Don’t bury Microsoft yet

I just about snorted my coffee yesterday when I read the Forbes article, “Microsoft Still Can’t Find Its Future. Is It Too Late for the Company?” Apparently the post by Adam Hartung was originally entitled “Sell Microsoft NOW! Game Over — Ballmer Loses” but somebody somewhere at Forbes decided the headline needed a bit of softening. You can see many references to the original title all over the Internet, and it’s enshrined in the article’s URL: “/sell-microsoft-now-game-over-ballmer-loses.”

I don’t like what Microsoft has been doing lately, as anyone who reads my posts knows all too well. But the game is far, far from over, and Ballmer isn’t losing squat. In fact, a good case could be made for saying that Ballmer’s in the middle of pulling off a flawed but necessary U-turn of the Microsoft mothership.

Problems? Sure, there are problems. Everything I’ve seen leads me to believe that Windows 8 sales tanked, Windows RT sales never got off the ground far enough to tank — particularly when you account for returned machines — and Surface RT may be the latest re-enactment of the Personal System/2 debacle.

Personally, I think Microsoft made lots of bad, epic-fail-caliber design decisions with Win8 and Windows RT; it has been unable to get the Windows Store off the ground; there are fewer customers running around extolling the virtues of Windows 8 than with any other version of Windows I can recall — even Vista; the Win8 stuff is overpriced and not nearly competitive; and the products we’ve seen lately from the whole Windows ecosystem leave most people yawning. But game over? Hardly.

The point is that the game’s changing at an astounding pace. Microsoft’s doing a credible job of keeping its old customers, as best it can, while fishing for new ones in new waters.

Hartung says, “Microsoft needed a great Christmas season. After years of product stagnation, and a big market shift toward mobile devices from PCs, Microsoft’s future relied on the company seeing customers demonstrate they were ready to jump in heavily for Windows8 products — including the new Surface tablet.” He seems to forget that the vast majority of Microsoft’s income doesn’t come from retail sales of Windows 8 products and hasn’t come from Windows retail for years.

Does Microsoft’s future rely on out-Appling Apple, or out-Googling Android? No way. Microsoft’s future doesn’t rely on retail Windows sales at all. I’d be a first-class prognosticator if I could tell you what it will rely on. But retail sales of an operating system is a tiny sliver of the future — for any company, not just Microsoft.

What we’re seeing is a rapid evolution away from complex systems and toward simpler, more mobile, more specialized solutions. Ray Ozzie articulated the trend two and half years ago, when his Microsoft swan song memo envisioned:

… service-connected devices going far beyond just the ‘screen, keyboard and mouse’ … Let there be no doubt that the big shifts occurring over the next five years ensure that this will absolutely be a time of great opportunity for those who put past technologies and successes into perspective, and envision all the transformational value that can be offered moving forward to individuals, businesses, governments and society. It’s the dawn of a new day.

That’s precisely why Microsoft isn’t going to Hades in a handbasket, at least not in the near future. Windows has a lock on the legacy screen, keyboard, and mouse environment — a world that won’t go away any time soon. While Ballmer’s prediction last October that 400 million people will be using Windows 8 PCs by the end of 2013 is — and was — just plain stupid, the inertia’s there for 100 million copies of Windows 8, or more. Of course, Microsoft will never give us a simple up-and-down accounting on the number of Windows 8 and Windows RT systems in use, or on the number of Surface tablets sold. It just won’t happen.

The money will keep flowing in, even for Windows. Volume licenses will pick up a lot of slack in Windows Division income, and there’s more than a little deferred income to spread around. Sometime next year Windows 9 may well arrive in time to save the Windows desktop bacon.

The buggy whip manufacturers — even the typewriter manufacturers — found niches. Legacy Windows will too.

At the same time that Windows rides off into the sunset, Microsoft’s also looking forward. Windows Phone 8 is finally breathing life back into the mobile Windows market. Cloud services are getting force-fed into the latest versions of Office. SkyDrive no longer rates a snicker. Even Skype has a few new tricks up its sleeve.

Microsoft has a bevy of irons in the fire, and it’s making lots and lots of money. The Business division (Office) is still printing money, with profits well over $3 billion a quarter and a sizable increase in monthly licensing revenue. Server and Tools doesn’t show any sign of losing steam. Entertainment has never made much profit, but the Xbox is selling gangbusters.

Say what you will about Microsoft, I don’t see the company going away any time soon. Hartung’s prediction that Microsoft will lay off 50 to 60 percent of its workforce in the next three years defies any sort of logic that I understand. His observation that Microsoft could sell the Entertainment division to Sony or Barnes & Noble leaves me wondering if I live in a parallel universe. As to whether Microsoft can flex its muscles and make some money in the cloud — that remains to be seen.

Don’t forget. Microsoft’s sitting on $66 billion in cash.

Let’s check back in a year or two to see what happens.

This story, “Don’t bury Microsoft yet,” was originally published at InfoWorld.com. Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest developments in business technology news, follow InfoWorld.com on Twitter.