Microsoft’s Problem(s)
April 17, 2012 15 Comments
Everyone knows Microsoft has lost its vision and direction in the consumer market and is years behind most industry leaders, with the Xbox as the possible exception. But few know that Microsoft is facing the same loss of vision and direction with its server and enterprise business.
Microsoft is losing the battle of the Web
Lets start with a little shock value: At the start of 2009, Microsoft’s IIS software was responsible for hosting about 35% of the websites on the Web. As of March 2012, Microsoft is now at approximately 13.5%. This is a 62% drop in the last 3 years and has had, and will continue to have, a significant impact on Microsoft’s future. This drop is even more dramatic when you consider the history of the Web and Microsoft IIS. As a former hosting provider myself, I remember starting my hosting business back in 1995 running Windows NT 3.51. It’s true that over the last 17 years, IIS suffered a number of issues. Today, however, it is a VERY solid and stable Web server platform. So why is Microsoft becoming as obsolete in the hosting industry as it has in the mobile phone and tablet industry? (Yes, Windows 8 shows some promise for tablets, but when it is released it will still be years behind iOS and Android in terms of availability and adoption – those are years it can’t make up). Microsoft has done a number of things to make Microsoft a viable platform and has overcome a lot of obstacles. However, in many cases each change for the better seems to precipitate a change for the worse.
Changes for better and worse
- While Microsoft was slow to adopt open source development technologies such as PHP and Perl, they DID adopt them into the IIS/Windows realm, which is something you can’t say of the open source community with relation to Microsoft technologies like .NET. (The MonoProject does exist but has not been well supported).
- They introduced the Service Provider Licensing Agreement (SPLA), which made all hosting and service providers pay monthly royalties versus one-time expenditures. SPLA itself isn’t bad but there were some pricing blunders, like one in 2009 that could have doubled the costs for hosting providers (anyone remember the authenticated/non authenticated license fiasco?), that really put the fear of God into many Microsoft hosting partners. Some proposed upcoming changes may have an even greater effect on the viability of hosting Windows products, like changing SQL Server 2012 SPLA pricing to be based on the number of processor cores a server has versus the number of physical processors.
- They had security vulnerabilities that made it difficult to isolate many customers on one web server for shared hosting. Over the last several years they have solidified the Windows server OS through the ability to set .NET permissions on app pools and made it easier to manage multiple single app pools sites on a a single server as well as mange resources by site, thereby increasing security and performance in higher density environments.
- They were initially slow to respond to hosting companies and the hosting model. They tried to force their own ideal of Windows hosting onto the community without listening to existing Windows hosts. For a few years, however, they actually made an effort to start a conversation with Windows hosts. Nevertheless, I get the impression from talking to partners that his conversation is, once again, turning a bit one-sided.
- And more recently, they started competing against their hosting partners with Office Live, Azure, Office365 and more. Microsoft always had a semi-contentious relationship with hosting partners. On the one hand they did what they could to make it easier on hosting providers but, all the while, many providers knew that Microsoft was going to benefit most from whatever changes were made. Whatever positive change Microsoft made for partners was closely followed by some other announcement, like when they announced that with every Office Live sign up users received a free website and free hosting for it, that was in direct competition to what partners were offering.
Many of these obstacles still exist but what Microsoft really seems to lack is a hosting division that really wants to commit to winning the “website count” battle. At one time the hosting division at Microsoft was VERY focused on this goal and we were often told that was how funding for the division was determined. I get the impression that this is no longer the case.
Hosting as a channel to the SMB
The hosting industry is an important channel for Microsoft as it allows them to access small and medium sized businesses, web developers and designers, and a number of enterprise customers. With a continued drop off in website count there will be a transition from not only IIS-based web servers but also many other server roles that are crucial to the hosting industry. This includes things like mail servers, application servers, cloud servers, virtualization servers and more. With the drop off, the impact on revenue for Exchange Server, .NET and Visual Studio, Hyper-V and Windows Server is clear but, bigger than that, will be the lack of a channel to reach the small and medium sized businesses and the design and development community, which is huge.
And I don’t think that Microsoft can make up for this loss by transitioning their focus to services like Office365. Microsoft is having an incredibly difficult time reaching small and medium sized businesses through their online services. Many SMB’s like the ability to have choice and go to hosting companies that may be local and close to their offices (or at least in their same city), that speak their language, that offer professional services beyond just hosting a website, that offer live and accessible customer service and support, and more. These are areas that Microsoft can’t compete. By focusing on the hosting market and by focusing on their hosting partners, Microsoft was spreading their technology and not only securing and increasing revenues on the server end, but they were also protecting their phone, tablet and desktop prospects.
What happened to “developers, developers, developers“?
The developer also plays a huge role in this. Microsoft has always done a great job creating opportunity for developers to build businesses around extending Windows and its overall platform. As Microsoft dwindles in its popularity the desire to work with Visual Studio, .NET and Windows in general will also decrease. As it is, many developers want to make the shift to OSX and want to avoid having to code to multiple machines and platforms. By moving to open source technologies such as Ruby, PHP, Perl, etc. they have this flexibility.
What does this all mean for Microsoft? Well, they are losing from all angles. Although their enterprise division is reporting growth, these “website count” issues will start to impact that business over time. In addition, it will impact the development division and eventually their desktop and consumer divisions will feel the pinch. As it stands, Microsoft’s own online services are years away from replacing their hosting partners and the personal and customizable services that hosting providers offer to small and medium sized businesses.
That’s my take, anyway. What are your thoughts? What does Microsoft have to do to start regaining market share in the hosting business and avoid becoming obsolete?






