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But don't count out Redmond just yet. Microsoft remains the world's biggest software company, it's got a deep management bench, and it's cash rich. Here are some moves the company can make this year to boost its fortunes.
1. Client: Some people love Windows 8, others not so much. Microsoft needs to acknowledge the mixed feelings by giving users the option of booting into the more familiar Windows Explorer environment instead of Metro. Some third-party tools, such as Win8StartButton, have emerged that let users do just that. But Microsoft needs to step in with official support.
The company also needs to put some of its cash to work enticing developers to build more Windows 8 apps, even if at its own expense. Many big content and service providers, including Facebook and Twitter, are on the sidelines when it comes to Windows 8. Microsoft needs to court them more aggressively.
2. Hardware: 2012 saw Microsoft take its first real plunge into the PC hardware business, with the release of the Surface RT tablet and the upcoming Surface Pro. But the early word is that Surface RT sales are slow. One factor is undoubtedly price. At $499, Surface RT costs the same as the entry-level new iPad. Microsoft needs to recognize that establishing a new brand takes some sacrifices, including profits.
[ Will Microsoft introduce more hardware products beyond Surface? CEO Steve Ballmer suggests it's likely. ]
Surface RT would be better priced at about $399, $100 less than the new iPad, but still two hundred bucks more than Amazon's Kindle Fire HD. Even if that makes it a loss leader for Microsoft, it's well worth it if it gets the device into more users' hands.
3. Services: With software becoming a commodity and Microsoft's hardware plans still nascent, the company needs to steal a page from IBM's playbook and build out its services arm. It primarily plays in the market through its equity stake in Avanade, which is majority-owned by Accenture. But it needs to build out its own offerings to compensate for what will surely be declining Windows revenues in the coming years.
Enterprises may be supporting more and more non-Microsoft products on the front end, but they'll still need help tying it all together on the back end and integrating in-house and cloud services. It's potentially a huge opportunity that Microsoft needs to cash in on, even if means making an acquisition. Accenture itself might be a logical target.
4. Cloud: Microsoft needs to make Azure a more compelling environment for mission-critical enterprise applications and services while reducing migration hassles. To its credit, it's evolving Windows Azure from platform-as-a-service (PaaS) To infrastructure-as-a-service (IaaS). Earlier last year, it added persistent-state virtual machine support to Azure, allowing it to accommodate a wider variety of software, including Linux. Microsoft also introduced Hadoop for Azure and support for MapReduce.
In late December, Microsoft added job scheduler support for Windows Azure Mobile Services, and improved scaling for Azure website services and support for SQL Data Sync Services from within the Azure Management Portal. In 2013, it needs to further its build out of its cloud platform to keep it competitive with Amazon EC2, IBM's SmartCloud and other cloud services.
5. Big Data: When it comes to big data, IT's latest megatrend, Microsoft isn't thought of in the same breath as Oracle, with its Exadata Machine, or IBM and its Netezza line. Yet its own Bing search engine, which runs on Windows Server 2012, routinely crunches more than 100 petabytes of data to yield search results. Microsoft also recently began supporting the Apache Hadoop open source framework for distributed big data processing. And it's got powerful front-end tools like PowerPivot for Excel and SQL Server Analysis and Reporting Services.
With opportunities on the client side declining, the company needs to get more aggressive about packaging and marketing these solutions. Dedicated hardware, along the lines of IBM's Netezza Data Warehouse Appliance, would be a good step.
6. Xbox: Windows' declining cachet in the consumer market hasn't affected Microsoft's Xbox franchise. The platform is going stronger than ever, as 2012 saw the introduction of hits like Assassin's Creed 3 and Halo 4, while the Kinect hands-free motion controller has won critical acclaim.
The company needs to inject some of Xbox's life into other product lines, such as smartphones, that have yet to catch on with consumers. With Windows Phone 8 struggling to find a niche, a good place to start would be an Xbox-branded smartphone, or a smartphone based on an Xbox blockbuster franchise like Halo.
What else do you think Microsoft needs to do in 2013 to recapture its mojo? Let me know in the comments section below.