Microsoft reported its numbers, and the results are interesting for what they say about the computer market overall. The entertainment side was very strong, thanks to Kinect, but Windows licenses were lower and this trend worried investors. In the middle, the server and Office franchises both delivered strong results. So what does this mean? Let’s discount Kinect; it’s early in the roll-out and competition is still sparse. We’ll instead focus on the rest.
PCs are not seeing the growth they once did, and that of course reduces the new-system licenses for Windows. Some of the slowing is due to tablet encroachment, but most is likely due to people just not upgrading as often. Windows 7 drove a spate of refreshes, and that’s over. I don’t think there’s much of significance in this particular data point.
What’s more interesting is that the server and Office portfolios did very well. The media has Linux running rampant in the data center and cloud productivity tools kicking Office’s butt. The truth is apparently not quite that dramatic. In fact, both Microsoft’s server sales and its Office sales were well ahead of IT spending trends overall. I’ve noted for quite some time that Google Docs isn’t equivalent to Office, and that’s for now enough to keep the Faithful in line, Office-wise. I do have to admit surprise at the server numbers; 11% growth is twice the industry rate. I think a decent chunk of this is SMB spending; SMBs adopt Linux at half the rate of enterprises.
Another earnings statement that speaks volumes is that of RIM. It’s not a surprise that RIM disappointed; they’ve been forced to accept much lower margins and they’ve lost market share to every smartphone option out there. This is a classic story of how not being innovative will hurt you, perhaps fatally. The iPhone caught everyone by surprise, to be sure, but it should have generated a fast and insightful feature-differentiated response. There was at least a year when RIM could have cemented its franchise with the enterprise and then built into the consumer space. They worried instead about first trying to enter the consumer market, and in that period Apple made the iPhone more competitive in the enterprise. Then we had the iPad, which even in its first release was light-years ahead of the PlayBook. Moral: Differentiate or die.
