With two major cave-ins in the past few weeks, Microsoft is screaming at the top of its lungs about how irrelevant it is. If you didn’t understand the fall of Microsoft from powerful monopolist to computing afterthought, let SemiAccurate explain it to you.

For the past few decades, Microsoft has been a monopoly with one game plan, leverage what they have to exclude competition. If someone had a good idea, Microsoft would come out with a barely functional copy, give it away, and shut out the income stream of the innovator. Novell, Netscape, Pen, and countless others were crushed by this one dirty trick, and the hardware world bowed to Redmond’s whims.

The company sucked the life and innovation out of the industry for so long that eventually no one innovated because it was pointless, if the idea was good, Microsoft would end it. Ask Gateway about doing something as basic as making the initial desktop and installation process more user-friendly. Microsoft killed them for the sin of trying to make the user experience better. Everything stagnated as a result of this misuse of monopoly power.

As their marketshare grew to almost 100% of the PC market, Microsoft had to move into new areas for growth. There really wasn’t a new area large enough after Windows and Office to generate the revenues necessary to keep Wall Street’s desire for more sated so Microsoft did what they always do, leveraged their monopoly to extract more and more revenue from each customer.

It was enterprise customers that felt the brunt of this revenue extraction ploy. CALs changed almost on a whim in ways that strangely made Microsoft far more money by bundling things no one in their right mind wanted. New products were introduced and they sold well because you couldn’t not buy them if you wanted many business critical pieces. If you wanted Exchange you almost had to buy Microsoft’s offering du jour for a hefty price too.

The wagons were circled ever tighter to extract more revenue per customer, and when that didn’t work, prices were outright raised because there was no place for enterprise customers to go. Walls were built to exclude anyone else silly enough to not learn Novell’s lesson, interoperability was prevented at every turn. It worked well and Microsoft revenues climbed but innovation was non-existent, why should they bother?

Competition was likewise non-existent, anyone that tried was shut out of new PCs, shut out of interoperability, had revenues devastated by free offerings from Microsoft, and many other similar monopoly games. Microsoft was the proverbial fat and lazy behemoth that was quite content to count their money and turn screws on customers whenever they needed more. If you doubt the seriousness of this stagnation, ask yourself what the last innovation Microsoft came up with was, not evolution but true innovation. I can’t think of any either.

While it may only be apparent from the outside, it is hard to come up with a reason for this other than management having the mentality of, “Why bother”. They were so myopic that they missed every trend that happened but still managed to shut any innovator down in short order. Microsoft missed the Internet revolution entirely but crushed Netscape without trying hard. Why should management do anything proactively with that kind of lock on the industry?

Then came search and Google. Microsoft missed this one but Google couldn’t be shut out because they weren’t on a PC. There were no vendors to threaten if they carried Google, and no way to exclude them. Microsoft tried to copy with a second rate search strategy. It failed. They re-branded. It failed again. They tried bribing users, that failed too. Re-branding again with several other ‘brilliant’ by Microsoft standards ploys later, Bing still loses billions of dollars a year. If it wasn’t for buying Yahoo’s users outright, Bing would have a user base that is essentially zero. Microsoft failed in search.

Similarly with Linux, Microsoft just made sure that no OEM could bundle it with PCs, any that tried paid a high price. It was shut out. On the datacenter side however, Microsoft couldn’t force bundle Windows Server, customers put their own software on. For some strange reason, most large datacenters balk at paying $2000+ per two sockets for something that is vastly inferior to manage, slower, more resource hungry, and completely insecure versus the free alternative.

Microsoft’s server market share went from 66%+ of sockets to <30% in five years, mostly due to datacenters and consolidation. Please don’t look for this to be reflected in the numbers from the big consulting houses, they are too afraid of revenue loss to count sockets. Instead they use the metrics that their customers want them to use, and only count sales of servers from certain vendors and sold OSes, a small fraction of the market. Microsoft didn’t just lose the server market, they were blown out of the water and have no way to recover. Other than internal services, Microsoft is just not relevant in the cloud. If you doubt this, go price a server instance from Rackspace, keep hardware constant and only vary the OS. Game over.

Then came mobile, Microsoft simply can not compete there. Their offering are at a major BoM cost disadvantage even before the Microsoft OS tax. An OEM can not make an offering with a Microsoft mobile OS and be competitive on price, period. This includes phones, tablets, and any other form factor you can think of, the underlying fundamentals exclude Microsoft. Microsoft is also at a massive software disadvantage here, they have almost no apps, and must pay to get them ported.

