by Shane O'Neill

How Much Longer Can Microsoft Be a Viable Consumer Company?

Apr 24, 20123 mins
Cloud ComputingComputers and PeripheralsConsumer Electronics

Microsoft announced surprisingly solid quarterly earnings last week, but once again its enterprise products saved the day while its consumer goods sputtered.

Microsoft delivered stronger-than-expected financial results last week, with overall revenue at $5.1 billion for the third fiscal quarter of 2012, a rise of 6 percent over the same period last year.

The biggest surprise was that its Windows division garnered a 4 percent year-over-year increase in sales. This exceeded the predictions of both analysts and investors.

But how can that be? Windows sales have been slipping and should continue to slip, right? Consumers are buying tablets or delaying laptop purchases until Windows 8. You would think businesses are doing the same, but financial results prove otherwise.

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Turns out business purchases of Windows (7) PCs are up, with system sales to companies increasing 8 percent year-over-year. Consumer PC sales, however, remained flat.

So Microsoft was saved by the enterprise yet again. This is nothing new, but the Microsoft consumer is becoming an even more elusive figure, and there’s an argument that Windows 8 won’t do much to hold on to these slippery creatures.

As Microsoft lumbers on toward the launch of Windows 8 — it announced this week that the “Release Preview” will happen in early June – it’s clear that Windows 8 will arrive at a crucial inflection point for Microsoft.

Either Microsoft delivers Windows Phone smartphones and Windows 8 tablets that excite consumers or consumers will drift farther out to sea.

With the onset of smartphones and tablets, consumers have gone even more starry-eyed for Apple. The company has sold a whopping 67 million iPads since the device was launched two years ago (it took Apple 24 years to sell that many Macs). Android-based smartphones have also been a smash success with consumers. Android is the current smartphone market share leader, with 50 percent of the market, according to market tracker comScore.

The Apple-Microsoft debate these days is less about the Mac laptop versus the Windows laptop. That’s a pre-iPad conversation. Now, it’s about a wholesale movement to tablets, smartphones, mobile apps and cloud services, and how Microsoft has not moved quickly enough in these areas to satisfy fickle consumers.

Microsoft moves like a turtle when it comes to consumer goods, mainly because there’s not much motivation. Microsoft simply doesn’t make much money from consumers, at least compared to its highly lucrative business offerings.

Microsoft’s Online Services division (includes Bing and MSN), entertainment and devices division (includes Xbox 360 and Kinect), and parts of its Windows division (Windows Live) are utterly dwarfed by revenues generated by the Windows OS, the Business division (the Office ecosystem) and the Server and Tools division, where enterprise-level volume license agreements are common.

In a recent conversation with me about Windows 8, the CEO of an IT consulting and managed services company put it rather succinctly.

“Microsoft has to decide if wants to be SAP or Apple. It can’t be both.”

Yet even if it’s only for marketing purposes, Microsoft has the money to keeping pushing the Bing search engine, Windows Phone, Windows Live, Xbox 360 and Kinect. It wants and needs to stay in the consumer’s head, if not his wallet.

But if Windows 8 fails to speak to consumers the way that Windows Phone has so far failed, Microsoft may have to make that “SAP or Apple” choice. And everyone knows that when you kill off parts of your company, you kill the parts that don’t make money.

What do you think? Can Microsoft be two companies forever?