Can Microsoft Rise Again?

Mar 26 2014, 9:22pm CDT | by

After some early flops, Microsoft is getting its tablet strategy right.

First, it came up with Surface 2, which gets the hardware-software bundle right at a competitive price. With its Windows operating systems, Office Suite and keyboard, the Surface 2 has bridged the gap between laptop and tablet, catering to users who seek the full functionality of a laptop rather than a smartphone in a tablet.

Second, Microsoft entered a partnership with Best Buy to place Windows Stores at Best Buy stores.

As we wrote in previous pieces, these strategic initiatives have paid off. Late in January, Microsoft announced revenue of $24.52 billion for the quarter ending December 31, 2013. Gross margin, operating income, net income, and diluted earnings per share for the quarter were $16.24 billion, $7.97 billion, $6.56 billion, and $0.78 per share, respectively.

One notable area of improvement has been the company’s tablet segment. Surface revenue more than doubled sequentially, from $400 million in the first quarter to $893 million in the second quarter.

Wall Street has taken notice. While Apple’s stock has been trading sideways, Microsoft’s stock has regained momentum, pushing towards multi-year highs.

Now, the company is about to release a version of Microsoft Office for Apple’s iPad, which could boost Microsoft’s stock by $2 to $4 per share,according to Jefferies & Co.’s Ross MacMillan—the company reiterated a Buy rating on the shares.

But can these strategic moves help Microsoft rise again?

Probably. But they aren’t sufficient—they won’t solve the “innovator’s dilemma,” as explained by M. C. Christensen. “Successful companies want their resources to be focused on activities that address customers’ needs, that promise higher profits, that are technologically feasible, and that help them play in substantial markets,” he writes. “Yet, to expect the process that accomplishes these things also to be something like nurturing disruptive technologies—to focus resources on proposals that customers reject, that offer lower profit, that underperform existing technologies and can only be sold in insignificant markets—is akin to flapping one’s arms with wings strapped to them in an attempt to fly.”

What’s the answer to this dilemma? Cloud computing, according Barron’s Ray Tiernan.

“Office for iPad will be a good thing for Microsoft, but it won’t be the answer to the company’s future,” writes Tiernan. “Technology companies rise or fall by how they anticipate developments in the industry that can be commercialized even before people know they need them.  It happened once for Microsoft with PC, and it can happen again with cloud computing.”

The bottom line: Microsoft can rise again, provided that it focuses on radical rather than marginal innovations.

Source: Forbes Business

 
 

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