Microsoft Fights On Despite Pessimism Parade

Analysts and the press are frequently unkind to Microsoft, but the company Gates built has been taking it on the chin from every direction.

More Microsoft negativity than normal piled up like a car crash last week. After digging through the wreckage we can gather that: Windows Phone 7 will fail; Microsoft is suing Motorola for patent infringement out of desperation; it has no real tablet PC strategy; it absolutely needs to change its current enterprise/consumer melting pot strategy or it will die; and CEO Steve Ballmer needs to be shown the door.

And these are the nice stories. Kidding.

Microsoft CEO Steve Ballmer talks Windows Phone 7, and avoids talk of of his job security, on the Today Show on Monday Oct. 11.

Without a doubt it’s been a tough week for ole Redmond. There were a few sparks that started this wildfire. First, the build up to Windows Phone 7 has been greeted with skepticism (Microsoft announced today that the first Windows Phone 7 phones will be available from AT&T on Nov. 8). Despite positive buzz about Windows Phones, most industry watchers think it has the same chances of succeeding as the Buffalo Bills have of winning the Super Bowl.

The perception is that Microsoft has fallen way too far behind in a rapidly growing and important market. Proving everyone wrong with Windows Phone 7 would put out a lot of fires for Microsoft.

The same can be said for tablet PCs, where the iPad is in the hands of over 3 million customers and Microsoft is still figuring out how to get something released in 2011.

Slideshow: Windows Phone 7 Handsets: A Visual Tour

Slideshow: Seven New Windows 7 Tablets: In Pictures

Slideshow: Windows 7 Hardware in Pictures: The Latest and Greatest Laptops

But what really started the pessimism parade last week was a Goldman Sachs’ report downgrading Microsoft from a “buy” to a “neutral” and lowering Microsoft’s earnings estimates by 4 percent. Goldman also recommended highly that Microsoft should separate its enterprise and consumer businesses to survive.

That one hurt. Especially because the report made its way into the tech press echo chamber and was referenced in multiple articles about the pending doom coming to Redmond.

Having Goldman Sachs question the future and stability of Microsoft inevitably led to the subject of CEO Steve Ballmer’s job stability. Whether Ballmer should stay or go comes up from time to time, but the Microsoft chief took some hard hits last week: he was given half his potential bonus for the year by the Microsoft board, and CNN reported last week that only half of Microsoft’s employees approve of Ballmer’s job performance.

Nevertheless, replacing Ballmer at a company as complex as Microsoft is easier said than done, according to a story by NetworkWorld’s Jon Brodkin.

Microsoft is a company that obviously no longer dominates like it did in the ’90s. For the past five or so years, Microsoft has been in a cycle of peaks and valleys as technology has changed at a rapid clip. On one hand, it is slow and disorganized, but on the other hand, it owns the enterprise and makes boatloads of money from Windows and Office. It is also trying hard to innovate in mobile, growing in search (though still bleeding money) and has a really good video game console with Xbox 360, which will launch gesture-based technology, Kinect,

as part of the Xbox experience next month.

What more do you want from one company?

And maybe that’s the problem: Microsoft doesn’t realize that it’s just one company and can only do so many things well. No other tech company tries to compete in as many markets as Microsoft does. It seems they all know better.

If Microsoft is guilty of anything it’s having ambitions bigger than its abilities. And something’s got to give, as the Goldman Sachs report points out.

Will it be the breaking up of business divisions? A new CEO? A smartphone breakthrough? A bold acquisition?

Anything to stop the negativity.

Shane O’Neill covers Microsoft, Windows, Operating Systems, Productivity Apps and Online Services for CIO.com. Follow Shane on Twitter @smoneill. Follow everything from CIO.com on Twitter @CIOonline. Email Shane at soneill@cxo.com.