Virgin on Business: Windows of Opportunity

A year ago in this very space we opined that, as much as Boeing is a significant local business story every year, 2012 would be a critically important year for the company and for the region that economically depends upon it.

Barely was the ink dry on the magazine when Boeing addressed several items on its to-do list in a big way, announcing a contract extension with the Machinists union and confirming Renton as the assembly point for the next generation of the 737, the Max.

There are still considerable questions and concerns to ponder about Boeing and its future, but for the moment lets turn to that other venerable and sizable driver of the states economy: Microsoft.

Like Boeing, Microsoft merits attention every year just for its size (more than 40,000 employees in Washington) and its local legacythe Microsoft millionaires, the companies formed by Microsoft alumni, the development of the Puget Sound region as one of the nations centers for high tech.

But 2013 has the feel of a pivotal year for Microsoft, a year in which the success or failure of its initiatives will be critical for the companys long-term prospects, and by extension the regions.

Theres a lot at stake for Microsoft. In November 1998 its stock traded at about $30.50 a share. In the fall of 2012, Microsoft stock traded at around $31 a share. In other words, after 14 years of volatility (a spike during the dot-com boom, a plunge at the onset of the recession), the stock is about where it was. The dividend offers a decent yield, especially considering alternatives, but who buys Microsoft because it performs like a utility?

Beyond that is the perception that Microsoft is no longer an industry leading or shaping high-tech companythat with a few exceptions like Xbox it cant get consumer products right, that it trails in search, is badly trailing in mobile and is dangerously tied to a computing segment (desktop and laptop PCs) that is a mature, no-growth market. That track record, along with the expensive write-off of its aQuantive acquisition, has prompted grumbling about whether Steve Ballmer is the right CEO for the company.

It might not acknowledge the criticisms as valid, but Microsoft in 2012 has been acting like a company that knows it needs to do something. And is. Late in 2012, it rolled out a new operating system, Windows 8, one configured to work with mobile devices as well as traditional computers. It also introduced its own entry in the tablet market, called Surface.

But with such daring moves come huge risks. Introducing a new operating system is always a gamble, as Microsoft well knows; it would no doubt prefer a repeat of the reception of Windows 95 over its experience with Vista. But Windows 8, with its design for mobile devices and touch-screen interfaces, is a challenge to conventional PC computing. Smartphones and tablets are all the rage, but its an unsettled question how much of its work the business world wants to do on those platforms. The danger for Microsoft is failing to grab significant market share in these new devices while simultaneously alienating its core business segment, where it has maintained such hegemony.

Similarly, the bet on Surface could pay off by establishing Microsoft as a player on a level with Apple and Amazon in tablets, or it could provide another entry on a list of disappointments in the hardware space (hey, whens the next Zune coming out?).

Microsoft has plenty going for it, particularly its well-established presence and familiarity in PCs, and considerable financial resources. It also has plenty of opportunity. No one company or technology has yet grabbed dominance in the highly prized intersection of television and the Internet.

But high tech is an unforgiving industry for companies that squander market leadership through inaction, or action of the wrong kind. For Microsoft, doing nothing is not a risk-free option; neither is doing something. Thus, even at a company for which every year is important, 2013 is more important than other years for Microsoft. And if we have any hope or expectation of Microsoft continuing to be a significant economic contributor to the region, it is for the rest of us, too.

Bill Virgin is founder and owner of Northwest Newsletter Group, which publishes Washington Manufacturing Alert and Pacific Northwest Rail News.