Microsoft: the year ahead

News Analysis

Microsoft: the year ahead

Cliff Saran

Microsoft may well have $20bn-plus in the bank, but the company is likely to face a tough year in 2009. As the recession bites, fewer businesses will be investing in new IT or upgrading their IT.

This will affect how Microsoft proceeds with its product strategies, especially Windows 7, the next release of its desktop operating system, and how the company moves forward with internet-based computing.

"Businesses will be more stringent, identifying which IT is strategic to the business," says Dave Aron, a vice-president at Gartner. "IT refreshes and upgrades are not really strategic, unless the software or hardware is about to reach end of support."

Many users are happy to stick with older versions of their Microsoft software, particularly when budgets are tight.

Planning ahead

Microsoft plans to continue to support older products for some time. Windows XP and Exchange Server 2003, for instance, will be supported until 2014. Microsoft says it will support Windows Server 2003 Datacenter Edition until 2015.Support for SQL Server 2005 Enterprise Edition will run through until 2016.

Microsoft relies on upgrades and new software sales. In his investment blog, Domenic Strazzulla notes that a large portion of Microsoft's revenues come from selling software such as the Windows OS and Office suite. "This software is typically sold when someone buys a new PC. The global slow down will mean slowing PC sales growth, even when we consider emerging market growth."

The company also faces a huge problem with software piracy, which will cut into its software sales. "Piracy is a huge risk for Microsoft going forward. In China, most Windows operating systems (90%, according to one study) are pirated," he says.

Enterprise users may cut back on purchasing Microsoft site licences to lower costs. "Some users will look at open source alternatives such as Openoffice or they will try the Google Apps hosted service instead of purchasing Microsoft Office.

Other businesses may buy just the software they need - Word, Excel, Powerpoint or Access, rather than buy the whole Office suite," says Tim Jennings, research director at Butler Group.

Infrastructure changes

IT directors are unlikely to embark on big IT infrastructure changes during 2008, which means they may put off upgrading to Microsoft Exchange2007 or will delay rolling out Windows Vista.

Despite this, Vuk Trifovic, senior analyst at Datamonitor,predicts the company's enterprise software business may fare better than other divisions in 2009.

In November 2008, it announced 0% financing for 36 months for new, qualifying customers of Microsoft Dynamics enterprise resource planning (ERP) and customer relationship management (CRM) products. The offer is available to businesses purchasing between $20,000 and $1m of Microsoft Dynamics software.

"Microsoft is able to compete very well in terms of value," Trifovic says.Businesses that already run softwaresuch Microsoft's SQL Server database, can lower the cost of deploying Dynamics, because they do not need to purchase additional database licences, he adds.

Tough 2009

Clearly 2009 will be a tough year for the IT industry as CIOs and IT directors slash spending. Microsoft may look at how it can lower licence fees in order to get users to upgrade.

Last month Microsoft filed for a patent for metered computing. Forrester Research analyst Sheri McLeishsays, "I would expect new business models in the next release of Office, such as the hardware, software, services approach outlined in this patent - that can derive greater incremental revenue off of its most popular applications."

CIOs and IT directors will need to look closely at what Microsoft chooses to do in 2009, and which of its product strategies are delayed until into 2010.

Anyone planning to upgrade their desktop PCs will need to assess whether Windows 7,the next desktop version of Windows, will actually ship this year. Microsoft will need to make a large upfront investment in build datacentres to support the cloud computing Azure service.

Those businesses tempted to run Microsoft software in the cloud will need to seek reassurances from Microsoft that it will indeed rollout European and UK datacentre facilities for Azure.

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