What Should Microsoft Do Next?

I read an interesting article in InformationWeek today. You can check it out yourself: "7 Things Microsoft Must Do In 2010". The author, Paul McDougall, begins the article by noting that "... 2009 was a tough [year] for Microsoft. Overall sales slumped, and the core franchises like Office and Windows were hit doubly hard."  The trend on the OS side of the business is nothing new. Gregg Keizer reported in COMPUTERWORLD that, while Windows 7 is making strong gains, the overall market share for Windows OS was down for the the last eight consecutive months of 2009.  It is interesting to note that rival desktop operating systems were flat while mobile operating systems picked up those losses.

Think about this for a minute: Microsoft still controls over 92% of the OS market. That is amazing. As a point of reference, Apple's OS X share is only 5.1%. I guess having 92% of the market is part of the problem. Of course, the trend is alarming (at least if you work at Microsoft, or like me, you are a shareholder). Google, while a recent entry to the market, is aggressive and seems to be willing to 'buy' share.

Let's bring some perspective to the conversation. In a quarterly investor presentation, Microsoft reported revenue for various business units as follows:


*Includes adjustment of $1.5 billion Windows 7 diferrals

A significant portion of the revenue for 'Entertainment and Devices' was reportedly generated by Halo. Windows 7.0 is generating new business, but much of that is conversation form XP or Vista.

What should Microsoft do? I am not going to list all of the suggestion made by Mr. McDougall. I agree with most of his ideas. For example, he suggest that they discontinue the Zune. I tend to agree. It is a distraction (sorry Zune fans).

Given the likelihood of lost revenues from OS and business software, Microsoft needs to find other sources of revenue.  Perhaps, as the author suggest, they finally acquire Yahoo. Perhaps it is a also a combination of services, new game-changing products and advertising.  Can they do it? It should be exciting - and it will definalty be a case study for a future MBA class or two.

So, what do you think? What would you do?