What was Microsoft thinking?

[LuisFelizTirado 33]

The following is just an opinion, and is not meant to offend anybody. So, please don't be offended.It is normal for people suffering from shock to display disappointment, resentment, and even a bit of hysteria. We are seeing this at the moment in the various enthusiast web sites. And yet there really is no reason to despair, at least not yet.Perhaps now that there has been some time since the initial announcement, people will start to calm down and consider the situation with more serenity.Microsoft has been changing its business model for the last few years as it determines the new challenges it will face in the market. Facetiously, we might say that they are:1. Web-based applications2. Distributed computing3. Killing GoogleNot necessarily in that order. All kidding aside, they would probably have done it all somewhat more slowly, but perhaps the present economic difficulties led them to accelerate the process and take some drastic measures to offset revenue loss.Those of us who have been in the industry since the days of punch cards have seen how the software industry has changed, particularly concerning micro-computers as P.C.s were once called. At first, computers were purchased without any software. Users had to buy that separately.Microsoft then changed its business model radically, and that of the entire industry, by bundling both the O.S. and other business software with the hardware. The ruthless application of this model was a complete success for Microsoft and took them from the position of a second-rate player in their principal market to world-wide domination. Where are the leading vendors of the past? Wordstar, Wordperfect, Lotus 1-2-3, Quattro, dBase, Digital Research DOS, Novell, Netscape? Along with so many others, gone forever, thanks in part to exclusive bundles from Microsoft.I don't have the figures for their sales, so anything here is just supposition based on my experience; I was Marketing Director for the principal distributor of software and hardware in a major European market, Microsoft's principal client in that country, in fact, everybody's principal distributor. This does not mean I know or understand Microsoft's reasons or motivations, only that I had close contact with them and can see their point of view.At present, their business model has meant stunning profits for them, a vindication of their management's decisions. Bundles along with site licenses to major corporations probably account for a very large part of their revenue. Retail sales, contrary to what some might believe, most likely represent very small percentages of revenue.This does not mean that the smaller divisions such as games, peripherals, or languages did not make money. Quite to the contrary. But, as Microsoft has grown, it has suffered from the same symptoms as every other large company and has become dispersed and practically unmanageable.Now, consider the situation. Traditional markets have become saturated as far as hardware sales go. All vendors are living on very small margins as computers become commodities and prices drop. The principal vendors have disappeared. Compaq gone, Gateway gone, even the I.B.M. PC gone! Dell in difficulties, and who is left to sell computers to shrinking markets? People have no compelling reasons to upgrade hardware, except to run the latest O.S. or games. Now, throw in an economic recession and people stop buying computers in large numbers. Since Microsoft depends on bundles with computers for large parts of its revenue, you don't need to be an accountant to read the writing on the wall. It will most likely be a great shock to the industry when Microsoft announces results for the fourth quarter of last year.Also, consider the principal market at the moment. No, not the U.S. of A., but China which still does not have the installed base of America or Europe, but is growing much faster and has greater potential. It also has the dubious honor of being the world leader in pirated software, including Microsoft's. That is to say, bundles do not provide revenue for Microsoft in China, the country where computer and software sales have the greatest future. Or in other major emerging markets such as India, Malaysia, Indonesia.China also happens to be the country with the greatest number of Internet users in the world, and still growing.Clearly, the time has come to change the business model. And the idea of Web-based applications as promoted by Microsoft for the last few years starts to make more sense. It provides a direct, low cost link to consumers, bypassing the dealer chain that has proven unstable and incapable of increasing sales or providing support. It lets Microsoft eliminate piracy and maintain complete control of their software. Most importantly, it ensures revenue growth in future leading markets where there is not presently any revenue worth mentioning.And, anyway, Microsoft is not the only large player that has made this change in direction. They have been preceded by, who else?, Google and numerous others who have already established cloud computing services with many thousands of users and changed their business model by abandoning the sale of software. Google, in a spectacular upset for the habits of the industry, has made billions (!) from advertising revenue alone. As usual, Microsoft is arriving late to the game, and probably as usual they will wind up by dominating it.None of this is new, and Microsoft management has announced it and discussed it repeatedly for years. Ray Ozzie, who is the chief Microsoft strategist, has spoken and written about this new direction for a long time and you can find his seminal statement on the new Microsoft mission quite easily on the web.What does all of this mean for us? From the official and unofficial comments, it does not seem that they have cast off Flight Simulator at all. They have clearly stated that there will be future versions of the game, that they will be based on the Windows platform (not the XBox), and integrated into their distributed computing platform (the “cloud” concept) that they call “Live”, and that they are still in the process of determining how to get there. It is reasonable to believe them. Mr. Ballmer and the MS management team are not known for bandying words, and if they had decided to completely eliminate FS, they would probably have clearly said so.Perhaps at this very moment, or in the near future, there are discussions on this matter. It makes no sense for Microsoft to discard valuable assets like Flight Simulator. So, we could expect FS to make a come-back, within a new Microsoft, perhaps even with many of the same people working there.In any case, it is probably better to remain calm and show a little patience for the time being as all of this works itself out. With any luck, FS will continue to develop and new versions will appear (and people will continue to criticize them), and that is something that can give us hope.Best regards.Luis

[n4gix 4,955]

Well said, sir! Well said.I found this entry at Mike Singer's blog interesting reading, and it eloquently expresses my own views:Fly the airplanehttp://informationmike.spaces.live.com/blo...5!668.entry

[RobertVA 0]

There might be an attitude that a modest profit (on PC games) isn't enough. The board might be looking for the larger revenue to cost ratios available with products that have higher prospective sales volumes. The amount of shelf space in retailers for PC games is a small fraction of the space allocated for PC games. Even the X-box 360 gets larger displays. The money is in driving corporate licenses to new OS and MS Office versions through life cycle turn over and fears about the ability to read data files from the newer version(s).

[MatthewS 761]

If they come back in 3 years and start up development again, you would need to wait another 2 years for FS11. So that means that in maybe 5 years you could expect FS11.But how many people want to wait 5 years just for FS11 which will probably be "half baked" anyway, given Microsoft's attitude about maximizing profits (ie spending less on desktop R&D).Personally I don't think we'll ever see FS11/TS2/ESP2. Microsoft know that the desktop market is mature. They can't reap the same profits from it like they used to. That's why the are shifting their focus to "Cloud Computing" and XBox.Additionally, wasn't Flightsim a personal favorite of Bill Gates. He was sort of its business "sponser". Well he has retired and Steve Balmer couldn't care less about "flying games" on the desktop.