Get Ready for Microsoft's Big Comeback

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The recession is bad. And it could get worse before it gets better. But the downturn will end. And when it does, the consumer electronics and IT industries will look very different from those that entered the recession in late 2007.

There will be winners and losers — many companies that have been with us for years or decades will be swallowed up, never to be heard from again. Others will shrink to insignificance.

I think one of the biggest winners coming out the recession will be none other than Microsoft.

For the past few years, Microsoft has been suffering something of a PR dark ages, with fumbles, blunders and legal hassles staining its already battered reputation of the 1990s.

Some of the biggest and worst blunders are very recent. Windows Vista, for example, was a train wreck compounded by Apple’s “I’m a Mac, I’m a PC” ad campaign, Microsoft’s Mohave Experiment debacle and the more recent Seinfeld ad campaign fiasco.

But if you look at the foundation that Microsoft is building upon, you can see that the company is poised for a spectacular comeback. And what is that foundation? It’s Windows 7, the “secret sauce” that Microsoft will use to re-dominate the industry.

There’s no question that Windows Vista was a clumsy pig. But testers seem to really love Windows 7. The OS will almost certainly be fast and appealing, stable and fun to use — and ship this year.

Here’s how Microsoft will leverage Windows 7 to dominate:

1.) Netbooks.
2.) Touch.
3.) Games.
4.) 64-bit computing.
RELATED NEWS AND ANALYSIS

1.) Netbooks.

The ASUS Eee PC launched a new industry, surprising everybody and throwing a monkey wrench in the expected trajectory of mobile computing. (It was supposed to be all about laptops and the Ultra-Mobile PC, remember?) The first wave of what are now called netbooks ran Linux. But in another surprise, it turns out that this hot category favored Windows XP. Don’t look now, but (unlike Vista), Windows 7 is an awesome netbook OS, and will take over the market when it ships.

2.) Touch.

The future is touch. But the transition from the old-and-busted WIMP (window, icon, menu, pointing device) UI invented by Xerox Park in the ‘70s to the mouseless touch UI of the future will be gradual — and largely a contest between Apple and Microsoft. Microsoft’s vertical marketing device, called Surface, points the way to consumer and business touch PCs. But Windows 7 is also optimized for touch. I think Windows 7’s touch features plus the tablet form-factor could be the driving force that mainstreams touch on devices larger than an iPhone.

3.) Games.

If you think gaming is big now, just wait. The whole gaming category will grow massively year-over-year indefinitely. Gaming will happen primarily in four “places”: 1) consoles, which Microsoft leads with Xbox; 2) cell phones, which Apple will probably control with the iPhone and App Store; 3) the Internet, which everyone will get a piece of, including Microsoft; and last but definitely not least; 4) the desktop, which will thrive on Windows 7. Others will control the free and cheap gaming universe, while Microsoft will control the big-money segments of gaming.

4.) 64-bit computing.

Sure, 64-bit OSs have been around awhile, but applications have lagged, robbing users of the full experience. It’s likely that Office 11 will ship in about a year, and in a 64-bit version. The performance boost of Windows 7, plus 64-bit office, plus another year of Moore’s Law on the hardware side should make business computing pretty damned fast.

I think Windows 7 will be very, very lucrative for Microsoft. But there are other factors contributing to Microsoft’s coming ascent.

Next Page: No longer an industry villain

Microsoft is gradually shedding its reputation as the industry’s evil villain. The company has already been raked over the coals by overeager antitrust officials worldwide. And it has become well known that Microsoft wealth is funding the largest philanthropic organization in history. Plenty of people hate this Microsoft product or that Microsoft program, but the vilification of Microsoft itself has been reduced to a smattering of isolated die-hard Linux and Apple fans shouting in the wilderness.

The company may also be getting a clue about effective marketing. After the Mojave and Seinfeld fiascos, Microsoft came out with a marketing campaign for Internet Explorer 8 that people actually liked.

And let’s not forget about cash. Long-term opportunities exceed hazards during recessions for those with cash. Competitors fall, and the price of acquisition plummets. Those with the most cash can buy customers, technologies, executives and mind-share for pennies on the dollar.

With nearly triple the operating cash flow as Google, and double that of Apple, Microsoft is in an excellent position to spend some of its $20 billion buying up hot and potentially hot properties that will dominate the future of computing and the Internet.

One minor example. What if Microsoft bought Yahoo, Facebook, Twitter *and* Hulu this year? How would all this position the company for next year? You can really do a lot with $20 billion during a recession.

I’m not predicting these acquisitions. But I am predicting massive consolidation during the recession that will favor cash-rich companies — Microsoft above all.

My prediction in a nutshell: Windows 7, an improving reputation and $20 billion in cash will bring Microsoft out its doldrums and into a position of industry leadership once again.

Also see (a classic from the archives): Vista Expert: Why I Don’t Like Vista

And: What’s Wrong With Microsoft’s ‘Mojave Experiment’?