Microsoft in 2005

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Introduction

In mid-2005, Microsoft, the world's largest computer software company seemed to be slowing down. While sales had gone up 73% in the past five years, profits had increased by only 30%. In the just concluded fiscal year, sales had risen only 8%, the first time the company had ever reported a single digit growth. Microsoft also depended heavily on Windows and Office products released a decade ago, for 80% of sales and 140% of profits. Newer products--the Xbox videogame machine, the MSN online service, the wireless and small-business software--collectively had piled up losses of $7 billion in the past four years.

In Web-server software, Microsoft had 20% of the fast-growing market, while the free Apache program, a Linux variant, had 70%. In search engines, Google and Yahoo got 70% of the queries while MSN got only 13%. Google had also started offering features (desktop search, photo archiving) that Microsoft promised in its next upgrade of Windows, which was already delayed for two years.

By many accounts, Microsoft, with sales of $40 billion and employee strength of 60,000, had grown into a bureaucratic organization, characterized by long strategy sessions, endless business reviews, PowerPoint presentations and hundreds of e-mails a day. There were also reports that infighting among divisions had delayed product releases significantly...

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