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Why Microsoft Should Be Afraid

Microsoft faces defections of Wintel partisans to Macs in the home market and sluggish EA renewals in the enterprise.

Somebody's always ready to write Microsoft's epitaph. And Microsoft always roars back from whatever the latest setback was to prove everyone wrong.

But seriously, the record $10.8 billion Microsoft just logged in quarterly revenue should not obscure the fact that the company has to shore up its base.

Exhibit 1: A former tech pub editor who for years had bashed all things Apple brought home a new system a few months back. What was it? A Macintosh G5. It's gorgeous to look at, but the real reason for his desertion of Wintel was how unstable that environment has become in the home environment. He can plop his son down at the Mac for hours on end without getting called in to remedy crashes, viruses, spyware. With his always-updated Wintel box, he is on perpetual reboot patrol. New games always seemed to require new graphics cards and other tweaks. He wrote about his epiphany here.. He maintains that if Apple can get around its long-standing channel issues, it could push itself well into the mainstream at Microsoft's expense.

Exhibit 2: A business reporter, long reviled by open sourcers as a Microsoft partisan, has officially had it with that company's franchise. "I used to always say, 'who wants to deal with printer drivers, coding, troubleshooting [on Linux]' and then I realized that's exactly the kind of stuff I'm doing on Windows now." he says. He's among the first to mock Steve Jobs in all his black-turtlenecked splendor, but when asked about his next PC purchase? He's not absolutely sure, but it won't run Windows.

It's true, the Mac doesn't have the huge installed base that makes Windows such a honey pot for worms, hacks, and exploits. But it's also true that for the foreseeable future, it will become the platform of choice for home users willing to spend a bit more on a machine that will be largely immune in the near-term from the tribulations affecting Windows. Visiting the local Apple Store in Newton on a recent holiday, I was struck by the mob converging around it. Meanwhile, you could have rolled bowling balls down the aisles of the Filenes next door.

Exhibit 3: Microsoft continues to feed the perception that it is repeating the old IBM's mistakes.

Exhibit 4: Those Enterprise Agreement Re-ups ain't happening baby. Or at least not fast enough.

Microsoft's out-going CFO John Connors again stressed on the latest earnings call that renewals for volume licensing were nearing the traditional 65 to 75 percent rate.

A former reseller exec familiar with past upgrade rates nearly did a spit take when he heard that. "If they're saying 60 or 65 percent re-ups were the norm, they're ... " Ahem, let me just interrupt his stream of consciousness and do a little judicious editing. He said if they were saying that, they are stretching the truth more than normal.

He and other channel execs said before the latest EA program was enacted, the renewal rates on EAs were closer to 90 percent. "It was a gimme before. That isn't the case anymore," said another reseller exec.

Signing off his final quarterly earnings call, Connors had a parting shot for those Microsoft observers who doubt the company's capabilities. "I'll enjoy following my friends and colleagues continued success and will particularly enjoy, as I always have, seeing the skeptics proved wrong about Microsoft's ability to sustain its leadership role, he said.


Brad Wilson will become the new general manager for Microsoft CRM as of February 7. Wilson's done the CRM thang before at E.piphany and then at PeopleSoft.

At Microsoft, he will help launch Microsoft CRM 2005 and will report to Tami Reller, MBS corporate VP of marketing and strategy, according to an MBS spokeswoman. Wilson and David Thacher, GM of CRM Development will together "drive strategy," the spokeswoman said.

MBS--which fields both CRM and ERP software--has its work cut out for it. For the second quarter ending December 31, 2004, MBS revenue was flat year over year at about $211 million. Operating loss for the group declined from $139 million from year-ago period to $29 million. That's a good sign, but given that Microsoft spent nearly $2.5 billion for Great Plains and Navision in the past few years along with the untold millions funneled into sales, marketing and channel revamps since then, it's not hard to leap to the conclusion that the group is under the gun to sell more product and get profitable. And soon.

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