Users have no reason to move to a more expensive, nearly useless OS that is fundamentally annoying to use. Microsoft spent hundreds of millions of dollars on the Windows Phone 7 advertising campaign and saw their smartphone marketshare plunge from 12%+ to sub-2% for it. Microsoft failed here, and failed badly.

Then came Surface, something SemiAccurate called a failure long before launch. We also said that OEMs were leaving Microsoft in droves at a level never seen before in the industry. People laughed. Bloomberg copied us without credit but still managed to doubt it. People poo-pooed what we said because they had no way of asking the companies about what was going on. Step forward two years and you have Chromebooks, Intel making Windows a minority OS, and every OEM out there trying desperately to put out not-Windows devices. Microsoft was almost non-existent on the floor of Computex 2013 and this year looks to be more of a Android, Chrome, and Steam OS whitewash. Microsoft killed their monopoly with Surface and management was too dumb to understand why. I doubt they even understand the depths of their problems today, but if you had to point to a single event that made Microsoft irrelevant, Surface’s launch was it.

That said most people didn’t grasp how badly Microsoft had fallen, they were totally irrelevant and had no more monopoly to leverage. This played out with the Windows 8 launch, Microsoft was desperately trying to stay relevant in mobile by forcing the entire computing ecosystem to adopt their new mobile OS. In theory this would lead to software being leveraged across platforms, and between Office and Exchange, they could force people to use Microsoft mobile products.

A funny thing happened though, an entire generation of users didn’t want to give up their beloved iPhones or Android devices for an inferior, slower, more expensive, app-free Microsoft device. Microsoft repeated their threat loudly, “Use our mobile OS or you won’t get Office or Exchange on your phone!” To their abject horror the response was almost universally, “OK, bye”.

Microsoft was so blindingly mis-managed that there was no plan B, no alternative strategy, and no way out. Every OEM was clearly shown that Microsoft was going to compete with them on hardware so were actively hostile. Intel, Microsoft’s traditional toadie, had shifted resources to enable everything but Windows, and do it as quickly as possible. The misguided WART (Windows ARM RT) burned every consumer, it was incompatible, painfully slow, expensive, and generally useless. It failed badly.

Windows 8 was the first OS to make PC sales drop with the release of a new OS. Not only that, they dropped by double-digit percentages and are still dropping almost two years later. Microsoft forced an actively awful OS on customers that didn’t want it, leveraged their remaining monopoly powers to exclude any other offerings, and lost all their partners about 25% unit sales. The result of the Windows 8 debacle was a customer base that now actively avoids Windows where possible and an OEM base that is actively tying to sell those customers anything but Windows. Microsoft failed badly here too.

But what are the two recent cave-ins which show that Microsoft wants the world to know that they are irrelevant? XP and XBox, X marks the spot really. Both have recently been the focus of major Microsoft policy shifts that the company swore would not happen. Both were a line drawn in the sand that Microsoft was hinging their future on, and like Office and Exchange on mobile, the world said no. Once again there was no backup plan either so Microsoft had to publicly crawl on their stomachs to apologize. Mis-management indeed.

The XP debacle was simple, XP ended support in April, no more patches even though there were still hundreds of millions of active users out there. XP users were not upgrading and thus not giving Microsoft more revenue. Microsoft made an insecurable OS with XP, and all subsequent OSes, on purpose. Insecurity generates revenue, security doesn’t. It was a choice that consumers paid the price for, and Microsoft was perfectly happy counting the resulting income. They will never secure any of their OSes because it will cost too much.

XP has been awash in security holes since it was released, no promises or grand programs ever made a dent in the tidal wave of exploits. It has been out for a decade and the flaws are still turning up with startling regularity, something that should put your next OS purchase choice in perspective. In April Microsoft officially turned a blind eye to any more problems happening to these hundreds of millions of potential customers. The plan was that they would have to buy a new PC and thus pay Microsoft more money, fixing XP would prevent that.

Instead that tidal wave of new purchases didn’t materialize, sure there was a bump, but not the bump any of those counting on the revenue expected. Many just shrugged their shoulder, many bought tablets, and many had no clue that there was a problem. Microsoft drew a line in the sand despite protests from everyone, hundreds of millions of everyones that were potential near term revenue sources.

