Op­er­at­ing sys­tem

Mi­crosoft – the di­nosaur that was able to save it­self

The Daily Telegraph - Business - - Front Page -

Mi­crosoft’s share­hold­ers had lit­tle to grum­ble about on Wed­nes­day as they shuf­fled into its an­nual meet­ing, held in the out­skirts of Seat­tle. The 43-year-old soft­ware com­pany, not long ago seen as a di­nosaur of the tech in­dus­try, has in re­cent months over­taken its younger peers, Ama­zon and Google, in value.

This week, it went one bet­ter. On Mon­day, Mi­crosoft leapfrogged its old ri­val Ap­ple for the first time since 2010, mak­ing it the world’s most valu­able pub­lic com­pany for the first time in 16 years. Since Mon­day, the two have re­peat­edly traded the top spot. The mo­ment caps an ex­tra­or­di­nary come­back for a com­pany that many were pre­pared to con­sign to his­tory.

Not many com­pa­nies have sec­ond chances, es­pe­cially one that had be­come as mono­lithic as Mi­crosoft.

In early 2009, when its share price was at its low­est point this cen­tury, the com­pany was reel­ing from the dis­as­trous launch of Win­dows Vista, the long-awaited but bug-rid­dled suc­ces­sor to its wildly suc­cess­ful pre­de­ces­sor Win­dows XP. The Zune, its sup­posed iPod-killer, had be­come a bad joke. In­ter­net Ex­plorer’s dom­i­nance over the web was be­ing grad­u­ally chipped away by a not-for­profit browser called Fire­fox and the newly re­leased Google Chrome. In the first quar­ter of the year, Mi­crosoft’s rev­enues fell, for the first time in its 23 years as a pub­lic com­pany.

And while it had spent its time try­ing to fix its nu­mer­ous prob­lems, in­clud­ing a long-run­ning an­titrust bat­tle with the Eu­ro­pean Com­mis­sion, Ap­ple had launched the prod­uct that would change the com­put­ing world for good. The iPhone, re­leased in 2007, caught Mi­crosoft flat-footed. Steve Ballmer, Mi­crosoft’s chief ex­ec­u­tive, fa­mously laughed it off, say­ing it would never seize more than 4pc of the mar­ket.

Ballmer, who had taken charge of Mi­crosoft from Bill Gates in 2000, could not have been more wrong, a fact that was made abun­dantly clear when, in 2010, Ap­ple’s value sur­passed that of its old ri­val. Even the death of Steve Jobs, who in ear­lier years had en­joyed noth­ing more than tak­ing a pop at Bill Gates, did not slow Ap­ple down, and a year later it be­came the world’s most valu­able com­pany, sur­pass­ing the oil gi­ant Exxon­Mo­bil.

Mean­while, Mi­crosoft was hor­ri­bly weighed down by in­ter­nal bu­reau­cracy and in­fight­ing. At times, the com­pany seemed more at war with it­self than with its com­peti­tors. Lit­tle won­der, then, that it missed the three great con­sumer waves of the 21st cen­tury: search en­gines, so­cial net­work­ing and smart­phones. Its lack of di­rec­tion was ex­em­pli­fied by the €5.4bn (£4.8bn) pur­chase of Nokia’s mo­bile phone di­vi­sion in 2013, a move that came far too late to work, if it ever could have. At the time, it seemed more likely that Mi­crosoft would go the way of IBM and HP: a com­pany that, al­beit still valu­able, had its best days be­hind it.

But in 2018, Mi­crosoft’s floun­der­ing

‘At times, the com­pany seemed more at war with it­self than with its younger com­peti­tors’

looks like a bless­ing in dis­guise, as the mar­kets it missed out on sud­denly look less valu­able.

The smart­phone mar­ket re­mains highly prof­itable, but sales are fall­ing in what an­a­lysts have termed a “re­ces­sion”. The dig­i­tal ad­ver­tis­ing mar­ket that pow­ers Google is show­ing some signs of run­ning out of puff. And the less said about so­cial net­works these days, the bet­ter. Mi­crosoft’s own foray into the space, its $26bn (£20.3bn) ac­qui­si­tion of LinkedIn two years ago, has largely avoided the storm that Face­book and Twit­ter have been bat­tling.

One could ar­gue that had Mi­crosoft been in any way suc­cess­ful in any of these ar­eas it would be in worse shape right now. But by the time Satya Nadella re­placed Ballmer in 2014, it knew it had to try to move on.

Un­der Nadella, Mi­crosoft has not ex­actly aban­doned the ev­ery­day con­sumer, but nei­ther are they a pri­or­ity. The com­pany’s at­ten­tion is largely fo­cused on get­ting busi­nesses to adopt its cor­po­rate of­fer­ings – its Of­fice soft­ware such as Word, Out­look and Ex­cel – and its com­puter server busi­ness.

But its most no­table suc­cess has been the cloud com­put­ing di­vi­sion Azure, a busi­ness that few out­side the tech in­dus­try have heard of. Com­pa­nies us­ing Azure gain ac­cess to Mi­crosoft’s data cen­tres, which al­low them to run ap­pli­ca­tions and host ser­vices with­out hav­ing to buy their own hard­ware. It is not as glam­orous a busi­ness as smart­phones, but it is grow­ing much faster: Azure rev­enues in­creased by 76pc in Mi­crosoft’s most-re­cent quar­ter. Mean­while, a se­ries of other bets ap­pear to be pay­ing off. HoloLens, the com­pany’s aug­mented re­al­ity head­set, has hardly be­come the mass-mar­ket prod­uct that Mi­crosoft might have hoped when it was first an­nounced al­most four years ago, but on Wed­nes­day the com­pany re­vealed it had won a $480m con­tract to sup­ply them to the US mil­i­tary. Other busi­nesses, such as its Sur­face tablets and Xbox gam­ing con­sole, have been rein­vented in re­cent years, lead­ing to healthy growth.

For years, it looked as if Mi­crosoft was los­ing in the ar­eas of the tech in­dus­try that re­ally mat­tered. What in­vestors did not see at the time is that its time in the wilder­ness al­lowed it to rein­vent it­self. As the rest of the in­dus­try strug­gles with a stock mar­ket crash, fears over fake news and the threat of in­ter­net reg­u­la­tion, Mi­crosoft’s past fail­ures have paved the way for the com­pany’s re­nais­sance.

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