A negative outlook for Microsoft

Microsoft revealed this unprecedented loss in its annual report for the fiscal year 2012. It claimed that industry standards – the generally accepted accounting principles (GAAP) – did not allow it to factor in the ‘deferred income’ it anticipated from a future sales offer. If it had been allowed to include the $540m it predicted to earn from a reduced upgrade from Windows 7 to its new operating system Windows 8, earnings per share would be $0.73.

There was another reason for the disparity between Microsoft’s in-house accounting and that stipulated by the GAAP. The company cited a $6,193 income state charge it was refusing, or writing down, for ‘the impairment of good will.’ Microsoft’s 2007 acquisition of the online advertising company aQuantive reportedly caused the company a loss that exceeded the price that was paid for it. The principle of ‘goodwill’ in accounting arises in an acquisition where the fair value paid for a business exceeds the value of the identifiable net assets.

McAfee claims 20 percent of US Windows PCs have no active security

Microsoft clarified this in a statement: “While the aQuantive acquisition continues to provide tools for Microsoft’s online advertising efforts, the acquisition did not accelerate growth to the degree anticipated, contributing to the [$6.2bn] write down.”

Nevertheless, the corporation is highly optimistic about its future prospects. “We delivered record fourth quarter and annual revenue, and we’re fast approaching the most exciting launch season in Microsoft history,” said Steve Ballmer, CEO of Microsoft. “Over the coming year, we’ll release the next versions of Windows, Office, Windows Server, Windows Phone, and many other products and services that will drive our business forward.” Windows 8 and Windows Server 2012 are predicted to be big sellers, but what about the vast but, as yet, impenetrable smartphone market?

Opening windows
The much-anticipated launch of the latest OS, Windows 8, will coincide with the firm’s latest effort on tablet technology, the Surface. This latest attempt to enter the smartphone market via the side-door is facing a mixed reception from established Microsoft users, and technical aficionados alike. The web is bursting with rumours about hacking attempts, and die-hard fans enthuse about every new appliance and piece of code – when they are not trying to change it to look like previous Windows 7.

Hacking is always a concern for such a widely-used platform; McAfee claims 20 percent of US Windows PCs have no active security. Yet Microsoft has elected to make its own inbuilt security software “Windows-Defender” an option of last resort, activating only if Windows senses it is unprotected by another manufacturer’s antivirus programme. There is a fifteen-day gap after the free anti-virus trial that comes with most new computers expires, when the user is completely open to virus attack. They will receive active notifications, but the onus is on the user to buy security software online – either via the Microsoft Marketplace, or through another forum which stocks McAfee, Norton or other industry staples. This concession to rival security companies, and the computer manufacturers who receive concessions from subscriptions, could be seen as a neat piece of diplomacy on Microsoft’s part.

Wired praised Windows 8’s “Three new apps — Sports, Travel and News.” It described how, “Each of the apps implements great Metro  [the previous Windows system’s interface] design, but caters to a very specific purpose that might not appeal to every user. Still, they’re all slick and highlight how much Microsoft wants its PC experience to more closely resemble an app-based mobile experience.”

While Apple’s iOS has the monopoly on the declining share of iPhones sold, those smartphones using Google’s Android system now form 64 percent of all sales. Nokia, with whom Microsoft formed a strategic partnership in February 2011 to primarily sell Microsoft phones, has seen its market share decrease by 4.82 percent. While Samsung and HTC also produce phones with Windows systems, Google seems for now to hold sway over the smartphone market, which itself has grown 43 percent since 2011.

The Surface tablet seems to suffer from a bit of an identity crisis; too large to use as a phone, it is essentially a glorified computer screen. Yet a review from authoritative tech-wizards Gizmodo says the Microsoft’s Surface has: “Some neat tricks: magnesium casing, DisplayPort out, Gorilla Glass, a kickstand and a subtle groove around the entirety of the device to help keep the Pro version cool. Microsoft also claims Surface will have the best wi-fi reception of any tablet, ever.”

Key features of the Surface, like its support of the ‘semantic zoom’ feature that is one of the differentiating features of Windows 8, mean the two are intended to complement each other. The smartphone manufacturers who produce Windows phones will also subscribe to the new system. However, with just a 2.7 percent market share, Microsoft is aeons behind its rivals Apple and Google.

