It was just over a year ago that hedge fund manager David Einhorn called for Steve Ballmer, the CEO of Microsoft Corp., to step down. Citing a stock price that hasn’t budged from US$30 in a decade, and a stuck-in-the-past corporate world view, Einhorn said it was time to “give someone else a chance.”
Ballmer didn’t pay any attention. And now it’s clear why. In recent months, the Redmond, Wash.-based software giant has re-emerged as one of the most interesting—and even innovative—companies in the technology sector. While Apple and Google churn out similar-looking smartphones and tablets—so similar that Apple recently won a US$1 billion patent infringement case against Google’s hardware partner, Samsung—Microsoft’s new Windows 8 platform (to be released officially on Oct. 26 for PCs, followed by versions for tablets and phones) is a controversial attempt to import the world of touchscreen mobile devices to desktops, while offering the biggest rethink of the user experience since Windows 95. Gone is the familiar desktop grid of icons and folders with their 3D shading. In their place is an interlocking set of two-dimensional “tiles,” which gives users more information about programs or applications at a glance. For example, an email tile displays recent messages, while a social-media tile displays updates from friends. The new interface, dubbed “Metro,” is an attempt to provide a seamless experience across a wide variety of devices and, as a result, involves a lot more swiping and scrolling (with a finger on a touchscreen or a mouse on a desktop) as opposed to pointing and clicking.
Microsoft is so confident in its new approach that it has even overhauled its logo, replacing its multicoloured flag with one that looks more like its new tiles. But despite the mostly positive reviews of the new interface from techies and designers—“On the right hardware, it’s sleek, fast and fun,” says the website TechRadar—there are early indications that many of Microsoft’s regular customers may find the new approach unfamiliar and confusing. That’s particularly the case for desktop users, who are effectively being asked to use a mouse or trackpad to navigate an OS that envisions all computers eventually having touchscreens, although they will have the option of toggling back to a more familiar Windows 7-style interface. Indeed, some fear that Microsoft is unnecessarily setting itself up for another Vista-sized debacle (the unloved Windows version released in 2006), or worse.
It all amounts to a big gamble by a company known for playing it safe. Though Microsoft still dominates the desktop software market, with record sales of US$74 billion last year, sales of PCs have slumped as more people turn to mobile devices like the iPhone or iPad—segments where Microsoft has little or no presence. Something drastic needed to be done. But will it work? “Microsoft has shown the market that it can successfully differentiate in a meaningful way,” says Michael Gartenberg, an analyst at Gartner Research. “The problem is they have yet to convince the market that different is better.”
The challenge Microsoft now faces is captured in a YouTube video that has garnered over one million views since March. A middle-aged man struggles to navigate to Windows 8’s home screen. It’s only four minutes long, but it feels like an eternity as the man—the videographer’s father—hunts in vain for a familiar menu bar or “start” button.
Of course, Windows 8 isn’t about grey-haired users. It’s about the future. “Who cares whether the boomers can make the leap,” says James Alexander, a senior vice-president of consulting firm Info-Tech Research Group. “They’re less than 25 per cent of the workforce now. Gen Y, millennials, or whatever you want to call them, are going to comprise 50 per cent of the North American workforce by the end of this decade.” Even so, some are nervous about Microsoft’s apparent willingness to annoy a sizable chunk of its customer base—people who are still expected to buy Windows 8 today. Research firm IDC earlier this month said it’s no longer expecting a big bump in PC sales following Windows 8’s release. “Buyers must acclimatize themselves to an operating system that is a dramatic departure from existing PC paradigms,” said Jay Chou, a senior research analyst with IDC, in a statement. “The PC ecosystem faces some work to properly educate the market.”
That’s why Microsoft has also taken the unusual step of developing its own tablet computer. The Surface was unveiled in June and is designed to take advantage of everything the tablet version of Windows 8 has to offer. (It was shown off with a special cover that doubles as a keyboard.) While tech bloggers salivated, the companies that make machines to run Microsoft’s software were likely less enthused to learn their partner had suddenly become a competitor—particularly amid reports that the Surface will retail for as little as $199 (the iPad, by comparison, sells for over $500) when it goes on sale this fall. “Surface in many ways represents a vote of no-confidence that Microsoft’s partners will deliver the Windows story as Microsoft wants it to be told,” Gartenberg says.
Telling the Windows 8 story may also be inhibited by Ballmer himself. Whereas Steve Jobs had a showman’s flair, Ballmer often comes off more like a pavement-pounding salesman. He talks loudly, sweats and is prone to hammering his fists while gushing about products. Earlier this year Ballmer sat on stage with Ryan Seacrest at the International Consumer Electronics Show. When asked what 2012 had in store, Ballmer leaned in before punching the air and blurting: “Metro! Metro! Metro!” The interview was scripted, but Seacrest was startled nevertheless.
The launch of Windows Phone 8, the mobile version of the software, promises to go much more smoothly. In part, that’s because the new interface is already being used in Windows Phone 7. As well, most mobile phone users are already well acquainted with touchscreen gestures. But the biggest reason is because Microsoft has almost nothing to lose. According to recent figures from IDC, Microsoft-powered smartphones account for less than five per cent of the market. Android has 68 per cent while Apple has 17 per cent. And while the popularity of iPhone and Android devices show no signs of waning, Microsoft has been given a rare gift in the form of the Apple-Samsung lawsuit. With Apple now demanding that as many as eight Android-powered Samsung phones be banned from the U.S. market, analysts say developers may suddenly become more interested in building apps and services for Windows Phone 8. They may also be attracted to the potentially broad number of devices that the Windows 8 platform comprises, ranging from smartphones to laptops. “If that platform can grow as they want it to, it creates a very viable competition to Apple and Android,” Dave McQueen, an analyst at Informa Telecoms & Media, recently told Bloomberg TV.
Hardware makers may also decide to refocus their efforts. “Microsoft has a partnership with Nokia, but also one with Samsung,” says Alexander. “If Google has to reinvent Android in some shape or form, it’s pretty easy for Samsung to just launch devices for Windows phones.” And, as if right on cue, the South Korean manufacturing giant took the wraps off the world’s first Windows 8 device—the ultra-thin ATIV S—last week, just a few days after the jury’s decision in the Apple suit.
With so much suddenly in flux, the next few months will be critical for Microsoft. If it succeeds in selling consumers on Windows 8 and its vision of the future, the company will finally catapult itself into the mobile arena, where the next decade’s battles will be fought. If it fails—as it did with its efforts to sell music players (Zune) or challenge Google in search (Bing)—it will provide more ammunition for those who argue Microsoft’s best days are behind it.
And while it’s true that Microsoft emerged from its Vista gaffe relatively unscathed (many users simply refused to upgrade and waited for Windows 7), the reality is that Microsoft and its CEO are running out of second chances. As more people dump their PCs and pick up iPads, some day there may not be a need for Windows updates. “Windows 8,” says Gartenberg, “cannot be anything less than a stellar success.”