Nothing Merry in Redmond: The pile on Microsoft continues

By Sarah Lacy , written on December 25, 2012

From The News Desk

According to our own Farhad Manjoo, this fall was the time to watch Microsoft. It was the time when it would break out of its slumber and try something truly innovative in its cash cow, as of then uninspiring, core operating system business.

Windows 8 was a bold new attempt to refresh the company, Manjoo argued, along with other recent moves like the surprisingly good Windows phone. Bold was overdue from Microsoft, given Apple's dominance in smartphones and tablets, and the 10-year quagmire Microsoft's stock had fallen into. It was so bold that Manjoo argued the fall of 2012 would determine Microsoft's very fate as a company.

Well, Microsoft shareholders better hope Manjoo was wrong in how much was riding on the Windows 8 launch. Because evidence has continued to mount that it has not gone well. Our own Kevin Kelleher wrote about the snoozefest of a Black Friday Microsoft stores had, and today the New York Times piles on more with numbers from NPD that show there's no way of putting a happy face on this launch.

Far from enjoying a surge of any kind, NPD says that sales of Windows machines have actually dropped from last year. Stores in the US sold 13 percent fewer Windows devices from late October through early December -- yep, over this pivotal make-or-break Fall. The figures do not include Microsoft's stores, but there aren't many of them, so NPD doesn't expect that would make a huge difference.

It's not just that Windows 8 is different, as the Times and NPD point out. Microsoft is no longer operating in the same world it did even when it launched the much hated Vista. Not only has Apple made inroads into the PC's market share, the computer isn't the core of the consumer's online life now. Neither are retail stores like BestBuy the place to purchase hardware and software. Microsoft had been able to hold onto its hegemony as long as the world had stayed the same. But now, slowly and finally, the channels, the competitive dynamics, and the usage patterns are changing.

And it's a world Microsoft just doesn't get. I give them credit for trying. It tried to radically shake up the playbook. But its own Apple-like retail stores came late onto the scene, and its Surface tablet -- while different from an iPad -- is still too much like a computer. It succeeds in making something other than a "me too" device, but in the process, the Surface misses what is fundamentally different and exciting about tablets. They're more about media than productivity.

It shows the Catch-22 of lagging tech giants. As much as we talk about things changing in the tech world, things can stay the same for a surprisingly long time. But once the tide starts to change, pulling it back is hard. Inertia is a surprisingly strong and underrated force in an industry that fixates on new launches every year that promise to change everything!

Microsoft executives have said that the shift to Windows 8 is so large that its success simply can't be assessed in a few months. That may be true. But I'd add two caveats.

The first is that narrative matters when it comes to eating into Apple's "cool factor." And there is simply no buzz around Windows 8 or the Surface, no matter how much Oprah Tweets about it (from her iPad).

The second is that when big, publicly traded companies make a huge shift, and it doesn't pan out, they tend to lose their nerve. Only a handful of CEOs have the fortitude to wait out a disbelieving market. And while the king of that lives in Seattle, he works for Amazon, not Microsoft.

[Original image courtesy Maurizio Zanetti]