Microsoft May Be Threatened By its Own Business Model (Commentary)

BusinessWeek magazine’s July 6, 2009 cover story “Microsoft Defends Its Empire” is interesting.

Microsoft has been the king of the computing empire for the last 15 years. They provide the operating system for office desktops, laptops and servers for most businesses. Microsoft Office and Exchange Email applications are the industry standard today.

If that is the case, why is Microsoft playing “defense?” Why should understanding this matter to your business?

The ubiquity of broadband and the power of the Internet threaten Microsoft more than any other player in the computing industry. The company’s model depends on businesses continuing to buy desktops, laptops and server hardware equipped with Microsoft software. Most technology people today raised in the era of Microsoft will recommend that you do.

As a business owner or leader, you have probably realized that the fact that you own this stuff today doesn’t mean that you won’t have to buy it again in the future. Businesses buying slightly improved versions of something they already own is at the heart of Microsoft’s business model.

The reality is that businesses are growing tired of this. The marketplace has rejected Microsoft’s latest operating system, Windows Vista. Whether or not the newest “latest” Windows 7 will get a better reception remains to be seen.

Microsoft Office 2008 has not received a warm welcome by users. Microsoft’s Small Business Server software has added features and complexity more designed to drive Microsoft revenue than to actually serve the needs of small businesses. Microsoft Exchange 2007 requires a significant investment over the 2003 version.

What are the alternatives for small, medium-sized and even large businesses that are causing Microsoft to play “defense?”

The opportunities to move computing to the cloud are increasing every day. Tired of paying for Microsoft Office? Google Apps or OpenOffice provide the bulk of Microsoft Office functionality without requiring a software purchase.

Tired of the expense of “back of the house” server hardware and software? Rent just what you need from a vendor in the cloud.

Business applications you own can be hosted in the cloud just as well as on your own computers, avoiding the purchase cost and the expense of in-house management. Many times business applications can be provided by the cloud for rent at less cost and with more functionality than if you owned them outright.

Sound crazy? Not to Microsoft. In spite of personal sales calls by Microsoft CEO Steve Ballmer, major corporate customers have switched to Google Apps.

Microsoft Exchange, long the industry standard of business e-mail, is available in a hosted version from a variety of vendors, including a reluctant Microsoft. Cloud vendors rather than businesses are making server software purchases. Low-cost Linux operating systems are replacing Windows-based operating systems in many server farms.

At the most fundamental level, smartphones and Netbooks are threatening Microsoft’s desktop operating system business. Cloud-based services that deliver applications and content via a Web browser are independent of any specific operating system.

Apple’s iPhone is the latest example of where the power and ubiquity of broadband and the capabilities of the cloud collide to threaten Microsoft. A user of an application (or “app”) on the iPhone is making use of cloud computing. Major corporations are investing today in developing or retrofitting internal use applications using cloud-computing techniques featuring the iPhone as the user interface.

While most small- and medium-sized business owners are focused on running their business and have little time to pay attention to such things, huge changes are taking place that have the opportunity to significantly lower the cost of the technology needed for their business. At a minimum, business owners should highly question any recommendation for further investment in “back of the house” servers and software or investments in any type of Microsoft licenses. Not doing so could lead to unnecessary spending.

(Steve Hankins is CEO and co-founder of Accio.US of Springdale, a technology company providing advisory and management services for small to medium-sized businesses. He may be reached at [email protected] and followed on Twitter as @stevehankins or @accious.)