Back when desktop and laptop computers still dominated the PC space, Microsoft Corporation (NASDAQ:MSFT) was king. Its Windows operating system and Internet Explorer web browser were the undisputed leaders of their respective industries. At one time Microsoft was the biggest company in the world, and its grip on the technology industry seemed secure.
Apple Inc. (NASDAQ:AAPL) came along and changed all that. The company did it by convincing America’s consumer culture that smaller and mobile are better. The introduction of touchscreen technology in the iPhone, and later the iPad, ushered in a new era of the way people access information and conduct business.
The smartphone industry started taking off in 2007 when Apple launched its first iPhone in June of that year, using its own proprietary iOS system. Google Inc (NASDAQ:GOOG) quickly jumped into the fray by launching Android that same year, and began selling Android-powered phones just a year later.
Today, Google and Apple Inc. (NASDAQ:AAPL) own the smartphone market. It’s been estimated that Apple sold around 48 million iPhones in the fourth quarter of 2012. Samsung, whose phones primarily use the Google Inc (NASDAQ:GOOG) Android OS, sold about 63 million phones in the same quarter.
Together, Apple and Samsung control about 90% of the smartphone market. Their early entry into the mobile device market paved the way for market-dominating positions that Microsoft may never be in a position to challenge.
Microsoft Corporation (NASDAQ:MSFT) didn’t make a meaningful entry to the market until around 2010 when it introduced the Windows Phone OS. By then, Apple Inc. (NASDAQ:AAPL) held a dominant position in the smartphone and tablet spaces with the iPhone and iOS, and Android was the OS of choice for most non-iPhone devices, like the Samsung Galaxy.
Microsoft announced a deal with Nokia Corporation (ADR) (NYSE:NOK) in 2011 to provide the Windows Phone OS on its devices, and even boldly stated that “it is now a three-horse race.”
But a look at the latest numbers shows no such three-horse race at all.
At a 2% market share for mobile operating systems shipments in the third quarter of 2012, Microsoft barely even registers. You can assume that this number will probably spike higher with the recent release of Windows 8, but even then it’s tough to see Microsoft as a significant player in this space for the foreseeable future.
You may ask why was Microsoft Corporation (NASDAQ:MSFT) so slow to respond to changes in the industry, but the more fair question at this point might be has Microsoft’s late arrival done its brand irreversible damage?
It really depends on to what degree you think tablets and smartphones will replace traditional computers. On the consumer side, it appears that the mobile device domination is here to stay. People are clearly choosing to get their information from a tablet or a phone. They want to access the Internet, do their shopping, interact with each other, take pictures and listen to music all from a handheld device.
Traditional PCs can’t offer that. If you’re just sitting at home then a laptop could conceivably work just as well as a smartphone, but since people want to access information wherever they go, they’re going to lean toward using the device that allows that.
Since Microsoft Corporation (NASDAQ:MSFT) doesn’t compete effectively in that arena, it’s a big missed opportunity. Even Research In Motion Ltd (NASDAQ:BBRY) – a company that has teetered on the brink of bankruptcy – has a bigger share of the market. With the Blackberry 10 device hitting the market earlier this year, it’s another obstacle Microsoft must clear to gain a footing in this market. Its future as a player in the mobile marketplace may be very much in doubt, but to say that the company is in trouble wouldn’t be accurate either.
There is an opportunity to go after Research In Motion Ltd (NASDAQ:BBRY) right now as well. Early reports say that sales of the Z10 device have been rather anemic and are only marginally ahead of sales of older BlackBerry devices.
Worse, a report from Detwiler Fenton indicates that several retail partners have actually seen returns of the device outpacing sales, calling it “a phenomenon we have never seen before.” If Research In Motion Ltd (NASDAQ:BBRY) is on its way out, could Microsoft swoop in and steal market share?
In the workplace, laptop and desktop computers still dominate, and the operating system on most of those PCs is still Microsoft Corporation (NASDAQ:MSFT) Windows. Surprisingly, Windows XP – a system that was introduced several years ago – still appears on most of those computers.
As that system ages, more and more companies will be forced to upgrade. That presents an opportunity for Microsoft to move users to a Windows 7 or Windows 8 platform, but it also gives companies the chance to switch to a different and competing operating system. This could be an opportunity for Microsoft to cement its position on the business and commercial side, but if it isn’t played correctly it could be the latest market segment that will see its market share begin to erode.
Far from dead
Microsoft Corporation (NASDAQ:MSFT) is far from a dead company, but with its slow response to the mobile movement and the potential to lose market share in the workplace PC space, you can begin to see a potential path for Microsoft’s long-term decline. Microsoft remains the third-largest company in the world, behind Apple Inc. (NASDAQ:AAPL) and Exxon Mobil Corporation (NYSE:XOM), but ahead of one of its primary mobile competitors — Google.
There is, however, reason for optimism at Microsoft. Apple, for what feels like the first time in ages, is actually showing signs of vulnerability. As the stock nears a 40% decline from its all-time high, the company has blamed issues with manufacturers and the supply chain failing to keep up with demand for its products.
Inefficiencies, it says, are causing the company to begin struggling to keep up with high investor demands. In a notoriously fickle market where customers have been known to quickly flip to the next “cool” product, Apple is under pressure to deliver the next big thing whether it’s potentially a mini-iPhone or something completely new.
And let’s not underestimate the absence of Steve Jobs. Many customers and employees were loyal to Jobs and his vision. If Apple Inc. (NASDAQ:AAPL) has trouble tightening up the supply chain or continuing to develop the next “it” product, it might be just enough of a window for Microsoft Corporation (NASDAQ:MSFT) to sneak in and steal market share and headlines.
Compared to Google, the fact that the company is almost as large as Microsoft speaks to its ability to capitalize on the move to smartphones, but Microsoft still has a significant market for its Windows OS and Office suite of products.
It’s just a shame that Microsoft Corporation (NASDAQ:MSFT) couldn’t have capitalized in the mobile space because that market could have been so much larger.
David Dierking has no position in any stocks mentioned. The Motley Fool recommends Apple Inc. (NASDAQ:AAPL). The Motley Fool owns shares of Apple and Microsoft.
