10 Urgent Tasks For Microsoft In 200910 Urgent Tasks For Microsoft In 2009

Microsoft posted record revenue of $60 billion in 2008 and a hefty $17.5 billion profit. It's still the dominant player in most major software markets and its OS runs 9 out of 10 PCs. So things are rosy in Redmond, right?

Wrong. The solid numbers belie serious cracks that are emerging in Microsoft's core franchises. Windows sales and market share, though robust, are in decline. The company's efforts to expand into new markets are floundering, and key executives are jumping ship. With that in mind, here's a list of ten urgent tasks that Steve Ballmer and company must undertake in 2009, lest those cracks become craters.

1. Release Windows 7
Microsoft needs to push its next operating system out the door as soon as possible, if only to erase Windows Vista's stench from the computing landscape with maximum expedience. Thanks in large part to Vista's unpopularity, Windows' share of the OS market has fallen just below 90% for the first time in recent memory as frustrated users turn to Macs and even Linux machines.

Vista was too expensive, too big and too bulky for most, and it offered little, if any, improvement over Windows XP.

It's imperative, therefore, that Microsoft get Windows 7 -- which early reports suggest is slimmer and more agile than its predecessor -- into the market in late 2009, and not early 2010 as Microsoft originally planned. Most consumers put off new PC purchases in 2008 due to the recession, but should be looking to upgrade during the 2009holiday season. It's crucial that Microsoft and partners have Windows 7 PCs on store shelves no later than Thanksgiving or they will miss the boat. The last thing anybody wants is a "Windows 7 Capable" program.

2. Introduce A Netbook

Netbooks are all the rage. Sure, these low-cost PCs won't let you to play Call of Duty 4 with the graphics maxed out, but they're great for anyone who just needs access to the Web and reliable e-mail. Microsoft's problem: Netbooks are the fastest growing hardware form factor, and Windows doesn't fit on them. That fact was partly to blame for Windows sales growth of just 2% in Microsoft's fiscal first quarter, despite the fact that the overall PC industry grew 10% to 12%.

Microsoft should partner with a hardware company and introduce a tightly integrated, sub $300 system running on a pared down, purpose-built version of Windows (something between full-blown Windows and Windows Mobile). With Apple reportedly set to introduce a netbook at Macworld in January, and with offshore vendors like Everex successfully hawking Linux-based variants at discounters such as Wal-Mart, Microsoft needs to get in on the action fast or get left behind. 3. Acquire A Services Company
There's only so much money to be made in software anymore. In terms of basic productivity applications, there's not much that's worth having that you can't get for free, or almost for free. Why pay more than $100 for Office when you can download IBM's Lotus Symphony, an OpenOffice.org-based suite that includes word processing, spreadsheet and presentation apps, for nothing?

Microsoft was able to maintain solid sales growth in its Office franchise in 2008, but only through aggressive discounting. That's not sustainable. The fact is, Microsoft needs new sources of revenue.

One area the company has never fully exploited is IT services. While software is becoming cheap, businesses are still spending big on maintenance and integration projects. And demand for such expertise will only increase as companies in the years ahead look to roll out new wave infrastructures that marry traditional client-server systems with cloud-based architectures designed to pull software from the Web.

Microsoft has plenty of cash, more than $9 billion as of its most recent quarter, and now would be the time to pick up an outsourcing company on the cheap given rock bottom market valuations. Candidates include Computer Sciences Corp., ACS or Perot Systems, all of which boast plenty of long-term government contracts. Microsoft could also look to an upper-tier Indian player such as Cognizant. The latter move would immediately boost its presence in the hot offshore services market.

4. Abandon Search
The most aggravating onscreen message for gamers is "game over." It means your last Space Invaders cannon has been destroyed or that your sole, surviving Pacman just got gobbled. If the search market were a video game, Microsoft would be seeing that message right now. Because it is game over: Google has won. Despite billions in acquisitions, a Live Search program that actually pays users, and halting overtures toward Yahoo, Microsoft actually lost search market share to Google in 2008. MSN and Live Search started 2008 with an anemic 6.02% share, and finished November with a pathetic 4.56% share, according to Net Applications. Yet Microsoft continues to pour time, money, and management resources into a market where, not only can it not win, it can't even compete.

Microsoft's Online Services group, which includes search, posted just $770 million in revenue in the fiscal first quarter, while recording a $480 million operating loss -- an 80% increase over last year's operating loss. Time to get out.

