Is Microsoft Waking Up Too Late?

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

On July 11, Microsoft (NASDAQ: MSFT) announced a realignment of its company along the lines of function instead of product line. Microsoft hopes that these functional teams can collaborate on developing products that can compete with the likes of the Apple’s (NASDAQ: AAPL) iPad and iPhone, as wells as the Google (NASDAQ: GOOG) Nexus tablet and Android smartphone. Unfortunately, it seems that Microsoft may be waking up too late.

Way behind

Microsoft resided in an embarrassing sixth place in tablet shipments during Q1 2013, owning a dismal 2% of the market. Apple maintains market leadership with a 39% market share. In an act of desperation Microsoft cut the price of its Surface RT by $150 to spur consumer interest. In fact, Microsoft had to take a $900 million charge in its most recent quarter stemming from inventory adjustments on its Surface RT.

In the most recent quarter, Microsoft experienced an increase in revenue of 10% due to its new product cycle, versus Apple’s 11% increase. Google blew past both of them with a 19% increase in revenue. Over the long-term it will most likely be a fight between Apple and Google in terms of tablet and smartphone market leadership, with Microsoft in last place as a fading tech name. 

Currently, Microsoft’s chief core competency still resides in operating and productivity software on PCs. With PCs on the endangered species list and the world moving toward a cloud-internet-app consuming marketplace, Microsoft not only needs new products but a new way of thinking in order to move the needle on its place in the new tech paradigm.

Cultural shift

Based upon the restructuring announcement, you could infer that Microsoft’s product divisions kind of operated on their own without much interaction with other divisions. Each division even sported its own procedures and financing. This created too much bureaucracy.

Steve Ballmer realized that he needed to re-invigorate Microsoft’s mojo by encouraging entrepreneurial drive among employees. An entrepreneurial culture seems to work for other big companies such as Coca-Cola and Starbucks as they encourage stakeholders to develop product ideas of their own. His statement in the most recent quarter serves as proof of his belief in this new approach,

Our new products and the strategic realignment we announced last week position us well for long-term success, as we focus our energy and resources on creating a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value the most.

Product innovation and transformation

Teams will need to work together on producing products that consumers will want. For example, the teams may work together on creating a cloud-based operating platform with an app that will stream videos in order to compete with the likes of Netflix.

In addition, engineering could work with marketing to develop an aesthetically appealing tablet that could rival the iPad.

Microsoft’s employees need to fully synthesize the changes before they can begin to think about honing creative and engineering skills that can lead to products that will help move the company forward. In the meantime, Google and Apple will continue to solidify their positions in the tablet and smartphone markets.

Conclusion

In summary, Microsoft stands at a crossroads between a PC-based tech paradigm and a tablet/smartphone tech paradigm. Employees will need to acclimate to Microsoft’s new function based team environment and by the time they do Google and Apple will stand more entrenched in the new tech paradigm. Microsoft overslept and it’s too late.

What do you think? Feel welcome to comment in the box below.

It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.


William Bias has a position in Apple. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, 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!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure