Microsoft can fend off mobile, cloud competition

February 15, 2011 Off By David
Grazed from ZDNet.  Author: Kevin Kwang.

Duncan Jones, principal analyst of sourcing and vendor management at Forrester Research, noted that because of its long-term dominance over the PC market, Microsoft was unable to react quickly to "real competition" from cloud-based vendors. As such, he said rivals Google and Oracle have been touting their Web-based office productivity tools and operating systems (OSes) to try and wrest market share from the market leader.

Google, for instance, announced in October last year that it is riding on telco partnerships to better penetrate the enterprise market. It added that Google Apps had been deployed to 3 million business users and over 30 million end-users. Dave Girourd, president of Google’s enterprise division, even suggested in November 2009 that firms can get rid of Microsoft’s Office in a year’s time.

That scenario, though, has yet to materialize.

Meanwhile, Oracle unveiled its Cloud 1.0 product–a cloud-based version of its OpenOffice product that it inherited from its Sun Microsystems acquisition–in December last year which targeted Web and mobile users.

However, Jones said these alternative offerings will not "truly rival" Redmond’s Office suite, noting in an e-mail interview that Office’s dominant position "looks unlikely" to be under threat any time soon.

According to Microsoft Asia-Pacific COO Andrew Pickup, the company will respond to these cloud-based competitors with its free, online-based Office Web Apps, which will be rolled out to users next month.

Pickup told ZDNet Asia in an e-mail: "Consider that in just over six months after [the beta version of] Office Web Apps were introduced, more than 30 million people used it to view, edit and share Office documents from anywhere. The Office Web Apps are a key piece of Microsoft’s overall cloud strategy, and we are very pleased with the speed and efficiency by which we are able to offer it to the entire world."

Windows slow to mobile fight
Microsoft’s Windows OS business, however, might come under more pressure from Google to further transform. Bloomberg had reported in January that a shortfall in Windows revenue in Redmond’s second-quarter revenue results dampened the company’s better-than-expected overall market performance.

Tony Ursillo, an analyst at Loomis Sayles & Co., said in the report: "The stock has gotten very little credit for it because the market is worried about the continued erosion of the Windows franchise and the potential erosion of the Office franchise."

Microsoft CFO Peter Klein added that the company did see a "small impact" from tablets and other types of computing devices, though it was "not material".

Archrival Google has a significantly stronger presence in the mobile computing space with its Android mobile OS. Research firm Canalys unveiled the platform’s dominance when it reported this month that shipment of Android-powered smartphones overtook Symbian-based devices in the fourth quarter of 2010.

Furthermore, the Android 3.0 Honeycomb OS is also prepped to corner the tablet device segment as vendors such as Motorola and Samsung, among others, are in the midst of releasing devices powered by the latest iteration of the Google mobile OS.

Its Chrome OS browser-based system, which is aimed at migrating enterprises from on-premise, client-based deployments to a purely cloud-based one, is also seen as another potential threat to Redmond’s Windows OS and server business.

However, Matt Healey, program director of software and services at IDC Asia-Pacific, reckoned that while it is "a bit late" into the game, Microsoft is heading in the right direction.

"Its announcement that the next version of Windows will run on ARM-based processors was a good step forward," Healey explained in his e-mail. "It enables them to participate in the growing [mobile computing] market."

The software vendor is aiming to create smaller, thinner Windows tablets with better battery life, according to a Bloomberg report.

Pickup also cited the Windows Phone 7 OS as a platform that is aimed at placing Microsoft strongly in the mobile arena. He noted that as consumers are doing more work on mobile devices, the Windows Phone 7 software is developed to help them do more in fewer steps.

Combined with Office, the platform offers "greater productivity than we’ve seen on smartphones before", he added.

According to Forrester’s Jones, Microsoft’s licensing practices will stand well amid the mobile computing trend, which the analyst said was "no threat to Office at all".

He noted that the software vendor sells Office licenses according to per device, and not per user. So, as personal productivity tasks extend to mobile devices, this would mean more revenue for the software giant as companies will have to buy licenses for multiple devices, he added.

Battling against customer inertia
The "real threat" to Microsoft’s Office and Windows business lines, instead, is that consumers are so content with the current product that they see no need to keep upgrading.

Elaborating, Jones said Microsoft is caught between serving its retail and business customers. For the former, Redmond aims for a big release every few years to stimulate new sales, like it saw with the launch of Windows 7 in December 2009 and later with Office 2010.

In comparison, enterprise customers want more functionality for their software in between large, disruptive upgrades, so Microsoft will have to find a way to ensure steady revenue streams, the analyst said.

Office 365, formerly branded as Business Productivity Online Standard (BPOS), is therefore important to Microsoft for two reasons, Jones surmised. Depending on the plan customers sign up for, the software suite would include both the free and full-functioned Office product with other features such as SharePoint, Exchange Online and Office Communications Online. This will allow users with multiple devices to just pay once, he said.

Microsoft can then release updates to these products more frequently and in smaller increments to justify a regular revenue stream from its business customers, he noted.

"Google [and other potential rivals] aren’t nearly as big a threat [to Microsoft] as inertia is," Jones said.