Microsoft is in deep trouble, their two main product lines are failing, and the blame game is intensifying. Steve Sinofsky gets the blame this time for the failure of Windows 8, but the real problem is the patterns that are so clearly illustrated by these actions.

Microsoft is largely irrelevant to computing of late, the only markets they still play in are evaporating with stunning rapidity. Their long history of circling the wagons tighter and tighter works decently as long as there is not a credible alternative, and that strategy has been the entirety of the Microsoft playbook for so long that there is nothing else now. It works, and as the walls grow higher, customer enmity builds while the value of an alternative grows. This cycle repeats as long as there is no alternative. If there is, everything unravels with frightening rapidity.

A company that plays this game for too long becomes set in their ways, and any chance of real change simply becomes impossible. Microsoft is there, and has been for a long long time. Their product lines have stagnated, creating customer lock in is prioritized over creating customer value, and the supply chain is controlled by an iron fisted monopoly. Any attempt at innovation with a Windows PC has been shut out for over a decade, woe betide anyone who tried to buck that trend. The history books are littered with the corpses of companies that tried to make change the ‘Windows experience’. Microsoft’s displeasure is swift and fatal to those that try. Or at least it was.

In the end, Windows advanced only to the point of undercutting any competition, and even then to the minimum extent possible. The rules in Redmond were, “Do not change anything unless it is to crush someone doing something innovative”. They didn’t unless they did, and it worked. And the market stagnated. Ask yourself when the last time Microsoft did something innovative? Did it come from internal impetuses, or a clone of the competition?

Sooner or later, someone will come along and do a better job than the treacle that Microsoft, offers. Actually that happens all the time. How about, sooner or later, someone will come along and do a better job than the treacle that Microsoft offers, and for some reason, Microsoft won’t be able to crush them like a bug. Then the circled wagons have an alternative. Then the decades of built up enmity have an outlet. Then Microsoft is in trouble.

In such a situation, a company has two choices, both of which are quite stark. They can radically change their ways or they can wither and die. Before you point to Windows 8 and say, “But they are changing and innovating”, hold off a moment, it isn’t what you think.

Microsoft has three product lines that underpin everything, Windows, Windows Server, and Windows Mobile/Phone/WART/whatevertheynameitthisweek. On those, the other moneymakers, Office and Exchange, run exclusively. The apps use protocols that are locked down with dubious methods, and will not run on any competition. The competition is likewise excluded from doing what Microsoft can, either directly like Novell, or by raising the cost to the point of it not being profitable. This is how the wagons are circled, with every iteration, the cost of competing go up, and value of alternatives go up too.

The problem is that if you are locked in with a choice of 100% Microsoft or 0% Microsoft, once someone goes, it isn’t a baby step, they are gone. Once you start using Google Docs and the related suites, you have no need for Office. That means you, or likely your company, saves several hundred dollars a head. No need for Office means no need for Exchange. No need for Exchange means no need for Windows Server. No need for Office means no need for Windows. Once the snowball starts rolling, it picks up speed a frightening pace. And that is where we are. The barriers to exit are now even more potent barriers to entry.

If you read the story about Steve Sinofsky being fired, err leaving at the peak of his success like Windows 8, you will see some interesting quotes. Take a look at the AllThingsD story, especially the update. Take a look at the quote from Steve Ballmer, “I am grateful for the many years of work that Steven has contributed to the company,” CEO Steve Ballmer said. “The products and services we have delivered to the market in the past few months mark the launch of a new era at Microsoft. We’ve built an incredible foundation with new releases of Microsoft Office, Windows 8, Windows Phone 8, Microsoft Surface, Windows Server 2012 and ‘Halo 4,’ and great integration of services such as Bing, Skype and Xbox across all our products. To continue this success it is imperative that we continue to drive alignment across all Microsoft teams, and have more integrated and rapid development cycles for our offerings“.

You will see that one sentence is taken up by the normal excuse train when canning a top exec. The next three are spent on a tangent where Ballmer goes off about how well integrated their product lines are, and how successful that is making them. Any guesses why he went off on such an aside?

Start back a ways, Microsoft’s mobile OS line was failing, it was the laughingstock of the industry pre-Windows Phone 7. Microsoft totally revamped that OS with a new look, new paradigms, and a completely incompatible OS with all the apps that came before it. They spent almost half a billion dollars advertising it. They bought Nokia to both kill off one competitor and to buy their market share.

Microsoft at the time had approximately 12% smartphone OS marketshare, Nokia a bit over 30%. With the collaboration, Nokia and Microsoft, together with all the other OS partners selling Windows Phone 7.x, sales are now hovering around 2% of smartphone market share. Subsidies are massive and increasing, and Windows Phone 8 is just coming out. Luckily it is incompatible with the 7 variants that preceded it, and anyone who bought one got obsoleted without warning.

