Microsoft Must Restore Its Shrinking Revenue Base

Whereas MSFT market share in PCs is forecast to increase to about 76% through 2011, one of the challenges it faces is in the netbook/notebook arena. This area is expected to grow at a rate of 4% or more, much lower than in the past few years. The reason for the decline in growth -- tablets. As the tablet market grows and cuts into the PC market, Windows OS operating licensing will as well show a decline in revenue because the licensing price for the netbook is not as pricey as a full PC. Tablets are playing a large role in cutting into the licensing revenue of MSFT.

Large portion of MSFT revenue comes from software

A large portion of MSFT revenue comes from software, however projections forecast a decline from 95% to 88% through 2011 and beyond. As innovation changes, more competition from new systems like Google's cloud computing system chips away at the old way of doing business causing MSFT to as well change. To compete with Google, Microsoft has released Office Web Apps, a free web-based version of its Office productivity software. This will cause a decline in its operating margins.

Office web apps, is a cloud-based software where Microsoft would store Office programs spontaneously servers and deliver them to clients online. The only problem is that Cloud-based Office software will be more expensive for MSFT than just installing Office on the computer directly. If mobile apps are a serious threat to its business long-term, MSFT has no choice however to move in this direction. Doing so will end up cannibalizing some of its own productivity.

As MSFT must evolve with research. Whereas 53.7% of its stock price is influenced by Office and Operating Systems, MSFT will have to adjust and recapture that income through other means and sources.