Despite being one of the world’s most profitable companies, Microsoft is about to report its first decline in annual revenue in its 23 year public history. One could argue that this decline in sales revenue comes as a result of the slumping economy. While it’s true that many companies are putting off software purchases and upgrades as a way to cut costs and tighten their own belts, there is also an underlying shift in the software world that is beginning to gain some traction: the shift to online alternatives and software as a service (SaaS).
Computers now take on many different forms. Devices like the iPhone and netbooks are allowing the world ways to access software like never before. The Internet now lives in your pocket, and the applications running on these small devices are increasingly based in the cloud. The era of stand-alone PC’s installed with individual software programs is coming to an end. For a company like Microsoft that makes it’s money on selling up-front licenses to its proprietary programs, this shift is disconcerting to say the least.
So what is Microsoft doing to adapt to the changing landscape of personal and business computing? Unlike what it’s down for the past 10 years, Microsoft is going to be venturing into new areas with original ideas. Recent products like the Zune were aimed at simply playing catch-up with already successful products in the marketplace. Most of the time this will result in a massive financial loss. So, this time around, the new leaders in Redmond are exploring ways to stay ahead of the curve.
Microsoft is currently testing the waters in the SaaS market by offering Exchange and SharePoint as a monthly subscription service to businesses. This lowers costs to the end user by eliminating the need for expensive servers, IT workers, and maintenance. It also reduces their up-front costs by not having to shell out for a software license all at once, not to mention the hardware savings. In turn, Microsoft stands to make more money off these SaaS services by providing a complete solution that will cost more than a simple software license. It’s challenge is to find a price point that will work for both parties.
Hosting the software and providing constant support to end users is a monumental task, considering the shear number of companies running Microsoft software. These SaaS services will also increase Microsoft’s costs and reduce its profit margins, despite the fact that it will pull in a larger amount of money on the whole.
Microsoft is also adding new features to the upcoming Office 2010 suites. Applications like Word and Powerpoint will be more web-friendly than ever before. New tools will be unveiled that will allow document collaboration between multiple users, at the same time. Instead of emailing a draft of a document back and forth between members of a team, users will be able to work on different parts of a document at the same time.
There is no doubt that future editions of Office will explore this idea of software plus services even further. It will have to keep evolving in order to keep up with free services like Google Docs and OpenOffice.
Microsoft is not going away anytime soon. Windows still commands an enormous lead in the operating system market. It’s business software division, with titles like Office, Exchange, and Windows Server, is pulling in ridiculous amounts of money. However, in ten years the world of software will be completely changed, and Microsoft is planning its evolution to adapt to those changes.
For further reading, check out these great articles from Business Week:
Microsoft: Beyond ‘Software Plus Services’
Microsoft Defends Its Empire
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