Serving a purpose
Microsoft’s September launch of the cloud-based Windows Server 2012 is being trumpeted under the slogan, “Switch to Hyper-V,” a concerted attempt to win customers from its rivals. Hyper-V is a stand-alone, independent product that does not require patching-in to existing systems, leaving internal software and communications untouched. In a pep talk at Microsoft’s Worldwide Partner Conference in July, partners were schooled in various techniques and tools to convert subscribers to VMware’s virtual infrastructure. The speaker made Microsoft’s main rival VMware the prime target in a keynote speech, against a background slide where a VMware image was converted to Hyper-V format.

Microsoft has been slow to catch up with VMware’s six to seven year head-start

However, this marketing is fairly mild compared with Microsoft’s previous campaigns. Previously, it initiated the “VM-Limited”programme, where they used Tad, a character stuck forever in the 1970s, to mock VMware for being unable to move forward from virtualisation into cloud computing. In 2008 Microsoft invaded Vmworld in Las Vegas, handing out $1 casino chips and fliers promoting the VmwareCostsWayTooMuch.com website. In fact, industry reports show Microsoft has been slow to catch up with VMware’s six to seven year head-start in the virtualisation market. The total number of server workloads that VM’s deployed this year was 30 percent higher than those deployed a year ago. Gartner surveys show consistently that 60-70 percent of midmarket companies – those with 100 to 1,000 employees – use VMware.

However, VMware primarily targets Linux-based workloads, which are only 35-45 percent virtualised. For Linux systems it must compete with server providers such as Citrix, Oracle, Red Hat and open-source. While there is less scope for expansion in Windows workloads – which are around 50-60 percent virtualised – they almost have a complete market monopoly. Statistics show that among firstime customers new to virtualisation, Microsoft is winning about 30-40 percent of the market.

Getting down to business  
IT infrastucture for processing data stacks, add-on analytics and presentation software, form the branch that Microsoft groups as it’s ‘Business Division’. Technology consultant Gartner rate them among the market leaders in its report: ‘Magic Quadrant for Data Warehouse Database Management Systems.’ Of the database management systems (DBMS) assessed, only those that could support relational or metadata (historic data about the company’s records and transactions), with connections to independent front-ended application software, are even included.

Microsoft spent considerable amounts of time and effort in 2011 keeping up with best practice standards for data warehousing, for existing its range of products including; SAP/Business Objects; MicroStrategy; and Informatica. It also announced two Apache Hadoop connectors for its SQL Server, SMP and Parallel Data Warehouse (PDW) to enable data storage in clusters, which are less disruptive on the whole if just one or two happen to fail. Yet, Microsoft was never really behind in technical developments though. As Gartner reports, “Many would be surprised to learn that Microsoft already provided combined structured and unstructured analysis in SQL Server 2008.” The report praises the company’s integrated approach: “Microsoft can also leverage SharePoint and PowerPivot and the ability to include an unstructured information type in analytics is the result of its technology blend and this is a strength that should definitely not be ignored.”

Simultaneously, Microsoft offers a pre-packaged programme, the SQL Server Fast Track Data Warehouse, which includes validated reference architectures to swiftly construct a balanced data warehouse infrastructure. Gartner believes that, “This road map contributes significantly to the company’s vision for the market and its customers.”

This breadth of software and services to call on has helped Microsoft defend its share of the DBMS pie. However, Oracle is dominant in database provision when taken alone. Gartner’s report stated that Oracle DBMS versions formed approximately 43 percent of the total DBMS market share by revenue worldwide. Oracle offers staples like cloud computing, and additional storage capacity. And it, like Microsoft, is starting to move into targeted solution selling.

The higher price tag attached to another contender, Teradata, means its package includes more advanced capabilities. Automated advanced compression options; applications like MapReduce; and graph analysis options set it apart, as does its ability to provide professional services while users are out “in the field”. But in Gartner’s study many of those surveyed said the higher cost often dissuaded them from investing in Teradata.

IBM has a number of products, on top of new developments it is making to its recently acquired Netezza brand. Straightforward data storage platform Infosphere Warehouse is available on all major operating systems unlike some other packages that are less transferable.

