being said, I don’t expect a crumble anywhere near what Internet Explorer ended up suffering. Building an operating system is complex on so many levels and even powerhouses such as Google and Facebook are facing many challenges in coming up with a viable alternative.
Are Windows/Office and others slowing down? Not significantly. But the booming years of Microsoft certainly look way behind. Just take a look at this MSFT chart from the past 5 years, you will see what I mean.
A New Era?
I do think Microsoft is doing great things though with all of the cash that its software business continues to generates. After paying a reasonable and growing dividend, Steve Ballmer and others have been able to develop promising businesses.
Argue as much as you want, I think this still has to be seen as a success, even though it is proving a very expensive one. Microsoft is putting up billions of dollars into its online business, trying to compete with Google and others through Bing and its other properties. It has proven to be an incredibly difficult challenge which is no surprise. Almost everyone has given up on competing with Google in search but Bing continues to challenge. A remarkable success has also been the early stake in Facebook which not only was a good move financially but it has also helped Microsoft develop a great relationship with what is without question, the new dominant internet player. Facebook, which will become the biggest IPO in a long time to hit the markets in 2012 will be an important partner for Microsoft’s online division. How soon will it be profitable? It’s unclear of course but I personally think that the main priority should continue to be improving the product and the audience, everything else will come.
No doubt, many thought Microsoft was crazy to get involved in an industry dominated by Sony’s Playstation franchise. Where are the doubters now? The company has been incredibly successful and continues to be an extremely strong player in the fast growing gaming market with its Xbox 360.
Microsoft Taking Over The Living Room?
Slowly but surely, Microsoft is becoming a huge player in a space where Apple and others are fighting very hard: The control of our living rooms. As Xbox continues to gain market share, it has proven to be a premium place for all entertainment. There were games, links to providers such as Netflix but there is also a growing offering of tv shows, movies and all kinds of other entertainment options. On Black Friday, Microsoft sold 960,000 Xbox consoles in the US alone. A large portion of those users will start using Xbox to access entertainment.
Major Battle Coming Up
Of course, 2012 will be a big year for Microsoft as the Xbox is likely to compete with some type of offering from Apple when Apple comes up with a new product for our living rooms (some type of Apple TV). In the end, it comes down to valuations though and I personally think that Microsoft might turn out to be a very good play for 2012. Will it explode? Probably not. But there is much more upside than downside.
Disclosure: No positions on Microsoft (MSFT)