What's Wrong With Microsoft?

July 13, 2006 — -- The bloom appears to be fading from the Redmond rose.

Redmond, Wash.-based Microsoft Corp., the most powerful technology company in the world, has faced a variety of legal and operational hurdles this year, leaving some observers to believe the company has peaked and has begun a steady slide from industry dominance.

Co-founder Bill Gates' announcement last month that he would withdraw from the company's daily operations over the next two years marked the start of a major shift of the face of the tech giant. But is the shift more than just a facelift?

In addition to Gates' departure, the company has seen widespread personnel shakeups, including a reorganization of the unit that produces its flagship Windows operating system, the near-ubiquitous money-maker.

The company has suffered increasing trouble getting key new products out on time. Development issues have delayed the release of its much-anticipated new Vista operating system by more than two years. The most recent delay sparked a sharp drop in the Microsoft stock price.

"It's a big problem from a PR perspective, certainly," said Michael Gartenberg, an analyst with Jupiter Research. "They've done a lousy job of managing their public persona, and a lot of these delays have made them at times appear as if they're incompetent."

And legal antitrust issues continue to plague the company in much-coveted foreign markets, including a recent European ruling that will cost the company millions of dollars a day in antitrust fines.

"They need to push themselves through these issues," Gartenberg said, "because the more people they have working on antitrust and legal issues, the less people they have working on things that actually make the company money."

Competition Grows

Adding to the concern is the increasing collaboration between rival Internet tech companies. In May, Internet powerhouses Yahoo and eBay announced a multi-year partnership to help the two companies better connect with Web users, ending speculation that Microsoft had been trying to buy Yahoo.

And Google Inc. last spring made a $1 billion investment in Time Warner Inc.'s AOL. Analysts said the pairing of powerful Web competitors intensified Microsoft's need to find an ally as it tries to become a more formidable player in Internet advertising.

The widespread use of Windows operating systems still makes Microsoft the dominant worldwide player in the personal computer. But some analysts say the enormous scope of projects like Vista may hinder Microsoft from completing new projects on time, making the company appear slow and lumbering in comparison with their Internet rivals.

"Short term, they can turn things around if they can get their products to market and they're well received," said Gartner analyst Michael Silver. "But longer term, their projects are too complex and too big and too monolithic. We really think they have a significant amount of work to do to reposition themselves in the new tech world."

Do these issues spell more problems down the road?

A Microsoft spokesman declined to comment on how the product delays and personnel issues might affect the company's overall operations.

Here's a quick look at some of the technical, operational and legal issues the tech giant has faced in the last several months: