Microsoft Finally Gets It: Windows Is Not the Future

When you think Microsoft, you think Windows. Once upon a time, that was a good thing. In recent years, though, this overreliance on Windows has been holding back the company, inhibiting its ability to break into high-growth markets. But there are signs that Microsoft finally recognizes that its future lies not in Windows, but elsewhere.

CEO Steve Ballmer has repeatedly said that Microsoft's future is bound up with Windows. At the Microsoft Worldwide Partner Conference in July, he was crystal clear about that, saying in his opening speech, "Windows is the backbone product of Microsoft. Windows PCs, Windows Phones, Windows slates. Windows, Windows, Windows, Windows, Windows."

Windows has certainly been good to Microsoft, and it's still a cash cow that will be milked well into the foreseeable future, and likely beyond. But it is not a high-growth business. It's the past, not the future. The real growth is elsewhere -- in smartphones, for example. And there, the use of the Windows brand hurts the company. Gartner found that Windows Phone 7 suffers from the "your dad uses it" syndrome: For younger people, the perception that their parents use a Microsoft phone at work makes them less likely to buy it.

Relying on Windows as its tablet operating system holds back Microsoft as well, because it has to wait for the release of Windows 8 for serious tablets to be built. By that time, Google's Android and Apple's iOS will have the market sewn up.

If any more evidence is needed that Windows is Microsoft's past, look at its most recent quarterly earnings. Microsoft had a breakout period, even though Windows sales fell 1% -- the second quarter in a row they dropped. A very bright spot was revenue from Xbox 360 and Kinect, sales of which jumped 30% over the previous quarter.

Despite Ballmer's bluster about Windows, Microsoft clearly recognizes that it has to get serious about high-growth areas and not focus just on Windows. Last month, Frank X. Shaw, a Microsoft corporate communications executive, blogged about Microsoft's vision of TV and entertainment. In a post titled "The Future of the Living Room," he wrote, "Integration of products and services like Xbox, Kinect and Bing is at the heart of our strategy." He describes a world in which you use Kinect, Xbox and Bing to interact with your TV and entertainment devices using gestures and your voice. Windows isn't mentioned even once in the post or an accompanying video.

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