Will Microsoft Save Itself in 2013?

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Microsoft (NASDAQ: MSFT  ) finds itself in a precarious situation as we roll into 2013.

The Windows 8 launch that was supposed to save Redmond's bacon appears to be a dud. Pushing into the mobile market with the Microsoft-branded Surface tablet upset a horde of traditional partners and doesn't seem to pay off, either.

So where does Mr. Softy go from here? I'm afraid it won't be anywhere nice.

Task No. 1 on CEO Steve Ballmer's agenda must be to get the failing Windows 8 launch back on track. The company can't afford another unmitigated disaster so soon after the tragedy we know as Windows Vista. The Vista debacle opened the door for Apple (NASDAQ: AAPL  ) to gain market share in the PC space.

With PC-style systems fading in importance these days, Microsoft is risking the server market and the already minuscule mobile foothold it established. Ballmer is still defending the design choices that went into Windows 8, but it's a quixotic quest.

The company can't afford to ram unpopular choices like the tablet-centric Metro desktop down the throats of consumers and corporations. Ballmer might have had that luxury 10 years ago, when Microsoft lacked serious competition in every computing space that mattered. But things have changed. Apple and Google (NASDAQ: GOOGL  ) are crushing traditional PC sales under the wheels of invading tablets and smartphones. Low-cost Linux systems are stealing Microsoft's data-center lunch, led by inveterate penguinista Red Hat (NYSE: RHT  ) . Redmond's core markets are melting away under this double-sided assault.

A quick service pack could restore some sanity to the new system -- make the Metro experience optional rather than mandatory, and Redmond still stands a chance. The question is, will Ballmer swallow his pride and get it done? The answer will determine Microsoft's future in a big way.

Taking the bitter pill would mean backing off the Surface idea while smoothing over the worst parts of Windows 8. Admit that being different just for the sake of being different is a losing strategy. Go back to software engineering 101.

But I don't see Ballmer making that tough decision. It's just not how he rolls. Then it'll be up to the board of directors to hold him responsible when this dogmatic strategy fails.

Microsoft is sure to underperform its peers in the Dow Jones Industrial Average (DJINDICES: ^DJI  ) when this happens. I'm so sure of it that I've started a bearish CAPScall on Microsoft. Next to actually selling the stock short, that's the strongest negative statement I can make about any investment.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

Read/Post Comments (3) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On December 22, 2012, at 3:41 PM, kgrocket73 wrote:

    I have been using Surface since Friday, it is great. I love the touch cover/keyboard, innovative, works great and handy when I edit docs. I use surface at work during meetings to take notes and at home to surf web, listen to music, watch YouTube and Netflix . It was also a pleasant surprise to find out that surface supports multi-user on the same device. I should have guessed that … it runs Windows OS. Now my wife has a separate login. We share the device with separate apps and settings.

    It is very responsive and the battery lasts me the whole day and I charge it at night. So far I am super happy with it.

    I like my iPad as well but somehow I feel like my surface is very effective for me, both at work as a companion device and at home as an entertainment device.

    I miss some finance App such as Mint that I am used to in iPad but with a full-fledged IE 10 browser that is optimized for touch I am able to use the web sites. I am hoping that App story on Surface will get better over time.

    I sometimes question the intent of the negative articles about windows 8.

  • Report this Comment On December 22, 2012, at 5:43 PM, jsblume wrote:

    While it can be difficult to comprehend the intent of negative articles, the reason for them is clear. I have been using PC's since 1985 and, for the most part, have not objected to the OS interface changes. However, I do not like the Metro interface. I don't like the Aero desktop either, but at least it's optional; I can turn it off If my only choices are accepting the Metro interface or staying with Windows 7, then I stay with Windows 7. If Microsoft wants to stay in the game, then I agree with this article - they can't force users down one path. I value my freedom of choice.

  • Report this Comment On December 23, 2012, at 10:09 AM, duke88888 wrote:

    Microsofy = Yawn I also see the Microsoft astroturfers object to your analysis and add nothing to the discussion but Microsoft talking points. This is typical Microsoft strategy;

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