There's a lot of talk going around about a possible Microsoft (MSFT 0.63%) management shake-up. Although nothing has been formally announced, changes seem almost inevitable at Microsoft now, and there are two ways the company -- and its investors -- could benefit.
Focus, focus, focus
Microsoft can't be accused of being scatter-brained. For years, the company focused much of its attention on its Windows desktop software because that's where the money was. But as PC sales continue to decline, the Redmond company is looking to shift its focus to mobile -- easier said than done.
The first major move in this direction came when Microsoft introduced the Windows Phone OS and the Surface tablet. Bot of those initiatives were obviously a step in the right direction, but they were born out of necessity, rather than innovation. They came because Apple (AAPL +1.50%) and Google (GOOG +3.97%) were already grabbing up large shares of the mobile OS space and Microsoft needed to do something to keep up.
Apple propelled itself into mobile by launching one of the most innovative smartphones at the time, and then followed that up with the iPad. Google entered the market by buying up the Android platform and then turning it into the go-to operating system that makes up 75% of smartphone market share and 56% of tablet market share.
With these two companies firmly embedded into mobile, Microsoft has missed out on device sales, ecosystem sales, and consumer mindshare. A leadership and structural shake-up for the company could shift Microsoft out of playing catch-up and focus its attention on being a strong mobile contender.
Product integration
In addition to a realignment of Microsoft's focus, a restructuring could help the company better integrate its devices and services -- like Google and Apple do -- in order to sell more products.
As it stands right now, Microsoft ranks No. 5 out of the top five tablet vendors, with just 1.8% of the tablet market share in Q1 2013, compared to Apple's 39.6%. When it comes to smartphone OS market share, Windows Phone makes up just 3.2% compared to Android's 75% and Apple's 17.3%.
Apple and Google don't just dominate these two mobile spaces because they got to the party first -- they dominate them because they make great software that works well with their services. For Apple, the pairing is all about its ecosystem. According to ABI Research, Apple is expected to earn $18 billion of the $27 billion app market this year. Google's made significant gains in the app space over the past year, but Apple's App Store brings in two times more revenue than Google's Play Store, and iPhone maker is expected to hold that lead.
Though Google takes second place in app store revenue, the company's mobile dominance comes from holding three-quarters of the mobile OS market. Combine that with its search dominance, email service, and advertising platform strength, and any app store purchases become icing on the cake.
Microsoft has yet to make such a splash with its product and services pairing. The company has built some of the most-used software on the planet, but its mobile software hasn't been nearly as successful.
The company doesn't just need a successful mobile app store -- that's just part of the equation -- it needs consumers to want to use its products and want to make purchases on them. This is what Microsoft lacks right now, and what its competitors are so good at. If Microsoft's CEO Steve Ballmer goes through with his rumored plans, then hopefully Microsoft's investors will see the company's focus narrow on offering its own amazing products that are tied to compelling services. Without that, the software giant will continue to fall behind the pack.