United troubleshooting
Microsoft’s online community spirit helps it share information at speed. Why brainstorm ideas in the canteen when you can do it across fibreoptics? Furthermore, the company road-tests all its products on its own employees. What they call ‘dog-fooding’, is an integral part of the company corporate structure. Jim Adams and Nate Bruneau, in a presentation to employees on one of Microsoft’s testing ‘farms’, declared: “We eat our own dogfood. And at any one time, we are dog-fooding several products at once.”

For example, on more than 100,000 sites worldwide, the company is trouble-shooting Sharepoint. They receive direction and pool feedback on community news feeds and blogs online, on best practice for storage and diagnostic programmes which employees can then download for free.

Microsoft seems to have pre-empted Oracle in solving the problem of bottlenecks in transferring large bodies of data; it is careful to ensure its employees have sufficient spindle count in their storage to prevent data overload. This is something Gartner reports buyers of Oracle Exadata often complain about.

Customer relationships
Microsoft Dynamics CRM, the company’s solution to enhancing the B2C message and the all-important customer experience, incorporates a number of programmes: MSN Messenger, Outlook for emails, Excel for basic data processing and Sharepoint to pool files online, enabling real-time editing by numerous parties.

Research company Forrester wrote in a recent report that: “Microsoft Dynamics offers strong marketing, business intelligence, and customer data management capabilities as well as a strong architecture and platform,” but that it “falls short for field service and eCommerce.” Industry-specific solutions were also marked up as an area ripe for improvement.

Microsoft’s well-established rival in CRM, Oracle’s Siebel application, benefits from what Gartner praises as “a proven, deep and broad sales functionality” which can be tailored to multiple vertical industries. ‘Application Integration Architecture’ and ‘Oracle Business Intelligence’ help companies structure their communication network, and gain the inside track on their competitors and potential suppliers.

SAP is marked as a ‘Leader’ for the first time in the report, on the grounds of its “strong business results, integration with SAP ERP,” and “increased mobile vision”. It is also heavily pushing Hana real-time analytics, a new-wave technology. They mean that complicated commands on vast data stacks are performed in minutes, rather than hours.

The only problem is, the technology is so new, it requires a determined, intelligent campaign to educate customers on how to use it.

The Skype’s the limit
Recently acquired video chat service Skype is proving an awkward bed-fellow to the Microsoft family. Many were surprised to hear in a recent interview with the president of Microsoft’s Skype Division Tony Bates, that his choice of laptop was a MacBook Air. It also emerged that Skype employees do not have Microsoft security passes either. Although it was promised in 2011 that existing appliances Xbox, Kinect, Office, Windows Phone and Lync would all be able to connect via Skype, the necessary software is still in development.

Skype by itself is becoming more popular. Monthly users have grown 26 percent over the past seven months, and now number around 250m.

Online services is not Microsoft’s strongest department

However, the bigger problem is recent acquisition, online advertising service aQuantive, which played a major part in the $6.2bn writedown in Microsoft’s online services division, since it was acquired for $6.3bn. Although Lync revenues grew 45 percent year-on-year, the general consensus seems to be that online services is not Microsoft’s strongest department, and new members of its internet portfolio have yet to be fully integrated with the rest of its products. Its recent acquisition of corporate social networking tool Yammer, for $1.2bn, is another example of its strategy of buying out existing competition.

Entertaining the masses
Despite the furore recently surrounding the banning of the Xbox 360 in Germany, after a patent dispute with Motorola, Barack Obama will not have to intervene to defend its continued distribution in America. A judge with the International Trade Commission recommended that consoles using the same technology be prohibited in the US as well.

Fortunately the case never reached the level of the Supreme Court. Legal disputes notwithstanding, the Xbox 360 was recently proclaimed “the fastest-selling consumer electronics device” in history by the Guinness Book of Records. It continues to be an important money-spinner, as this division was responsible for eight percent of growth from 2011-2012.

However, despite some rapturous reviews by Mobile Tech Review, which describes the Nokia Lumia 900 as “luscious”, with an “attractive…sculpted unibody polycarbonate housing” most Windows phones have not yet been taken to heart by consumers. Perhaps Windows 8 will provide the shiny new apps, enhanced multimedia communication, and fresh face of Microsoft in 2013, to reach a disinterested market. Next up for launch after Windows 8, will be the secretive release of the Office 2013 Productivity Suite which will look to solidfy its postion as the premier office suite for consumers.