To the surprise of no one, a few days after that line was drawn, another exploit for XP surfaced. Microsoft said, “too bad, not our problem unless you are one of the enterprises paying us extortion fees for custom patches”. This didn’t go over well with those who were being infected, and they complained. Microsoft stood their ground for several days looking to all the world like the uncaring monopolist eager for more payments that they were.

Then they blinked.

Microsoft released a patch, they erased that line in the sand and drew another one immediately after the patch was released. As of this writing there hasn’t been a major exploit that has hit the public eye since then, but it has only been a few weeks. Give it a few more and there is sure to be another one running around, and people will be vulnerable to Microsoft’s Swiss-cheese security model once again.

But there is a bright line drawn in the sand, Microsoft will not cave on this one, right? Once again Microsoft will be trying to exploit the security woes they created to gain revenue at the expense of current customers and potential new customers. Once again they will be beaten up in the press for doing the wrong thing to line their pockets and people do understand this. If they cave like they should, it will mean that their prognostications, threats, enticements, and absolute edicts mean absolutely nothing. Then again their first line in the sand over XP demonstrated that Microsoft is toothless and irrelevant to modern computing, any new ones will be just echoes. Microsoft has failed here too.

Then comes the XBox One. SemiAccurate was the first to tell you why the Sony Playstation 4 would blow it out of the water and why Microsoft had given up on gaming. Sure enough with the release of both consoles last November, Sony is beating Microsoft like the proverbial drum in every way. Microsoft force bundled Kinect to tie in to their new user interface paradigm. They wanted to make a device that conquered the living room, gaming was just an afterthought added in as a gateway drug to entice XBox 360 users. Microsoft made a turkey that no one wanted.

That force bundled Kinect made the vastly inferior gaming platform much more expensive than the PS4 but you couldn’t say no to it. No software company wrote software to take advantage of the device, a high priority after the failure of the 360 Kinect, mainly because it is simply not a good device to game on. No software, no consumer enticement, and the main focus of their living room strategy was turning into an expensive sales deterrent.

But Microsoft had to plow forward, without Kinect their whole living room control and related content sales strategy would crumble. The hardware was so anemic that gaming could not save them, another myopic cost-cutting choice that any fool could see would backfire. Any fool but Microsoft management that is, they seem to hire a much sturdier class of fools in Redmond. Microsoft made a gaming box that didn’t game well, banked on controlling the content gateway with an expensive peripheral that customers despised and resented paying for, and wondered why it didn’t sell.

When confronted with this problem, Microsoft management drew another line in the sand. Kinect was key to the XBox One experience, you couldn’t use the console without it. There was no way to have an XBox One without an always on Kinect. That line was sort of crossed when it became clear that no idiot would tolerate an insecure, always on camera in their living room, so the always on edict died before the XBox One’s birth.

Still there was no way that you could buy a One without Kinect, line in the sand. The whole monetization strategy behind the console would crumble without Kinect so users be damned. And like Windows 8, customers stayed away in droves for all the blindingly obvious reasons. Even the ‘killer app’ Titanfall along with a price cut didn’t turn around the sales death spiral.

This week, Microsoft decided to unbundle Kinect from the XBox One thus caving in a second time in as many months. It is once again too late to save things, but Microsoft had to do something or management would be raked over the coals yet more.

With the XP and XBox One cave-ins, Microsoft has demonstrated to the world how completely toothless they are now. The company first demonstrated this lack of monopoly leverage with Windows 8, no one cared and this time customers could not be forced to buy the new lackluster offering. Users were on the outside of the circled wagons and kept out by the walls built to keep them in, so they found other ways and most seem oddly happier without Microsoft.

It seems that management is painfully aware of their newfound irrelevance in the computing space. Intel is gone, OEMs are gone, users are gone, developers are gone, and only enterprise customers remain. They are fleeing in droves, the numbers underlying Azure/Office 365 press releases make this quite clear, Google Apps are gutting Microsoft where it hurts hence the shouting about how well MS cloud apps are doing. In spite of this, management is still drawing very public lines in the sand and has publicly caved in on every one, Office for iPad anyone? For any onlooker that still doesn’t realize how irrelevant Microsoft is, these latest two should be quite direct proof. Microsoft wants you to know they are irrelevant, and you have to give them credit for at least trying to get the word out, loudly.S|A

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