Microsoft sits on the edge of a product launch that is plainly among the most important in the companys history. Windows 8 is the largest paradigm shift for the company since Windows 95. There is no way to exaggerate the critical nature of this product. The new OS, alongside Windows Phone 8 represent the companys biggest GUI bet since the Start Button. It comes at a time when the companys traditional hardware partners are facing ferocious market pressure from the commoditization of their products, and of course, the juggernaut known as the iPad. Windows 8, and more broadly, the GUI formerly known as Metro is Microsofts play for the next decade.
As can be expected, the companys many cheerleaders and haters are out in full force. Pundits can and will pontificate on the new operating systems chances. However, what might be more useful is looking at Microsofts other make or break moments. The upcoming launch is far from the first time that Redmond has fought with its back against a wall. A backward glance at these moments, and careful evaluation of them, may provide a better, ahem, window into the companys chances this Winter.
#1 The Browser War
Microsoft's Internet Explorer debuted in 1995 at a time when Netscape Navigator utterly dominated the browser market (and the future of computing). It was an uphill struggle for the company to gain feature parity with Netscape, but the real tipping point in the contest did not have much to do with feature sets, browser speeds, or anything we might use as a metric in the browser wars of today.
When push came to shove, Microsoft flexed its tremendous muscle and began to freely bundle Internet Explorer with every copy of Windows. The ubiquity of the operating system translated to ubiquity of the browser. Netscape simply could not compete; the company was dependent on Navigator as its primary revenue stream. Internet Explorer was free and pre-installed, Netscape was neither. Game, set, match.
#2 Subterfuge against Linux
The same cannot be said of the server market, where Linux decisively leads Windows in market share, if not revenue. Microsoft wrings extra revenue from the market by completing behind closed doors patent deals with smaller companies that utilize Linux on servers. These smaller firms cannot afford litigation with Microsoft and are essentially forced into paying for patent licensing agreements for Microsoft patents that are allegedly infringed by the open source software. Admittedly, Microsoft is far from the only company fighting its battles in the courtrooms these days.
#3 Microsoft Ambushed by Apples Digital Music Revolution
While the hardware limped along until it was discontinued last year, the Zune brand was quietly killed just this week. There was upside to the venture. The final piece of Zune hardware, the HD, was the coming out party for the Metro user interface that will fully arrive next week with Windows 8. Zune may have been a business failure, but it laid the bedrock for the companys current transformation.
#4 Bings Guerilla Resistance to Google Dominance
Google is even more dominant in mobile, commanding more than 90% of the growing market. Microsofts best chance here is the Search button that ships on every Windows Phone. That button leads straight to Bing. We all know where the hot-selling Android devices send their queries. iPhone users also search with Google in near universal fashion.
#5 Microsoft Musters Mobile Forces Too Late
Microsoft had two products cooking. One was eminently promising, and would end up taking shape as Windows Phone 7. The other was the pet project of the Danger team, veterans of the highly successful Sidekick messenger phones. That project, Kin, would end in embarrassing failure. The Kin phones and OS attempted to split the difference between feature phones and smartphones, pleasing no one. The folly cost Microsoft a $240 million write-off after an abortive launch on Verizon Wireless in the Spring of 2010.
Windows Phone 7s performance has been less clear cut. Launched in the Winter of 2010, the OS was praised by critics, but initially saw lukewarm hardware and a tepid response from consumers. Windows Phones hardware woes were related to the popularity of Android OS as there were no manufacturers that made Windows phones exclusively; this led to designs that were derivative of their Android cousins. Windows Phone 7 was given a second lease on life when Microsoft scored a coup and convinced Nokia to sign on as an exclusive WP7 manufacturer.
Windows Phone sales have picked up since then, and Nokias strong hardware has pushed other manufacturers in the ecosystem to step up their game. Market share still lags, but is growing. Importantly and ominously, Windows Phone has yet to turn Nokia a profit. The next generation of the operating system, Windows Phone 8, is set to be launched only days after Windows 8. This Winter is Microsofts biggest opportunity to break out of the mobile doldrums and become a true challenger to Google and Apple in this arena.
#6 The Xbox Proves an Effective Combatant to Japanese Rivals
While the original Xbox could be counted as a success, the Xbox 360 would be a breakout hit. Buoyed by strong first party software like Gears of War, Forza Motorsport and the incredibly successful Halo series, the Xbox 360 flew off of shelves. Third party games proved even more popular than Microsofts own offerings. This lead the company to build lucrative exclusive partnerships with companies like Activision (Call of Duty), Capcom (Resident Evil) and others that led to Xbox customers seeing exclusive content for the same purchase.
More importantly though, the Xbox 360 is leading the charge of Microsofts assault on the living room. With an Xbox Live Gold account, customers can access a wide range of free and subscription based services that would otherwise be dispersed across the living rooms myriad devices. As Microsoft has proven, having Madden football and Netflix on one device makes for a powerful pitch to consumers.
#7 After Years on the Defense, Microsoft Looks to Launch Powerful Counterattack
Microsoft took a pragmatic approach to the nascent tablet market dictated by the fact that it would be incredibly late to market. The company made a smart investment in Barnes & Nobles spun off company that was responsible for the successful line of Nook e-readers. Microsoft holds a 17.6% equity stake in the firm that makes one of the most popular Android based tablets.
Thats not the only way Microsoft makes money off of Android. The company has struck licensing agreements for Android handset and tablet manufacturers that account for more than 70% of the Android device market. Thats right, Microsoft makes money from seven out of ten Android devices sold. Some have even speculated that the companys Android agreements net more income than Windows Phone licensing. The company has arguably made lemons into lemonade.
Microsofts pragmatic streak continued. Windows 8 is forked between x86 (Pro) and ARM (RT) versions. This allows hardware manufacturers to further differentiate their products, an important consideration as these partners scramble to differentiate and compete with the iPad. Windows 8 looks to be a compelling, competitive tablet OS in all its iterations, this is scary enough for Cupertino, but Google is the company that should truly be worried. Android did not take off on tablets the way that it did on smartphones. Windows 8 could quickly capitalize on pent up demand for non-Apple tablets. The pricey, but gorgeous Surface is set to launch this week. It will be Microsofts first true entry in the industrys fastest growing sector.