Being an IT professional who has worked mainly on Microsoft products and technologies for more than 10 years, I am bit upset after knowing that Apple has super seeded Microsoft in market capitalization.

After I heard this latest news, I am really anxious to assess the current situation, and really eager to know the answer of this question ‘Is Microsoft destined for its downfall? ‘.

Let us make an analysis on the basis of Microsoft’s segment-based revenue stream. Following is the table of Microsoft’s earning during last 3 financial years:

For Details: http://www.microsoft.com/msft/reports/ar09/10k_fr_not_21.html

It’s clear from above revenue chart that Microsoft has three primary revenue generation segments, namely, Client: operating systems for personal computing e.g. Windows Vista and Windows7.

Server and Tools: e.g. Windows Server operating system,  Microsoft SQL Server, Visual Studio, System Center products, Forefront security products etc.

Microsoft Business Division:  Microsoft Office, Microsoft Office Project, Microsoft Office Visio, Microsoft Office SharePoint Server, Microsoft Exchange Server etc.

Client Operating Systems Arena

There is a tough battle going on to gain market supremacy between three major rivals, Microsoft’s Windows 7, Apple’s Mac OS X and Canonicals’ Ubuntu. Mac OS X and Ubuntu have polished their operating systems to a great extend, they have introduced some great features with their products.

Now there are lots of applications available for both of these operating systems. Both of these Microsoft opponents have good forum-based support and improved hardware compatibility. A large number of users both at home and in corporate world have migrated from Windows to Ubuntu or Mac OS X.

Cost Factor: This is also a primary factor in user’s migration from Windows to Ubuntu or Mac OS X. Ubuntu is an open-source operating system with no price, and on the other hand Mac OS X is available at a very nominal cost.

These ever-changing market dynamics have really effected Microsoft’s primary revenue stream of Client operating systems, but thanks to the timely launch of Windows 7 that has really supported this primary revenue stream as Microsoft is able to earn $13.9 Billion in Q3 (2010) as compare to its profit of $11.8 billion in Q3 (2009).

For Details: http://www.microsoft.com/msft/ic/segments_client.aspx

Servers Share

Microsoft has really shown improvements in this segment. Revenue for Q3 (2009) was $10.7 Billion and it stood at $10.9 Billion for Q3 (2010), which is obviously an improved figure.

We can notice here that the earnings have an upward trend for this segment since year 2007. Microsoft enjoys a great market share for its server products.

The client base for this market share is mainly in the corporate world. As companies world-wide going through automation phase quite rapidly, this segment is enjoying the fruits for having a very large base of different server products ranging from products for business automation to safeguarding IT assets from internal and external cyber threats.

Business World

Earnings for Microsoft Business Division for Q3 (2010) remained at $13.4 Billion, although it was $14.3 Billion for Q3 (2009). This drop in the revenue might be due to the increased competition in this market segment. Office application users have shown keen interest in online apps especially Google Docs, and on the other hand Open Office has also gained a fair share in this market segment.

As it is likely that more enhanced features will be offered by online office apps like Google Docs, and in future, online apps services will really impact Microsoft Business Division’s revenue.

Survival Guide

Microsoft should really concentrate towards improving its end-user products including client operating systems and Office products. Microsoft has already announced the availability of its online Office apps, and has also planned the release of Office 2010 this year, that would definitely put Microsoft in a better position to compete with its rivals in office based applications.

As far as the client OS segment is concerned, Microsoft should add more robust features in its OS products that can astonish the end user, and features that can induce them to turn on their Windows OS again. For example Microsoft should improve its operating system’s security features, and there is also an area of improvement in Windows’ hardware utilization methods. By improving the features offered with its client OS, Microsoft would be definitely in a position to excel in its competition with Mac OS X and Ubuntu.

Overall Microsoft needs a better vision, a vision that can change Microsoft’s outlook to contest in today’s ever-changing world.