Can you imagine a bigger year for Microsoft than 2012? The company started the year with a huge strategic partnership with Nokia, went into competition with its partners by making its own tablet, and closed things out with the most ambitious change to Windows since 1995. For sheer drama, 2012 is going to be tough to beat.
But 2013 may end up mattering more to the company in the long run. Whereas 2012 was all about Microsoft moving major pieces into place to execute on a grand strategy, 2013 will be the year we find out if that strategy was brilliant long-term planning or a disastrous blunder.
Initial signs aren't that favourable. Early numbers about PC sales show there hasn't been any uptick since the launch of Windows 8 — in fact, sales have dropped considerably since the same period last year. And this is during the normally lucrative holiday sales season.
Windows Phone, despite getting good reviews, still has a lot of catching up to do with both customers and developers if it's going to be a credible third alternative to iOS and Android. Plus it'll soon have RIM's BlackBerry 10 platform to compete with for the No. 3 spot.
Although Microsoft has some strong hardware (such as the Xbox 360), it's a software company at its core, and 2013 will be the year that determines whether or not Microsoft's multi-year effort to unite its products into a credible platform that serves both businesses and consumers across all kinds of devices is successful or not.
In the company's dream version of events, consumers will slowly come to realise the potential of Windows 8, buying new hardware and upgrade old PCs, which will in turn fuel developer interest. Major Windows 8 apps (from the likes of Facebook, Flipboard and 1Password) will start to arrive by the truckload and will trickle down to Windows Phone 8, turbo-charging Microsoft's growth in mobile. Buoyed by Windows 8's surging app catalogue, the Surface becomes a serious tablet contender.
Back here in our universe, things will probably turn out differently. If current trends continue, the next year for Microsoft will be a difficult one. However, Windows 8 may still deliver on its promise to take the company into the future — although it's going to need some help. Here's what 2013 may hold in store for Microsoft.
1. Plan B for Windows 8
It's way too early to use the word "flop" to describe Windows 8, but it's pretty clear the new operating system for Windows machines isn't performing as well as Microsoft would like. It's a powerful interface, but it has a relatively steep learning curve, and the benefits — right now, with a limited app catalogue — are finite.
However, Windows 8 does have benefits. Most users who upgrade report fewer crashes and faster boot-up times. You're also able to run new-style apps — many of which are free — without sacrificing running older apps in the legacy desktop environment.
Microsoft may be able to win over some Windows 8 holdouts by emphasising those benefits, and by making the new interface less frightening to older users. First, it could give users the option to start Windows 8 in the desktop, skipping the tiled interface, which is really more suited for tablets. Second, bringing back some version of the Start menu on the desktop is actually very helpful — it's little wonder several third parties are already doing this.
Finally, Microsoft should heed feedback and clean up any confusing discontinuities between the new UI and the desktop. Internet Explorer, for example, shouldn't necessarily let you open different tabs in both environments. At the very least, the user should be able to choose how the two browsers interact.
2. Discount the Surface
Microsoft Surface is great, but it's not an iPad. While some would argue that's a strength, it's fairly absurd that Microsoft is asking roughly the same amount of money for a first-generation tablet that has less than half the apps. Sure, the Surface may be suited to a few more "productivity" tasks thanks to its keyboard and Office, but that's generally not what people buy tablets for.
Put simply, the Surface is overpriced, which is probably why it only accounts for 0.22 ad impressions on the web to every 100 from an iPad. Microsoft needs to take the price down, but it probably won't do that until Surface 2 debuts, if only to save face and avoid the discount-bin reputations accorded to the BlackBerry PlayBook or HP TouchPad.
That means Microsoft needs to release a Surface 2 sooner rather than later (not to be confused with the Surface Pro, which is coming much sooner). It can't wait an entire year — I'd bet that by July, we'll see a new Surface. Of course, it will have to improve upon the original, and I'd bet that higher resolution, LTE connectivity and even more accessories are in the works.
Once it's out, Microsoft will be able to cut the US price of the original Surface RT to roughly the equivalent of the iPad mini, in the $US300-$US350 range. If Windows 8 actually starts getting decent traction in the app department, that'll actually be a bargain.
3. Developers, developers, developers
Speaking of apps, that's currently a big weakness of Windows 8. It's a tad surprising there weren't more high-profile Windows 8 apps at launch. Even some VIP-level Microsoft partners like Facebook don't have Windows 8 apps yet.
The platform needs apps to thrive. Microsoft has the tools in place to help create them, as well as the cash. In 2013, I have no doubt we'll see a full-court press from Microsoft to populate the Windows 8 app catalogue by any means necessary. While it's a tall order to ask any company to support yet another platform (after iOS and Android), 90 per cent of the world's computers is a pretty big opportunity for any developer.