Microsoft’s mobile aspirations have failed so spectacularly that it is almost impossible to account for. Rather than fix the lock in that excludes the overwhelming majority of the market that does not have a Windows phone, Microsoft doubled down with the new iteration playing the same compatibility games they did before to lock out developers, competitors, and innovators. Laughably they did so in the name of compatibility. With Windows 8, current marketshare rounding to zero, every other bit of software written for Windows is excluded. Windows phone hasn’t paid for the last ad campaign, much less made dollar one, and likely never will.

Then came Windows 8, the all new tabletized UI, and WART. It is a miserable experience for the corporate user, and anyone spending serious time using one finds out the halo wears off surprisingly quickly. To make matters worse, Microsoft dropped the Surface bomb on all of their partners, you know, the ones they have under their thumb and locked down with monopolistic might. They are livid, angry beyond words, and were afraid of angering Redmond. As we exclusively brought you the story, HP dumped WART. They are now much more afraid of what happens if they don’t leave.

Then Acer postponed Windows RT devices until Q2, Taiwanese OEM-speak for it is stone cold dead. Other are looking for an alternative, any alternative, as a top priority. This exodus has never happened before, and is a one way street. Microsoft jacked up the price of WART to untenable levels, undercut their partners pricing on hardware, and made it impossible for any vendor to make a WART device profitably, and then surprised them with the news. The shocking bit? Microsoft feigned surprise that their entire partner base was not overjoyed at their entering the market and undercutting them. As a fix to placate OEMs, Microsoft picked a scapegoat and fired him, then went ahead with their plans at full speed. Partners somehow weren’t fooled.

To the surprise of no one, Steve Ballmer just described Surface sales as, “modest”Mr Ballmer is not one to understate anything, modest for Stevish means abject failure in English. Surface sales are said to be roughly four million after about a month of sales, hardly modest. Then again, to put the number in perspective, Apple was said to sell five million iPhone 5s on the first day, mainly because they were severely supply limited, and three million iPad Minis over the first sales weekend. Modest indeed, and no word about returns which SemiAccurate hears are astoundingly high. Surface is a failure too. Apple didn’t have a massive ad campaign to back it up either, they just released the products.

This means the two mobile compute markets that Microsoft was locked out of have been attacked full on by Windows Phone 7.x and 8, Surface, WART, Windows 8, plus the might of the entire Microsoft ecosystem. This has been backed by hundreds of millions of dollars in advertising, more in OEM incentives, and sold through an dealer and retail network that is locked in to a monopolistic supplier. With all of this, filtering out the initial sales bump of a new product, Microsoft isn’t even holding it’s ground in phone and tablets. Failure is not nearly a strong enough term for Microsoft’s mobile ambitions.

And that brings us to Windows 8 itself, the laughing stock of the OS world. Not since Windows Vista has there been an OS so widely derided as 8. Initially it seems like a fun experience, but as we said, that halo wears off quickly. For use on an older computer, it is miserable, you need touch. Unfortunately touch does not work on a vertical surface, there have been decades of studies to show this. Unless you are using a tablet, Windows 8 quickly becomes an exercise in frustration and arm pain. Worse yet, it is simply not workable for doing what most business users need to do, write a letter, make a spreadsheet, and reply to an email. How fun do you think pulling your hand off the keyboard to touch the screen every time you want to click a menu in Word is? Fun edgy UI or carpal tunnel nightmare? Luckily for those realizing this problem, Microsoft got in front of that potential deal breaker and, well, made it so there is no other way. You can’t avoid the new UI, and it is unsuitable for corporate work.

For developers, Windows 8 is a nightmare too. High end games are the one area where Windows still has no serious competition, but Microsoft doesn’t seem to care about this. Even with that lack of attention, Windows 8 has outdone itself in turning off the developer community. First Valve publicly trashed Windows 8, then came Blizzard backing Valve. Several other very large and influential development houses have expressed far worse sentiment for Microsoft and Windows 8 to SemiAccurate in private. No one likes what Microsoft has done, some just don’t say it publicly.

Microsoft has gone from a position of overwhelming power in software and games to one where they have to pay developers to port. This is usually the death knell for a platform, and most developers are already looking away to greener pastures. The strongest draw for consumers died with Windows 8, and pay to play is not sustainable even with Microsoft’s deep pockets. The sales of products will never justify third party investments at this point, without Windows 7 and earlier compatibility, there is no market.

The mainstream market isn’t doing well for Windows 8 either. OEMs, chipmakers, and Wall Street have collectively tried to minimize ever dwindling PC sales as a collective wait for Windows 8. With the release of that OS, sales in Q4 and Q1 were predicted to go up by 5-10% as the pent up demand was fed, good times ahead. Anecdotal evidence seen by SemiAccurate said otherwise, but it is just that, anecdotal.

Then came the first hard evidence, Joanne Feeney of Longbow Research came out with two notes on the health of the PC market. In it, she claims that laptops are going to be flat in Q4, desktops down by 5-10%, numbers in line with the whispers. Windows 8 launched and sales go down? During Christmas and Chinese New Year? Really? Stop and think about that, the last few releases you read stories about people camping out for midnight sales, this time a new OS tanks sales. Does that scream market acceptance to you?

