Microsoft Should Abandon the Consumer Market

Depending on what matters to you, it's been a tough decade for Microsoft. The company's stock price has stagnated as it matured from a quickly-growing upstart into a slow-moving, comfortable, behemoth. But in recent years, faster-moving companies such as Apple and Google have stolen the limelight, thanks to innovative and exciting consumer products. And despite the fact that these companies are behemoths themselves, they've generated significant excitement with shareholders as well.

The consensus, it seems, is that Microsoft simply doesn't move quickly enough. It no longer sets the tech agenda, but instead follows other companies into new markets. Critics have called on the company to pick up the pace, to move with more alacrity, and demonstrate that its hierarchical corporate sprawl hasn't choked out the lifeblood of the company quite yet. I've been pretty vocal along these lines myself.

But during a recent briefing about Microsoft's cloud computing and virtualization strategy, a sudden contrary thought hit me. Here's this company that's so often criticized for not moving quickly enough. But when it comes to the business market, Microsoft isn't just providing a unique set of products and services that the competition can't match, it's doing so in an aggressive fashion. Put another way, Microsoft is leading in the business desktop, servers, and services markets in ways that generally elude it with consumers.

There are exceptions, of course, with the Xbox portion of Microsoft's Entertainment and Devices Division being perhaps the only meaningful one from a revenue perspective. Assuming that all of the revenues that the E&D division makes are consumer oriented (and they're not), that division was responsible for just 10 percent of the company's overall revenues in CY 2010. (Note that Microsoft's fiscal year runs from July to June; this calculation is based on January to December 2010.)

Of the remainder of the company, only the Windows and Windows Live division also generates revenues from individuals, though as I'll argue in a moment, we shouldn't confuse "consumers" with "individuals." It's hard to gauge an exact figure, but the entire division earned about 31 percent of Microsoft's revenues in CY 2010. If fully half of that came from individuals (and it did not), then all of Microsoft's "consumer"-oriented revenues represented just one quarter of the company's overall revenues for the year. The other 75 percent came from businesses.

There's just one thing. It's not that high. My estimate is that less than 15 percent of Microsoft's revenues come purely from consumer purchasers. And that's because I draw a distinction between consumers—that is, people who organize and enjoy digital media collections, play video games, and engage in other non-productive tasks—and individuals, which are those people who use technology to communicate via email and IM, generate and edit business- and education-oriented documents with Microsoft Office solutions, and so on. Yes, there is crossover between these groups, though one might make the argument that people are increasingly turning to non-Microsoft solutions for their non-productivity technology use. But when you look at people who purely use Microsoft products as true consumers, it's a comparatively small group from a revenue perspective.

Let's define these groups further by comparing people who lean toward Microsoft and Apple products, with Microsoft being the typical supplier of business solutions and Apple serving the consumer market.


Typical Microsoft users—that is, individuals who use Microsoft software products and services—are business customers who are increasingly accessing productivity-related products and services away from work and in non-work hours. So they get a laptop or smartphone from work and spend the night hours watching TV while catching up on email or blocking out a corporate presentation. These people are individuals, of course. But they're not consumers, even though they may otherwise enjoy leisure time as much as anyone else. Their technology purchases are driven by work.

Typical Apple users—that is, people who use Apple products and services—are consumers who increasingly demand that their workplace allow them to use Apple hardware (Macs, iPhones, and iPads) at work. They purchase these products with their own money and never expect to be compensated by their employers. They spend the night hours working sometimes, as well. But they also use Apple's devices to enjoy digital media content, play games, browse the App Store, and so on. These people are consumers, and very much so. And they are increasingly disinterested in Microsoft's products and services, as they've found other companies to more aggressively meet their leisure time needs.

These are generalizations. And there are always exceptions. But I think the distinction is important. Both groups are quite large, and there is room for growth in both the true consumer market and in the market for business individuals. But Microsoft only has any pull with the latter.

So here's my suggestion: While Microsoft has spent much of the past decade trying to prove that it is somehow a company that can equally attract consumers and businesses, it has failed to make any headway with consumers at all. And its competitors, which are better able to meet the needs of this market better—indeed, able to anticipate and even invent these needs, as Apple has done—show no sign of slowing. There's only one course of action that makes any sense.

Microsoft should abandon the consumer market.

Relax, relax. This isn't as dramatic as it sounds. Indeed, as I've already discovered, most of Microsoft's revenues are already derived from non-consumer products and services as it is. And its future growth is already tied to the migration away from business-oriented traditional software packages to business-oriented cloud services. Why continue muddying the waters?

Of course, there are parts of Microsoft that are consumer-oriented. And these parts need to be dealt with.

First, Microsoft should spin off Xbox as a separate, perhaps private, company. Next, roll Windows Phone and any embedded Windows products, and the PC hardware (mice, keyboards) into Windows and Windows Live. Then, roll Mac Office (and the Mac BU) into the Microsoft Business Division (which makes Windows Office) and focus on only business solutions for Mac. And finally, simply abandon the rest of the junk the E&D division makes. I'm talking Zune, the PC games stuff, the Internet gadgets, the gamepads, and so on. No one uses this stuff anyway, and it's just dragging down the division as it is.

What's interesting is that this wouldn't be that big a change, and only the Xbox part of that should really cause any angst. Windows and Windows Live will continue making Windows client versions that sell to both businesses and individuals. The Business division will continue making Office products and services that are used by, yes, both businesses and individuals. Microsoft shouldn't abandon the PC. It should abandon those users who are simply there for entertainment. Heck, those users have already abandoned Microsoft anyway.

Now, Microsoft will never do what I'm suggesting solely because of the psychological implications, and out of an inability to understand that it already has become the next IBM, a company that is firmly rooted in its sea of business customers. But this shouldn't be seen as a bad thing: IBM is a mega-company that generates one-third again as many revenues as does Microsoft, and it does so solely by serving the needs of the enterprise market. There's money to be made there.

From a tech enthusiast standpoint, what I'm suggesting is not sexy, exciting, or interesting. But there's plenty of growth to be had in the business market, and I'm guessing Microsoft's stock might even rebound nicely when Wall Street shows its appreciation to the software giant for simply figuring out its true course. This is exactly the message the company should be sending to its shareholders.

And for those of us who support and implement Microsoft technologies at work, this consolidation of vision and effort would also be both comforting and reaffirming. We've dedicated a lot of time and effort here, and knowing that Microsoft wasn't wasting its own time and effort on foolish vanity projects is also a great message to send to the customers that matter most.

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