Microsoft's Future: as a Games Company?

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News that for probably the first time Microsoft would be making significant numbers of its workforce redundant has inevitably been picked up and chewed over widely.

In truth, the net numbers of job losses are low – a couple of thousand, allowing for new intakes. What's really noteworthy is the underlying reason for those losses: that the cracks in the Microsoft empire are finally becoming evident to even the most myopic of observers.

Some of us have been proclaiming the presence of these cracks deep within the stony heart of Microsoft for years. But this was as a kind of corollary to the success of open source, based more on theory than observation. In the face of Microsoft's steadily rising earnings and massive cash reserves, it looked little more than wishful thinking by a bunch of be-sandalled hippies.

That's what makes the current news so important: it's the first time that the inner faultlines have spread to the surface. Now, anyone can see that Microsoft is in trouble. Not in the sense that the company will go bankrupt or disappear: I fully expect Microsoft to be around – and even *thriving* - in ten or twenty years' time, just as IBM is thriving today, despite it's near-death experience in the 1992, when it lost $5 billion. But in trouble at a much more profound, hard-to-fix level.

There are even signs of this in the Microsoft announcement, where it attributes a decline in client revenue to “a continued shift to lower priced netbooks”. Netbooks, of course, were a category that would probably never have been explored without the ready availability of GNU/Linux: its zero cost, high performance, small footprint and customisability were major factors in driving the surprise success of the first Asus machines.

This forced Microsoft to execute a major U-turn over Vista, which possessed none of these attributes. The life of Windows XP was extended as a desperation measure to allow the company to offer something in the netbooks market.

Although that move was successful – the majority of netbooks are now sold with Windows XP - the knock-on effects were terrible. It undermined Microsoft's constant message that Windows XP was being phased out, and that Windows users must upgrade to Vista. It cemented users' affection for XP, and increased demand for it to be available on new PCs as well as netbooks, which reduced the expected profits from Vista.

Microsoft could easily have weathered this loss of revenue for while, but that “shift to lower priced netbooks” was not just about money. It was also a a statement about the kind of code that people wanted. Windows Vista was simply too big and slow. That was supposed to be offset by the arrival of yet more powerful systems that would mask the fact, just as they had in the past.

But the netbooks spoilt that game: they showed that Vista was simply lazy programming, the product of a decade of increasingly wrong-headed coding that was based on the assumption that the Windows faithful – or, rather, the Windows prisoners – would simply go on upgrading for ever, because they had no choice.