So here we sit, Microsoft has utterly failed in phones, utterly failed in tablets, and is seen as a has been by the next generation. The company can point to technical superiority all day, but people aren’t buying. Windows 8 itself seems to be dropping sales of PCs too, and that will have a knock on effect to their server OS as well, something that is also losing share at a frightening pace. To stop the decline after only losing the majority of their marketshare, Microsoft took the unfathomable move of forcing a touch UI on servers. If this doesn’t make clear the depths of how lost Microsoft is, and how reactionary their fixes are, nothing will.

To fix things, Ballmer didn’t acknowledge the massive problems confronting the company, didn’t address how their purported fixes are not only failing to stem the losses but also destroying the market for previously safe products, and he didn’t even announce anything to look forward to at all. Instead, he picked a scapegoat, canned Steve Sinofsky, and claimed Surface sales were, “modest”. iPad sales are not modest. iPhone sales are not modest. Android phone sales are not modest. Android tablet sales are modest only in comparison to Apple products. Surface sales are not modest either, they are an absolute disaster.

Getting back to Ballmer’s eulogy for Sinofsky, remember that? He said that the guy gave his all, did a great job, and took the fall for, well, Ballmer most likely. The rest of the quote goes on to say how integrated the whole of Microsoft is now, go team. It all works together, and is a single whole unit. In fact, you would be forgiven if you thought of it all as one piece that will get tighter integration as we move forward. Great.

Unless you own an iPhone, iPad, Android phone, or Android tablet, they don’t play well with Microsoft by Microsoft’s design. You can’t have Office on them, you can’t properly integrate them in to the Server 2012 offerings, and they can’t run the scant few Windows 8/WART programs out there. They sure can’t run Halo 4, and will never be a surface, but do have an app selection that dwarfs what Microsoft can offer, not to mention music and video libraries that again are without peer. If you give up your iPhone, iPad, Android phone, or Android tablet, you can be with the 2% of loyal Microsoft customers that have bought all of the offerings and are enjoying an existence free of non-Microsoft products.

Somehow, 98% of the market doesn’t seem to be moved to abandoning their current devices. In fact, you could say just the opposite is happening. Windows 8 sales are withering, and the target market doesn’t seem to want to pay more for less functionality just so they can get an OS that has “modest” sales and no apps. For a good reason. Give up iTunes and their reams of purchased songs, movies, and TV shows? Android or iOS apps that have no equivalent in the Microsoft ecosystem? All for more money and a clunky frustrating interface? What’s not to love? Why would any consumer not want to re-buy all of their libraries so they can move to a Surface?

Somehow people are not just staying away in droves, customers who previously bought Windows desktop and were purportedly waiting to upgrade either decided not to or were actually gone long ago. The whole death spiral of low marketshare has doomed Windows Phone 7 and 8, made WART and Surface non-starters, and the entire OEM space is hell bent on making viable alternatives to Windows itself. Microsoft is said to have internally written of any chance of corporate adoption for Windows 8 too. That means all the goodies that Server 2012 brings, we assume there are some, are only going to work with a Windows 8 desktop just like the last 4-5 generations. Microsoft is nothing if they are not predictable.

So Android and iOS are not losing ground to Microsoft, instead they are pulling sales from Windows 8 proper. That means Server 2012 has less appeal to customers as well. OEMs are incentivized to push anything but Microsoft, and so it goes. There is a whole generation that has tablets that don’t run Windows anything. They use Google Docs, not Office. They use Gmail not Outlook or Exchange.

They could use Microsoft’s purportedly spiffy Office 365, but somehow don’t seem to want to spend the money on the full Office desktop license it seems to require. There are ways to pay for the service as a standalone too, but no one is. The whole cloud integration with Windows 8 in all forms doesn’t do much for you if you don’t use Windows 8. If you build it, they will come. They built it, and the users came. Microsoft built another, and wonders why no one wants to buy their expensive tickets anymore, especially since the fine print on the back binds you to not going elsewhere else ever again.

In the end, the death spiral for Microsoft is in full effect, and management is expending a lot of effort to speed it up. Anyone who dares point out that the entire system is collapsing, or worse yet suggests an alternative, gets Sinofsky’d. Or was it Guggenheimer’d? In any case, Microsoft is unwilling to change, and that is very clear. Even if they wanted to, they are culturally far beyond the point of being able to. What was a slow bleed of marketshare is now gushing, and management is clueless, intransigent, and myopic. Game over, the thrashing will continue for a bit, but it won’t change the outcome. Microsoft has failed.S|A

Editor’s note: November 22, 2012. 4.30pm A kind request by a non-professional translator to translate this to Polish was agreed to, so if you read Polish you can read this story http://czytelnia.ubuntu.pl/index.php/2012/11/22/microsoft-zawiodl/ Thank you.