5. Ditch The Zune
Speaking of lost causes, Microsoft needs to discontinue the Zune. Do you know anyone who has one? Do you know anyone who knows anyone who has one? Didn't think so. Zune holds only about 4% of the MP3 player market, says NPD. Apple's iPod share is over 70%, while even Sandisk sells more portable music players than Microsoft, despite Redmond's massive marketing muscle and Windows tie-in opportunities.

Part of the problem is that Apple got too big a head start. But the Zune's inability to dent the market is also a result of poor decision making by Microsoft. How's this for irony? Toshiba, Microsoft's original hardware partner for the Zune, produces a Zune clone called the Gigabeat. The Gigabeat is identical to the Zune in almost every way except one. The Gigabeat can play Windows Media Lossless (i.e. high definition) music files -- the Zune can't..

The Zune's poor market performance has become a source of embarrassment for Microsoft and represents yet another cash sinkhole. Sales in Microsoft's Entertainment and Devices unit, home of the Zune and the Xbox, fell 6% in the first quarter.

6. Stop The Revolving Door
Here are just some of the key employees to have departed Redmond over the past several months:

Microsoft cannot hope to reverse its recent ill fortunes without management stability. 2009 must be the year that CEO Steve Ballmer locks the exits and establishes a stable management team that will be in it for the long haul. Otherwise, it may be Ballmer himself who is next out the door.

7. Embrace The Cloud
Microsoft has taken a good, first step toward cloud computing with the announcement of Windows Azure, but it needs to do more. Businesses and consumers are embracing the benefits offered by the cloud -- simplicity, portability and affordability. In 2008, Washington, D.C.'s municipal government moved most of its key business software to Google's cloud-based Google Apps offering. In the face of mounting public deficits and a weak economy, more government agencies and businesses will surely follow suit next year.

To keep up, Microsoft needs to introduce fully online, and competitively priced, versions of Word, Excel, PowerPoint and other Office applications. That could cannibalize retail sales of boxed software, and the channel will howl, but the apps market is headed that way regardless. Microsoft has announced that Office 14 will include Web-based applications. The key will be whether they are full blown versions or pared down imitators that nobody wants to use and merely exist to get consumers to "upgrade" to pricey, packaged apps.

If it's the latter, the offering will surely fail and Microsoft will lose more customers to Google. 8. Get A New Ad Agency

Microsoft needs to fire Crispin, Porter Bogusky. The $300 million "I'm A PC" campaign that the agency developed for Microsoft isn't working and just makes Apple look even cooler by comparison. As for those Seinfeld ads, the less said the better.

9. Save Windows XP

Windows XP (Microsoft's last, great operating system?) was officially retired in June, but it continues to live on. Most recently, Microsoft said custom PC makers can continue to order copies of XP through Jan. 31. In October, the company said it would give large system manufacturers, such as HP and Dell, access to XP through July 31, 2009.

These are good steps, but Microsoft needs to do more. Because of their distaste for Vista, most businesses will stick with XP until Windows 7 has been fully vetted in the market. But Windows 7 won't ship until late 2009, at the earliest, and the majority of companies and government organizations won't touch a new OS until it's been out for at least a year. That means Microsoft needs to continue to make XP available to businesses at least through the end of 2010, or risk losing more market share to Apple and Linux.

10. Stick To Explorer 8 Standards
With the release of Internet Explorer 8, slated for early next year, Microsoft will add to its Web browser default support for some major Internet standards for the first time.

Among other things, IE8 will feature default compatibility with Web standards such as CCS 2.1 and HTML 5. It also promises improved support for the Ajax language, and other W3C Internet programming guidelines.

The problem: Explorer 8 adds standards long ignored by Microsoft, and most major Web sites have been designed first and foremost to work with previous versions. "Some of today's Web pages might expect the old, less interoperable behavior from IE," wrote Explorer program manager Scott Dickens, in Dec. 5 blog post. Dickens singled out CNN, Facebook and MySpace as being among the major Web destinations that have not made their sites IE8 ready.

Given the programming challenges involved, Microsoft may get pushback from larger customers who would rather not have to tinker with their Web sites. Nevertheless, Redmond needs to stick to its guns on this one. Broad adoption of standards benefits the IT industry as a whole, even if it means users have to suffer through some short term pain to realize longer terms gains.