An investment in Microsoft has been dead money for quite a while now. The stock has yo-yo’ed within a fairly narrow range between $22 and $32 except in late 2007 and 2008 during the financial crisis when it spiked and then plunged. The stock does sport a dividend of 92 cents a share, which is about a 3.3% yield. If you figure that Microsoft is dead money for the next few years still, then that certainly beats Treasurys. But given the increased risk, it’s nothing to right home about. So what about Microsoft’s strategy makes it more than dead money. Let me offer a few suggestions here.
I was in one of Microsoft’s new Apple Store-like retail locations in the mega mall in Tyson’s Corner, Virginia this weekend. And on the whole I was impressed with what I saw. Microsoft had a huge soup to nuts display of computing devices that included mobile phones, tablets, gaming consoles, ultrabooks, laptops, and desktops. All of these were running Microsoft’s latest operating system Windows 8. In my view, the way forward for Microsoft is in recognizing that it can muscle into different spaces by embracing platform convergence and running its single operating system across the panoply of form factors now out there. But to do that, Microsoft needs to migrate its massive installed base away from the PC and onto these other devices. The tablet will play a critical role in this.
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The whole experience left me understanding that Microsoft’s only advantage is its installed base of PC users. It also left me believing more than ever that the PC is toast, that tablets will steal a lot of their customers because of overlapping functionality, my own comments about my needing a laptop notwithstanding. Clearly then, Microsoft has to migrate its customers from the PC to the tablet as quickly as possible, building out enough price points in the process to have the Microsoft tablets act like either full notebook or traditional tablet depending on the price. Doing this will minimize cannibalization and extend the PC lock-in that is now starting to erode. The point here is to keep customers familiar with the operating system who have bought a gazillion dollars of PC software locked in to the Windows platform. And the only way for this to happen is via migration to mobile using tablets.
Recently, Microsoft Chairman Bill Gates criticized the company’s mobile strategy, saying it had been too slow to develop. I think the pieces are in place now. However, everyone seems to be focused on the smartphone because it is ubiquitous when in fact, for Microsoft, its competitive advantage in mobile lies in retaining the Windows platform while moving PC users over to tablets.