Saturday, January 3, 2009

MSFT and market share...looking like GM in the 80's?

For nearly two decades the foundation of MSFT's success has been the interplay between its successful operating system and application franchises. Each reinforced each other to provide a superior customer experience as an alternative to the cackle of thousands of vendors; each with a unique perspective that brought us 2 pound user manuals. Unfortunately for MSFT, its Vista misstep, coupled with a stunning lack of innovation in their applications, and lack of market share in the fastest growing arenas puts their ongoing dominant role into question.

According to market research firm Net Applications, Apple's OS X operating system reached a market share of nearly 10% in December. Though significant in numbers, the % alone shows a distant number 2, till you see it represents a stunning increase from 7.3% in 2007. Early in the cycle of a new OS, Windows lost more than 3% of market share last year. In the context of a market move towards thin(ner) applications and the emergence of smart mobile devices (iPhone and Blackberry), at no time in the last 10 years (since vanquishing Netscape) was Microsoft's market share mantra under greater assault than in '08; or more fragile in '09

Looking at the market trend towards 'thin' computing, where the browser rules the User Interface, Firefox exceeded a 20% share for the first time in November, while IE fell to below 70%. From a market share perspective, Google's Chrome is still mostly irrelevant. BUT if, as widely reported, its Android OS is shortly deployed in the fastest growing segment of the PC market, Netbooks, the combination could represent a powerful combination embracing two critical market trends; cheaper computing and thin client applications where MSFT surely lacks momentum. Search, which one can think of as the information browser for the internet, today is probably the most prevalent thin client application. Google's share now exceeds 81%, while MSFT (MSN and Live) continues their downward share trend to a paltry 4.5%.

Along with thin computing (aka cloud computing), smart mobile devices represents the other critical fast growing computing platform. According to market research firm Canalys , the market grew 28% for the 12 months ending Sept 30th. Here, market share leader Nokia is in steep decline seeing share plummet from 51% to 39%. Apple and RIM were the chief beneficiaries surging to 17 and 15% respectively. Recent 3G shipments by Apple and RIM should reinforce their share capture for, at least 1H '09.

Looking at smart phones, from an OS perspective, Symbian is a troubled market leader seeing their share plummet from 68% to 47% in the last year. Here, 4th place OS vendor MSFT saw share rise from 12 to 13%. Though, given the innovative products shipped by RIM and Apple and the significant embrace of Android by Motorola, it seems as if MSFT will be hard pressed to maintain its momentum.

Microsoft has incredible assets ranging from brand, to market share to great people. Nevertheless, it's clear that its leadership, or even relevance in the most important computing trends is lacking. For customers, this will create a vacuum that will both confuse and serve as the impetus for innovating. For entrepreneurs, and the venture community, it presages a Spring Awakening.

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