Can Microsoft Rise above the Surface?

Jay is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

It was another disappointing quarter full of declining revenues for Microsoft (NASDAQ: MSFT). The stock has been stagnant for the last three years, whipsawing mostly between $25 and $30. It seems that investors just haven’t shown a strong faith in Microsoft, no matter what the company has done. The latest launch of Windows 8 also has had minimal effects on the stock, even though the effort is meant to ensure the continuing dominance of its operating system in the era of mobile computing. The full impact of the mobile-enhanced Windows 8 may have yet to be seen. For now, it does make people wonder if being a software developer alone is still a concrete business strategy in today’s computing market that is seeing consumers increasingly attached to gadgets and devices.

Building its own tablet, the Surface, has served as a stepping stone in Microsoft’s attempts to stay closer to consumers and the market. But will Microsoft go beyond the Surface to continue its hardware pursuit, or leave the chance of keeping its Windows open in the post-PC era in the hands of its old PC-making partners?

Many PC makers, most noticeably Dell (NASDAQ: DELL), have been trying to divert some of their resources away from the PC business. Thus, the notion of Microsoft becoming a competitor to its PC partners if starting to make hardware itself doesn’t really reflect what‘s going on within the PC-making business. Today, only about half of Dell’s revenue is from PC sales, and at some point Microsoft will have to pick up the slack if it wishes to maintain Windows sales an ongoing source of its revenue.

Leveraging one’s own software design to produce the optimal hardware has become an industry trend following the advent of mobile computing. For example, Google (NASDAQ: GOOG), with its Android mobile operating system holding the largest chunk of the smart phone market, is adjusting its sole software-provider role and trying to stand directly before consumers. As much as it is software that dictates what a piece of hardware can and cannot do, it is the device that comes in contact with consumers, visually and physically, and helps build a loyal consumer following.

Even though Google doesn’t worry about hardware makers’ willingness to base their device-making on its software -- the kind of concern for Microsoft with Windows -- it sees a good reason not to leave the task of turning a good software design into effective hardware uses entirely in the hands of device makers. The Motorola phone and Nexus tablet may help Google project a more refined software framework onto the devices, which may not always be achieved by outside device makers.

It can be ironic sometimes to think that while the computing market, at least on the consumer side, has become more and more device-driven, the computing business at its core has never been more software-defined. Consumers nowadays may easily become fixated on a device, but only if the device has an easy-to-use platform and is broadly app-supported, which has everything to do with the software behind the device.

As a software developer, Microsoft, if deciding to enter the hardware-making field, would be in a better position than its PC partners in understanding how adjustment and refinement of its own software as applied to building specific devices could make a device’s functionality more aligned with a software‘s intended design. Thus, it doesn’t seem to be a winning strategy that Microsoft would count the future of its Windows solely on other device makers whose products may not fully reflect what the software can offer.

It is a critical time for the PC business and Microsoft, as its Windows OS powers an overwhelming majority of PCs. While makers of PC hardware can switch to making other things, Microsoft has to defend the PC market, which is really its own market. It is also an uncertain time to invest in Microsoft, and before committing to the company, investors probably will need some hard evidence as to whether or not Microsoft has any intention to build more devices to help attract consumers of the post-PC era.









JJtheArdent has no positions in the stocks mentioned above. The Motley Fool owns shares of Google and Microsoft. Motley Fool newsletter services recommend Dell, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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