Microsoft's chance to show it still leads

By David Goldman, staff writer


SEATTLE (CNNMoney.com) -- It's a pretty good time to be Microsoft -- but the company still has a lot to prove.

Chief Executive Steve Ballmer and the full roster of Microsoft's top executives are meeting with financial analysts on Thursday to map out Microsoft's strategy for maintaining its leadership in the corporate market and catching up to Apple and Google in the consumer space.

Analysts will be especially tuned in for what Microsoft says about its plans for tablets, Windows Phone 7, Bing and Kinect -- businesses that all lag behind their rivals.

The company is coming off of one of its strongest quarters ever in terms of revenue and profit, as Windows 7 and Office sales have soared on renewed demand for PCs. Microsoft has sold nearly 200 million Windows 7 licenses, demonstrating an ability to bounce back from the Windows Vista debacle. Many corporate clients, which make up about three-quarters of Microsoft's customer base, are beginning to refresh their computers and software, and most are expected to migrate to Windows 7 and Office 2010 by the end of next year.

The software giant has also embraced cloud computing in a way that impresses industry analysts. Microsoft (MSFT, Fortune 500) responded to Google Apps' threat to Office by launching a very functional, free online edition of Office 2010 in June. Microsoft's unique "Azure" cloud platform helps businesses save money by moving existing applications built on Microsoft's platform -- as many corporate applications are -- onto remote servers that are supported and serviced by Microsoft, allowing for remote access to data.

For consumers, on the other hand, Microsoft is struggling to keep pace with its competitors.

With search engine Bing, Microsoft has integrated some innovative and compelling ideas to make search more visual, intuitive and predictive of users' intent -- Google (GOOG, Fortune 500) has even copied many of Bing's most unique features. Bing has grown its share of the search market by about 50% in a little over a year, and the revenue-sharing deal with Yahoo (YHOO, Fortune 500) may help it gain scale.

But Bing still trails Google by a vast margin, and it continues to hemorrhage cash.

And then there's Windows Phone 7, one of Microsoft's biggest question marks.

With its last software release, Windows Mobile 6.5, Microsoft did fairly well in terms of global smartphone market share, but the company was is badly in the United States to more feature-rich phones like the iPhone, Research In Motion's (RIMM) BlackBerry and Android-based devices.

Windows Phone 7 is a complete redesign of Microsoft's mobile offering, focusing on a simple and unique user interface. But it's not slated to debut until this fall -- an eon in the fast-moving phone field, where the iPhone and Android continue to gobble up market share.

Tablets are also a glaring question that Microsoft will need to address on Thursday.

With the early success of Apple's (AAPL, Fortune 500) iPad, many analysts are predicting that the tablet space will be one of the fastest-growing tech segments this decade, alongside smartphones. But Ballmer has only vaguely articulated a very generalized strategy for tablet computers, namely that Windows 7 will be on tablets "soon." But the CEO famously canned a turmoil-fraught Microsoft tablet project that had been in the works almost a decade before the iPad came to market. Analysts want more concrete answers about how Microsoft plans to compete in tablets.

Xbox is perhaps Microsoft's greatest source of strength with consumers, outside of Windows.

With the much-hyped, controllerless Kinect accessory set to go on sale this fall, Microsoft hopes to grow its user base even more by adding on the casual gamers who have embraced Nintendo's Wii. Microsoft loves to sell Xbox's ability to download media and stream it across a PC, Zune or Windows Phone. The consumer cloud is a high-growth space that many tech companies are quick to embrace, but given its lack of success so far with Zune media players and Windows Phone, Microsoft has to be concerned about what happens if/when Apple allows its users to stream their iTunes libraries across multiple devices over the Internet.

Microsoft's consumer divisions, which include mobile, have failed to consistently make money for the company. The company let entertainment division chief Robbie Bach head out the door in May.

Here's a telling sign of how challenging Microsoft is finding that market: Though it has many questions to answer on the consumer front, Don Mattrick, who replaced Bach, is not scheduled to speak on Thursday. To top of page

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