It’s time for Microsoft to give up on consumers

Microsoft hasn’t released sales figures for the Surface, suggesting that people aren’t exactly lining up to buy it.
Microsoft hasn’t released sales figures for the Surface, suggesting that people aren’t exactly lining up to buy it.
Image: Getty Images/John Moore
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Microsoft’s current business model is inertia. And it’s a surprisingly good one: Despite free-fall in demand for PCs, analysts are expecting that when Microsoft announces earnings after markets close tomorrow (April 18), the company most closely identified with the PC will report a jump in revenue from a year ago, from $17.42 billion to $20.54 billion.

How come? Easy: every day, Microsoft becomes less and less a consumer-facing company. And it’s just about time to throw in the towel.

The Windows operating system and related products represent just a quarter of Microsoft’s revenue. But Windows 8, the newest, and a radical departure from previous versions, is hated by both reviewers and consumers. Research firm IDC blamed last quarter’s huge drop in PC sales squarely on Windows 8.

Meanwhile, the Surface tablet, which runs a mobile version of Windows 8, was to be the Ragnarok for iPads, Android tablets and all the other pretenders of which Microsoft CEO Steve Ballmer is so consistently dismissive. But Microsoft refuses to disclose how many Surfaces it has sold, leading to speculation that sales are terrible. It’s a powerful indicator that Microsoft simply doesn’t understand consumers.

Microsoft’s real profit center is, as it has always been, businesses. British bank Barclays expects 14% growth in Microsoft’s server division and a 9% gain in its business division. And we can only expect this trend to continue, because businesses that use Microsoft’s systems are locked into the mother of all legacy traps.

This sort of IT infrastructure is practically invisible outside the realm of industry reports and industry newsletters, but practically every custom business solution constructed since the dawn of the PC era is heavily dependent on a handful of firms, like SAP, Oracle and Microsoft. Tearing out the Microsoft-powered systems that administer hospitals, book flights, run supply chains, handle payroll and a million other mundane but essential tasks—and replacing them with, say, alternatives that run entirely on the software that powers the web—is a nearly impossible task. Better to keep them running. (Even if Windows 8 is a flop, that won’t hurt Microsoft’s enterprise business because the products businesses rely on most—like Windows Server and Microsoft SQL—remain as boring but reliable as ever.)

This is Microsoft’s advantage: the costs and risks of leaving it are so great that most companies simply won’t. And as long as Microsoft continues to make credible business software, they have little incentive to.

It’s pretty obvious that as long as Steve Ballmer is at the helm—and with a board packed with people friendly to him, that’s not going to change—the company lacks the design sensibility or customer empathy required to create something that people want to use, rather than have to use. But businesses need to get something done, consistently and reliably, if not always in the most elegant fashion. That’s Microsoft’s strength. The company should double down on it, and abandon the consumer marketplace to competitors like Apple, Google and Samsung, who are already eating its lunch.