Microsoft should stick to what it knows

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In the past few weeks, Microsoft has been portrayed as a struggling giant, a company in disarray, and an empire on the edge of disaster. Such talk has been amplified by the company’s massive $45 billion bid for Yahoo! on Feb. 1, perhaps an attempt to counter its growing competition, Google. And although it’s true that Microsoft is no longer the potent force that it was 10 years ago, it’s certainly not a doomed company.

Yes, there was a time when Bill Gates and his buddies had it all. Windows 98 was a world superpower in its own right, and Hotmail and MSN dominated the market for e-mail and news-based websites. But this monopoly would not last forever — and I think Gates knew that.

Apple’s easy-to-use Macintosh computers began to replace the slow and burdensome Microsoft PCs, and companies such as Google and Yahoo! began to capture significant portions of the Internet market. Where was Microsoft in this picture?

It’s simple: They couldn’t adapt fast enough to a changing market environment. This isn’t to say they didn’t try; on the contrary, they made a great effort in 2006. They released the Xbox 360 to compete with the Sony PS2; set up an extensive network of web-based applications under the banner of Windows Live; released the Zune, an intended competitor to Apple’s enormously popular iPod; and finally released Windows Vista, the much-hyped successor to Windows XP. None of this saved the company.

Microsoft gambled on the success of this vast range of products, but has yet to realize that it is quality rather than quantity that is of greater importance. Its resources were poorly allocated, and apart from the relative success of the Xbox 360, the rest of the company’s ambitious endeavors ended in failure. Meanwhile, as Microsoft contemplated its next move, Google acquired YouTube, Yahoo! acquired Flickr, and Apple made millions selling the iPhone. This meant that, while its competitors were moving forward, Microsoft’s growth became stagnant.

The reason for this is evident: While Google and Apple were giving young workers ample freedom to formulate, develop, and implement their ideas, Microsoft’s workers were no longer in touch with their customers’ wants and needs.

In less than five years, Google went from being just a search engine to a serious competitor for Microsoft. This is why, in complete desperation, Microsoft made its bid for Yahoo!. Perhaps Bill Gates hopes that revamping another potential Google competitor will stimulate his flagging company.

What Gates fails to realize is that acquiring Yahoo! will pose more problems than it can solve. Even if they do merge, Microsoft will have to make many difficult decisions. Yahoo! mail or Windows Live mail? Enhance MSN or modify the Yahoo! structure? Billions of dollars will be spent figuring out how to move forward, and almost none will be spent actually doing so.

Microsoft needs to cut its losses. Get rid of the products that are expensive to maintain, and return to its original strengths: a robust operating system like Windows XP, a superb Office Suite like Office 2003, and a powerful gaming console like the Xbox 360. Instead of trying to fight with Google over e-mail superiority, or with Apple over the iPod, Microsoft should strengthen Vista. Even Windows XP had a disastrous start, but it became the biggest asset to the company in recent history.

Only after re-establishing itself as a leader in its core market should Microsoft look to diversify.