Microsoft and Apple: A Tale Of Two Cities

This week's earnings reports by Microsoft and Apple couldn't be more different. Apple is soaring ahead on the success of the iPhone despite the slowing sales of PC units across the board, while Microsoft has posted its first year-over-year quarterly loss in history with worse-than-expected revenue. I believe that drop in revenue shows just how badly Vista hurt Microsoft's cash cow business, leaving many companies to question whether they really need a new version of each Microsoft product every 4-5 years. Many others wonder how Microsoft will turn the corner. Fortunately Windows 7 is shaping up to be a pretty good "wound recovery" Windows product release but I think we're entering an era where Microsoft can't continue to build a business so heavily dependent upon Windows and Office.

Apple's surge has occurred due to the phenomenal success and growth in iPhone sales. At this rate we'll soon be measuring iPhone sales by iPhones per household. And Apple announced its one billionth iPhone app download. Pretty amazing. Clearly Microsoft has been caught flat-footed in the mobile smartphone market. The company is still dazed and confused and can't even hint at anything comparable, much less surpass what Apple has done in the smartphone market. What I'm most amazed by is how quickly Apple has created a community of developers around the iPhone. All those iPhone apps didn't happen by themselves.

While Microsoft has been working feverishly to shore up its multi-year, ultra-important Enterprise Agreements, it's also working to establish a foothold in the cloud. The cell phone market may have passed Microsoft over but it's clear the company doesn't want the same to happen as the data center migrates to the cloud. Amazon and others are a big threat here and I can tell you that from hands-on experience that a fair amount of maturing is needed in those technologies as well.

Is there reason to be optimistic about Microsoft's future, or is this the beginning of an even longer, more painful decline of an industry giant? I think there's plenty to be optimistic about at Microsoft. This game's not over yet folks. Microsoft is getting aggressive (dare we say, competitive?) in pricing now to ensure a presence on netbooks (whenever we actually see anybody use one, lol) with sub-$15-per-copy pricing to netbook OEMs.

The investment in Hyper-V, Azure, Live Framework are strategically important. Windows Server 2008 and SQL Server 2008 are marvelous products that work and perform great. Windows 7 looks like it may succeed as the extreme makeover for Vista. Microsoft has the best integrated software layer technology in .NET for creating rich applications, with the developer tools and APIs to back it up too. (That's saying a lot coming from a Java/PHP/Linux fan like myself.) I work with Microsoft technologies almost every day and it's amazing to me to see the depth of technology Microsoft has and continues to produce.

Microsoft is obviously going through a pretty serious adjustment. Its executives need to figure out how to create a world where everything isn't hinged on Windows PC and Office revenues. Saying that is going to be a real test is an understatement. But in Yogi Berra style, I like to say, there's never a better time for a comeback than when you're down.

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