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Why Microsoft Must Kill Its Cash Cow and What It Means for Apple and Google

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Technology evolves, but certain leaps tend to change the competitive landscape. As technology becomes more mobile and cloud-based, individual computing power becomes even more redundant than Wall Street opinions. Think about it: How many of us have computers at home, computers at work, a smartphone in our pocket, and probably a notebook or tablet in our bag? Each device contains a CPU (central processing unit), storage, RAM, and operating software, which are being sold multiple times to do the same tasks for the same person. As we embrace the cloud, all of these devices will converge into our smartphones, which has significant implications for the technology space.
The cellphone is evolving into the only computer any of us need. We will probably supplement it with docking stations, which connect us to a network, larger screen, keyboard, or mouse at the office or at home, but there is no longer a need for all of the redundancy. Think of the cost savings for a corporation if it only gave key employees a smartphone and a docking station, instead of also purchasing a PC with a license for Windows, MS Office, a larger processor, RAM, and storage. This expected change is the major threat to Microsoft's (NASDAQ:MSFT) $30 billion cash cow. 
When Microsoft lost dominance of the wireless operating system, competitors were able to begin eroding Microsoft’s dominance of the operating system by shifting the preferred device. Telecom service providers subsidized the mass adoption of wireless technology in order to sell more data plans, while at the same time virtualization and lower storage prices disaggregated computing processes, making the “Win-Tel” PC obsolete. When it comes to human preference, light, fast, and wireless will beat heavy, slow, and stationary every time.   Shifting devices reduces the number of seat licenses for Windows and Office software in the enterprise and eliminates the redundant purchases of software for machines at home and on portable devices.   
Some commentators are pointing to smartphone penetration rates in excess of 60% (of the handset market) and implying that growth is over, but that couldn’t be further from the truth. While the smartphone has replaced more than half of the handsets used, it has only just begun to replace the millions of PCs in offices and homes around the world (a market almost as large as the handset market by sales). This next step in the PC to smartphone transition brings new opportunities and monetization models, and it is the reason Microsoft’s fate is not yet sealed.
No one has stepped up and forced this shift yet, but we are nearing the tipping point. Google’s (NASDAQ:GOOG) Android is the leading OS (operating system) in the mobile market, and when combined with Google Docs, Gmail, GDrive, and other services, it provides Google with a tremendous opportunity to displace Microsoft in the home PC market. In fact, Google is built to dominate the consumer/home market and monetize it with advertising that lowers the cost of replacing existing technology. Making inroads into the corporate market may not be as easy.
Apple (NASDAQ:AAPL), on the other hand, not only has tremendous brand equity in the consumer space, but also seems well-positioned to displace Microsoft in the enterprise. After all, the iPhone displaced the BlackBerry (NASDAQ:BBRY) because it was pushed on IT departments by the C-suite, and its "closed" platform reduces some of the noise and potential security breaches that will come with such a shift. I am surprised that Apple has not exploited this advantage yet; I was expecting this new iteration of the iPhone to be more oriented toward displacing the PC in the enterprise. From talking to CTOs, it seems like they are getting better deals on Samsung (OTCMKTS:SSNLF) phones, and the tremendous P&L savings is allowing Android to erode Apple’s dominance of the enterprise smartphone market. If Apple doesn’t get on the ball, it could prove to be a critical failure of Tim Cook’s tenure, because instead of leveraging its initial dominance of this market into greater sales of enterprise hardware and software, it is being out flanked by Google and Samsung.
The hardware is not quite up to snuff to handle this transition, but a crowdfunded phone is being developed by privately-held Canonical, with a quad core processor, 4 GB of RAM, and 128 GB of storage, and it will boot both the open source Ubuntu OS and Android. This product will not be commercially viable because of its cost and a broader lack of familiarity with Ubuntu. However, imagine if Microsoft were to come out with similar hardware that easily synced with applications hosted on a cloud server running its Azure software. I could see this product helping Microsoft grow its share of the enterprise mobile market and preserve its competitive position, while giving partners a reason to develop enterprise applications for the new devices. 
Analysts that want Microsoft to sell off its "ancillary" businesses and focus exclusively on enterprise software don’t realize that even that business is being rapidly eroded and will go away without innovation and reengagement with its customers. In order to survive, Microsoft must kill its cash cow before competitors do. All of the consumer, communication, and search capabilities will be critical to Microsoft differentiating either its product or monetization model as it competes in this yet-to-emerge market. This is all speculation, as the products and market have not yet been developed, but by the time we realize there is a race, a winner will already be emerging. As investors, we should be looking at who is still competing, and who their partners will be.   

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Disclosure: Minyanville Studios, a division of Minyanville Media, has a business relationship with BlackBerry.
POSITION:  Positions in AAPL, MSFT, and GOOG