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Microsoft is, arguably, one of the most powerful companies in the world. Its operating systems drive 90% of the world’s PCs and millions of smartphones. Its video game console was the top of the generation for over a year. It’s one of the oldest and arguably most trusted names in home computing. It commands billions of dollars of cash revenue. Why, then, is it slowly becoming irrelevant? Windows Vista was a failure, ignored by NIST and by the enterprise. At release, it was a bloated, buggy operating system that most computers weren’t ready for. Windows Mobile has slowly lost ground to Blackberry and Apple’s iPhone OS. XBOX 360 has fallen to third in monthly sales. Its attempt to revitalize MSN with the Windows Live system has failed to produce any significant headway against Google and Yahoo! It’s baffling that such a large company with so much money and engineering talent should be falling behind its competitors. That said, how can Microsoft get back to being the clear leader it was ten years ago?

1. Drop the old technology.
Microsoft’s products are mired in the past and old technology. Vista remains on the NT kernel – released in 1993 – and still uses NTFS – also released in 1993. Microsoft just can’t expect to compete with faster, more secure, and more modern alternatives in Apple’s Mac OS X, which runs on a modern HFS+ file system and is based on an open source UNIX core. Windows Mobile looks and feels like ancient technology next to recent offerings from Blackberry and the iPhone. Internet Explorer consistently falls behind the competition in modern speed ratings. Microsoft needs to re-evaluate its product refreshes and make them more significant and more innovative. Each step forward must be a real step, not a crawl. What Microsoft truly needs is to:

2. Take some risks.
Microsoft’s offerings are frequently too conservative. If the XBOX 360 hadn’t been released a year early, it’d be competing with Sony’s PS3 for last place. Ultimately, it suffers from being the middle child. It’s not as family-friendly or as affordable as Nintendo’s Wii, yet it’s not as technologically advanced as the PS3. It falls into the netherworld of being neither, and thus has been last in sales for most of 2008. As for Windows, there really is only one solution. Start over. Microsoft has plenty of money to either hire a new team of experienced engineers, or break off a small piece of its Windows 7 team to begin a new operating system based on new technologies. It’ll have to maintain a legacy system to run NT processes, but the core of the operating system must be new. Microsoft spends too much money and too much talent trying to wrangle a modern operating system out of fifteen-year-old technology. Take a risk. Start over. It’ll only make Windows better.

3. Tame the OEMs.
Microsoft relies on OEMs to deliver their overwhelming lead in the home desktop market. Yet it was OEMs that created most of Vista’s problems at release. The Vista Capable fiasco tore down customer confidence and set Vista back severely. Apple’s Mac OS X can promise the smooth and powerful experience it’s known for because it controls the specifications for the machines that run the operating system. Microsoft’s traditional issue has been a wide range of specifications. However, a quick glance at the websites of popular low-price OEMs such as Dell or Gateway shows that the minimum machines match the minimum machines released by Apple. Intel Core 2 Duo chips and 2 GB of RAM are commonplace even among $400-$500 products. Microsoft needs to work with the OEMs to establish a minimum. Place restrictions in the license in terms of technology. Microsoft has the power of the license, and it needs to use it in way that doesn’t trap the OEM, but makes it mutually beneficial. The success of the OEM is tied to Microsoft’s success, and Microsoft must make that clear.

4. End the over-extension and establish focus.
One of Microsoft’s major problems is over-extension. It has attempted to push itself into too many markets, many of which are now dominated by focused competitors. Mobile phone OS is dominated by Symbian, Mozilla Firefox is rapidly eating away at Internet Explorer in the browser market, Nintendo’s monthly sales far outstrip XBOX 360′s, Google is the clear winner in online search, and the list goes on and on. Microsoft is not the leader, nor is it even second, in almost every market outside of the desktop operating system. Microsoft needs to focus its efforts, and maybe trim down its offerings in failing markets. It doesn’t need to be in the media player market. Expand the Zune into a multimedia portable console and bring it in line with the XBOX 360. It may be difficult to dump one of Microsoft’s many tentacles, but Microsoft needs to slim its offerings and focus them.

5. Cater to the niche.
Mac OS X has done remarkably well among the technophiles, the bloggers, the ones who make their voices heard on the internet. For the average user, the price, availability, and familiarity of Windows make it the attractive choice. However, with the growing ubiquity of the internet, more and more average users are beginning to turn to the internet for information, and once there, they run across the posts and articles written by the blogosphere. Microsoft needs to create hype and buzz among that niche. It needs to release attractive products that are attractive to that population, because they are gaining more power and influence over average consumer.

Microsoft ultimately needs to get off its crumbling throne and revitalize their business. They are slowly falling behind technologically and are in danger of losing relevancy in the fast-paced world of technological innovation. Microsoft has the money and the power to reverse their direction. They just need to be unafraid of failure.