Of course, Windows 8 is only installed on a tiny portion of those PCs, but if the apps come, that portion will get larger and larger. Still, many developers are reluctant to dive in before that number rises, and it won't rise if the developers don't dive in. Microsoft needs to inject itself into this catch-22 more forcefully to get big-name apps fast, which we'll see in the coming months.
4. Do or die for Windows Phone
With Windows Phone 8, Microsoft finally drew the mobile operating system into its platform strategy, fully and completely, by re-coding it to be compatible with Windows 8. While that opens a big door for developers, Windows Phone is still struggling for credibility as a viable mobile platform.
The problem isn't one of software, which is top-notch; it's strategy, and to some extent bad luck. Microsoft has had a few shaky moments with regard to Windows Phone — such as Google dropping support for Exchange ActiveSync, and the limited availability of the Nokia Lumia 920 in the US, just to name two examples. But it could have gotten ahead of them, and the company needs to stop playing catch-up and start thinking two or three moves ahead to really get Windows Phone's momentum going.
It's also going to face a new opponent when RIM finally launches its BlackBerry 10 devices at the end of January. A year ago, when Microsoft made its landmark deal with Nokia, it looked like Microsoft was going to grab a firm hold on the third spot in mobile, before RIM even had a chance. Now that spot is still in play, and 2013 will see it shake out.
5. Software divide
Microsoft, of course, makes the bulk of its money by selling software, and its picture in that regard is looking clearer. It has seen (correctly) that often enterprise and consumer needs are starkly different, and the same service doesn't necessarily work for both.
Take Skype. When Microsoft acquired the company in 2011, many questioned the need, considering Microsoft's Lync service. However, Lync was built as a business/networking tool and has zero mind share among consumers. Skype is a well-known communication service for everyone, and Microsoft delivered a great experience with it in Windows 8.
We're seeing the two-path approach among other Microsoft services: consumer-oriented web email has been given new life with Outlook.com, while the business side still has the traditional Outlook app backed by Microsoft Exchange. SkyDrive emerged in 2012 and is now the company's go-to cloud storage service for consumers. But larger organisations are better served by Sharepoint — and even the Windows Azure cloud platform. In the social space, Microsoft has seen the effectiveness of partnering with major players like Facebook and Klout for consumer services, but it clearly has plans with Yammer on the business side.
Both customers, however, are served by Office, one of Microsoft's biggest cash cows. This is the first year Office will be available as a subscription, a model that makes a lot of sense to both businesses and consumers. Once Office 2013 officially launches as a service (it's still in preview), there's a good chance it'll become one of Microsoft's success stories of 2013, possibly even buoying the market share of the Surface and Windows RT devices.
6. Xbox 720 arrives
The Xbox 360 debuted in 2005. While it's been honed and perfected since then (the notorious failure rate has apparently gone down), it's still one of the most long-in-tooth tech products in use today. It's overdue for a full refresh, which looks like a sure thing this year — probably at the E3 gaming show in June.
The new "Xbox 720" (it probably won't be called that) will doubtlessly integrate the Kinect motion controller, which has turned out to be a big success for the company. It'll also be designed from the ground up to be both a top-notch game console as well as a home-entertainment hub. Mobile integration — letting users pause a game (or any media) on their phones and resume on the console — will be deep, powered by the SmartGlass tech Microsoft unveiled in 2012.
There's another purpose to upgrading the Xbox experience, and that's to end-run Apple in its quest to infiltrate the living room with a (rumoured) television. Microsoft is already there with the Xbox, but most people today think of it as a gaming device. To really take the platform to the next level will take Herculean feats of both technology and marketing — probably a big part of why it's taken eight years to come out.
7. The newer, nimbler Microsoft
Microsoft spent much of 2012 revamping and rebuilding its software to better address the needs of its customers in the coming decade. It now has a united platform under Windows 8 that will move the company forward in both traditional PCs and mobile devices, as well as serve as a basis for future products.
Those future products are where Microsoft should now begin turning its attention. While 2013 will largely be a test to see if Windows machines can stay relevant in the mobile era, the company has to start placing bets on devices and technologies that we'll be using 3-5 years from now. Luckily, the company has a robust R&D division and is fully capable of developing products like Google Glass, which may end up being the way we "compute" in the future.
Might we see a bold, unexpected product unveiling from Microsoft in 2013? It happened in 2012 with the Surface. And as its main competitors look to disrupt stagnant categories (or create entirely new ones), Microsoft must now see the value of moving first and quickly. If there's to be a brave new era for the company, it'll be characterised by a new willingness to adapt to change fast. It simply must, because in today's tech world the slow and steady only wins the race to irrelevancy.
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