Make us your home page
Instagram

Analysis: Microsoft no longer a tech innovator, but still a profit machine

When Microsoft announced its financial results for the second quarter last week, the market panicked. The firm's stock dropped 10 percent in after-hours trading, even though revenue and profits both topped their numbers from 2012's second quarter.

Why did the market freak out? The biggest reason was that Microsoft booked a $900 million charge for "inventory adjustments" for its Surface tablets. In plain English, Microsoft admitted that its heavily promoted tablet is selling poorly. And that's an ominous sign for the Redmond, Wash., firm's long-term prospects. Tablets and smartphones are the future of computing, and Microsoft is falling farther behind the market leaders, Apple and Google.

Even so, Microsoft chief executive Steve Ballmer shouldn't be too depressed. Microsoft probably won't lead the next generation of high-tech innovation. But history suggests that Windows and Office, its existing cash cows, will continue generating profits for years to come. The numbers bear this out: Second-quarter revenue was up 10 percent, to $19.9 billion. And profits were $6 billion, compared with a small loss a year ago.

Tablet computing is an example of what Harvard business guru Clay Christensen dubbed a disruptive innovation. While the term has become so overused as to render it almost meaningless, Christensen gave it a precise definition. Disruptive innovations are those that are dramatically simpler and cheaper than what's already on the market — in this case, the PC.

Tablets are less powerful than full-featured PCs. But their simplicity and low cost allow many more people to experiment with them — witness the hundreds of thousands of apps in the Apple and Google app stores. That has led to a rapid pace of innovation in mobile software. Over time, disruptive technologies like tablets outstrip the capabilities of the older technology like PCs, despite the latter's greater complexity and initial sophistication.

Microsoft has repeatedly tried to enter the mobile operating system market — with dismal results. The company introduced its first tablet PC more than a decade ago, and it was offering a mobile version of Windows for years before the iPhone came on the scene. But Microsoft was too invested in the PC business model to succeed in the mobile marketplace. It tried to offer the full capabilities of a PC in a mobile form factor, producing an interface that was too cluttered and confusing for small screens. And its business model of charging smartphone manufacturers for each Windows phone it shipped left the company flat-footed when Google offered Android for free.

Microsoft is due for a decade of stagnation as the computing industry shifts from PCs to mobile devices. Yet PCs aren't going away. Businesses are not going to put iPads on people's desks any time soon, and they're not going to ditch Microsoft Office in favor of Google Docs. So if Microsoft can keep its costs down, it can continue to be profitable for years to come.

Analysis: Microsoft no longer a tech innovator, but still a profit machine 07/29/13 [Last modified: Monday, July 29, 2013 8:41pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Washington Post.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. In advertising, marketing diversity needs a boost in Tampa Bay, nationally

    Business

    TAMPA — Trimeka Benjamin was focused on a career in broadcast journalism when she entered Bethune-Cookman University.

    From left, Swim Digital marketing owner Trimeka Benjamin discusses the broad lack of diversity in advertising and marketing with 22 Squared copywriter Luke Sokolewicz, University of Tampa advertising/PR professor Jennifer Whelihan, Rumbo creative director George Zwierko and Nancy Vaughn of the White Book Agency. The group recently met at The Bunker in Ybor City.
  2. Tampa Club president seeks assessment fee from members

    News

    TAMPA — The president of the Tampa Club said he asked members last month to pay an additional assessment fee to provide "additional revenue." However, Ron Licata said Friday that the downtown business group is not in a dire financial situation.

    Ron Licata, president of the Tampa Club in downtown Tampa. [Tampa Club]
  3. Under Republican health care bill, Florida must make up $7.5 billion

    Markets

    If a Senate bill called the Better Care Reconciliation Act of 2017 becomes law, Florida's government would need to make up about $7.5 billion to maintain its current health care system. The bill, which is one of the Republican Party's long-promised answers to the Affordable Care Act imposes a cap on funding per enrollee …

    Florida would need to cover $7.5 billion to keep its health care program under the Republican-proposed Better Care Reconciliation Act of 2017.  [Times file photo]
  4. Amid U.S. real estate buying binge by foreign investors, Florida remains first choice

    Real Estate

    Foreign investment in U.S. residential real estate recently skyrocketed to a new high with nearly half of all foreign sales happening in Florida, California and Texas.

    A National Association of Realtors annual survey found record volume and activity by foreign buyers of U.S. real estate. Florida had the highest foreign investment activity, followed by California and Texas. [National Association of Realtors]
  5. Trigaux: Tampa Bay health care leaders wary of getting too far ahead in disruptive times

    Business

    Are attempts to repeal Obamacare dead for the foreseeable future? Might the Affordable Care Act (ACA), now in dire limbo, be revived? Will Medicaid coverage for the most in need be gutted? Can Republicans now in charge of the White House, Senate and House ever agree to deliver a substitute health care plan that people …

    Natalia Ricabal of Lutz, 12 years old, joined other pediatric cancer patients in Washington in July to urge Congress to protect Medicaid coverage that helped patients like Ricabal fight cancer. She was diagnosed with Ewing's sarcoma in 2013 and has undergone extensive treatments at BayCare's St. Joseph's Children's Hospital in Tampa. [Courtesy of BayCare]