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Why the Future Looks Not Bright for Microsoft

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Summary: A look back at a tough week (Vista 7, Web division)

THURSDAY was a very important day. Glyn Moody called it "A Day to Remember" and not just because of the release of Ubuntu 9.04. As we explained before [1, 2, 3], Microsoft reported a huge drop in earnings which shows, as Moody puts it, that "the Microsoft money machine is faltering." This is not particularly shocking.



And there's another reason why yesterday was significant: Microsoft announced what are probably its worst quarter results ever:

Microsoft Corp. today announced revenue of $13.65 billion for the third quarter ended March 31, 2009, a 6% decline from the same period of the prior year. Operating income, net income and diluted earnings per share for the quarter were $4.44 billion, $2.98 billion and $0.33 per share, which represented an increase of 3% and declines of 32% and 30%, respectively, when compared with the prior year period.

Now, the global financial crisis certainly contributed to those figures, but I think there's a bigger underlying trend here, which is that the Microsoft money machine is faltering.


The "money machine" of the leader in GNU/Linux is still getting stronger and Microsoft is compromising profit to suffocate any such competition. Microsoft is said to be offering kickbacks to OEMs that stock/deliver sub-notebooks. It's Microsoft's biggest pain at the moment. Even the Microsoft/Redmond press points at GNU/Linux sub-notebooks as Microsoft's trouble. It wrote about it in a couple of its online magazines.

Vista 7 will hardly be a remedy or a relief for Microsoft/Windows in sub-notebooks. SJVN has just put it to the test and wrote a review where he explains the limitations even with the most expensive version (sub-notebooks will come saddled with a crippled version).

Performance wasn't the only problem I came across. For example, I was unable to perform two network-related tasks at once. For example, if I copied a file from a network server or watched a YouTube video, life was fine. But if I tried to do both things at once, I ended up with a frozen system.

[...]

I experienced several difficulties running popular applications on the Dell Mini 9. Windows 7's built-in applications, such as Media Center, felt slow to respond. Other apps behaved sluggishly as well. For example, Microsoft Word 2003 took 27 seconds to launch on the Mini 9; it took only 11 seconds on the HP EliteBook 2530p.

Some problems, such as abrupt slowdowns when trying to run Microsoft Office 2003, Office 2007 and Quicken 2008, were clearly caused by memory problems. There simply wasn't enough RAM to run them effectively. When I tried to run two or more major applications at the same time, the performance dropped from merely miserable to "Is this thing still on?"

[...]

If you must have Windows on a netbook, XP Home SP3 is still the better choice over Windows 7 -- at least, for now. And, even though Microsoft is doing its best to kill off XP, it looks like the PC makers aren't going to let Microsoft put XP out to pasture after all.


This pretty much confirms issues that we knew about [1, 2]. Vista's problems are merely inherited by its successor, so application/driver compatibility too is a major problem.

There is other bad news for Microsoft's emerging division: Microsoft’s Online Advertising Revenue Drops 16%, Time to Give Up?

Perhaps even more significant is the 16% decline in online advertising revenue (just $521 million) with its overall online services posting a loss of $575 million.


It was only recently that Digg dumped Microsoft. For Microsoft to survive the future, it is aware that it must grow on the Web, not just the desktop. Steve Ballmer has just spoken about this in Köln. But it's still going in reverse; people prefer WIndows XP (from 2001) and they continue to flock to search engines like Google at the expense of Microsoft's online presence. Remember Encarta?

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