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Windows 8 Represents a Real Problem for Microsoft Corporation (MSFT)

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On May 26, 2010, Apple Inc. (NASDAQ:AAPL) shot past Microsoft Corporation (NASDAQ:MSFT) to become the world’s most valuable technology company and has not looked back since. At the time, this represented an astonishing reversal of fortunes for these two companies; Microsoft had dominated the market for the previous decade, while the story of how Apple almost ran out of cash thirteen years earlier and was very close to shutting its doors for good was, and still is, well documented. However, the return of Steve Jobs to Apple in 1997, the introduction of the iPod in 2001, the success of the first generation of the iPhone in 2007, and the release of the iPad (introduced almost two months before Apple Inc. (NASDAQ:AAPL) overtook Microsoft Corporation (NASDAQ:MSFT) to become the world’s most valuable technology company) all helped lead to Apple’s dramatic turnaround.

Microsoft Corporation (MSFT)

Of course, during this time, Microsoft has not been driven out of business, nor has it been stagnant. Over 90 percent of PCs in the world still run some version of its Windows operating system. Revenues for Microsoft increased to $73.7 billion last year as compared with $25.3 billion in 2001 (the year Apple Inc. (NASDAQ:AAPL) introduced the iPod). Moreover, Microsoft Corporation (NASDAQ:MSFT) has sold 100 million copies of Windows 8, its new operating system, making it at least as successful as Windows 7 was at this stage in the sales cycle. On the surface, it would seem that, despite the incredible success of its main competitor, the company’s future is still bright. However, these facts mask the grim reality that could be Microsoft’s future.

Consumer dissatisfaction with Windows 8 is running alarmingly high. The introduction, for the first time, of touch screen multi-colored tiles in place of the dependable “Start” button has led to general confusion and irritation among Microsoft Corporation (NASDAQ:MSFT)’s customers. Despite the late Steve Job’s declaration that he knew what consumers wanted, many computer buyers still prefer the supposedly more complex interface of PCs. There is a palpable sense of betrayal among Microsoft’s core customers, particularly office workers, as if the company sold them out.

Additionally, Windows 8 has largely failed to improve Microsoft’s position in either the smartphone or tablet markets. The company holds less than five percent of the global smartphone market and less than eight percent of the global tablet market. This is despite the similarities between the touch screen tiles of Windows 8 and the touch screen technology of Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG). In fact, Windows 8 was supposed to lead Microsoft Corporation (NASDAQ:MSFT)’s expansion into these markets. Microsoft CEO Steve Ballmer said that he was “betting the company” on the success of its new touchscreen technology last year. Let us hope he was, at the very least, exaggerating.

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