Microsoft holds the crown as king of the IT industry, and while companies such as IBM and HP earn more money overall, they still haven't managed to topple Microsoft from its position. However with co-founder Bill Gates stepping down from his full-time position at the company, can Microsoft continue to hold on to its crown?

According to Forrester Research CEO George Colony, Gates wasn't a technology innovator, but he "possessed the competitive drive to force his technologies into monopoly positions in the marketplace". That drive, Colony added, has been missing from Microsoft in recent years as Gates has focused less on the company and more on his philanthropic activities, allowing rivals such as Google and Apple to steal the IT spotlight.

With Microsoft approaching corporate middle age - the company was founded 33 years ago - it faces more threats than ever to its long-held and fiercely defended IT alpha dog position. The Microsoft-controlled standardisation of IT is being challenged by proponents of open document formats, while open-source software, web 2.0 technologies and software-as-a-service (SaaS) offerings are nipping away at Microsoft's lucrative Windows and Office franchises.

Chief among the threats is Google. "When Microsoft looks at Google," said Rob Horwitz, CEO and head of research at consulting firm Directions on Microsoft, "it sees a younger, beefier and more suntanned version of itself, and it says, 'Wow'".

Google Docs, an online rival to Office 2007, is a dagger aimed at the heart of one of Microsoft's top profit generators. And collectively, Google's lineup of cloud-computing technologies is designed to smash Microsoft's desktop dominance.

Unlike Microsoft, Google "doesn't have to deal with any legacy issues", said Creative Strategies analyst Tim Bajarin. "That's why they can be a bull in a china closet and experiment."

Bolstered by its huge web-advertising business, Google can also afford to bide its time. Most of its would-be Microsoft-killers are still technically in beta and hence free to users.

Google is "trying to deny Microsoft revenue by getting corporations to stop renewing their enterprise agreements with Microsoft," said Enderle Group analyst Rob Enderle. "Even if [Google doesn't] make any money, Microsoft can't make money."

For now, Microsoft appears to be perfectly healthy. The company is expected to post a profit of $16.4bn on revenue of $58bn for its 2008 fiscal year, which ends on June 30. That would represent double-digit growth from fiscal 2007.

Also, the respective market shares of both Windows and Office remain above 90 percent, and the company's $10bn+ server and tools business - which includes Windows Server, SQL Server, Visual Studio and System Center - continues to grow, as yet unopposed by any offering from Google.

NEXT PAGE: The challenges ahead

  1. The challenges ahead
  2. Can Microsoft's biggest competitor defend itself from the others vying for the crown?

Visit PC Advisor's dedicated Microsoft News spotlight for the latest news and opinion on the software giant

Microsoft is the king of the IT industry, but will co-founder Bill Gates' departure mean that contenders such as Google and Apple could topple the software company from its position?

Challenges ahead

But the continued strong showing is something of a mirage, according to Enderle. Microsoft is focusing "way too much on revenue, not on customer loyalty", he said. "It's good in the short term but badly damages you in the long run."

And Horwitz noted that Microsoft hasn't managed to come up with a new hit product "in nearly a decade", despite pouring about $7bn annually into research and development. Search technology is a prime example, and Microsoft's frustration in that arena is epitomised by its unsuccessful effort to buy Yahoo to help it compete against Google.

In addition, Microsoft's efforts to match up against Google, Salesforce.com and other online application rivals are being hampered by the very success of Windows and Office products. Instead of following a pure software as a service (SaaS) approach, Microsoft has adopted a strategy it calls ‘Software+Services’ that's designed to incorporate and protect its existing products.

The company's contortions to preserve its star players show how a large installed base can be a "ball and chain", Horwitz said. He predicted that within five to 10 years, Microsoft will be forced to fundamentally overhaul both Windows and Office - potentially giving customers an opening to switch to rival offerings.

There are internal issues as well - such as the bureaucracy and complacency that sheer size can breed. Enderle, a former IBM employee, drew parallels between the two companies. "Microsoft's current problems," he said, "are like IBM's in the early 1990s: it's getting in its own way."

But that doesn't mean Microsoft is doomed to a downward spiral. In the past, it has shown an ability to face down threats, including WordPerfect, Lotus, IBM, Novell, Netscape and even the US Department of Justice.

"I'm not expecting Microsoft to fail by 2015," Enderle said. Even the slow adoption of Windows Vista could have a silver lining. "You've got a development team that's been slapped upside the head," he said. "They're motivated to do something dramatically better."

And IT executives such as Jim Prevo, CIO at Green Mountain Coffee Roasters remain wary about casting their lot with Google and SaaS.

"I like Google, but I don't see it in the same class at all as Microsoft's apps," Prevo said. As for SaaS offerings, "I'd be tying my wagon to a bunch of different horses for various business processes," he said. "If any one of those providers was to go belly-up, I'd have an urgent problem."

NEXT PAGE: Can Microsoft's biggest competitor defend itself from the others vying for the crown?

  1. The challenges ahead
  2. Can Microsoft's biggest competitor defend itself from the others vying for the crown?

Visit PC Advisor's dedicated Microsoft News spotlight for the latest news and opinion on the software giant

Microsoft is clearly the king of the IT industry, but will co-founder Bill Gates' departure mean that contenders such as Google and Apple could topple the software company from its position?

Is Google ready to succeed?

Moreover, Horwitz noted that Google itself is already contending with the same kind of monopoly concerns and industry jealousy that Microsoft has faced.

But like other vendors before it - such as HP and IBM, as well as NCR and Xerox - Microsoft may have to make some big internal changes to continue thriving in the years to come.

Enderle points to HP and EMC as vendors that Microsoft could emulate. EMC has a product quality and customer loyalty unit that reports directly to CEO Joe Tucci, while HP is doing well financially because its CEO, Mark Hurd, is "focusing very sharply on operations", Enderle said. In contrast, he said he views Ballmer as a "super sales guy" who has been loathe to show underperforming executives the door.

  1. The challenges ahead
  2. Can Microsoft's biggest competitor defend itself from the others vying for the crown?

Visit PC Advisor's dedicated Microsoft News spotlight for the latest news and opinion on the software giant