Microsoft Has Fightin' Words for Apple

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Them be fightin' words!

Never one to hide his animosity toward his rival from Cupertino, Microsoft (NAS: MSFT) CEO Steve Ballmer promises to take off the kid gloves in the software giant's battle royale against Apple (NAS: AAPL) .

Let's take this outside
In an exclusive interview with CRN following the company's Worldwide Partner Conference in Toronto recently, a characteristically "exuberant" (to put it politely) Ballmer made his ambitions clear:

We are trying to make absolutely clear we are not going to leave any space uncovered to Apple. We are not. No space uncovered that is Apple's. We have our advantages in productivity. We have our advantages in terms of enterprise management, manageability. We have got our advantages in terms of when you plug into server infrastructure in the enterprise. But we are not going to let any piece of this [go uncontested to Apple]. Not the consumer cloud. Not hardware-software innovation. We are not leaving any of that to Apple by itself. Not going to happen. Not on our watch. We do feel empowered to innovate everywhere and bring our partners with us. We are just not going to leave any -- what's the expression people like to use -- we're not going to leave any stone unturned, so to speak, as we pursue that.


Source: CRN.

Apparently, he was actually shouting at some point during the interview. This is also coming from the same CEO who once said, "We'll talk about slates and tablets and blah, blah, blah, blah ...." That's an actual quote, mind you, from an actual transcript of Microsoft's annual meeting with financial analysts back in 2010 when asked about Apple's iPad, which had just been launched.

His response was that Microsoft has had Windows 7 on slate and tablet form factors for years. He conceded that Apple had "sold certainly more than [he'd] like them to sell." This was just after Apple had reported its first fiscal quarter of iPad sales, which came in at 3.3 million units. Just think how peeved Ballmer must feel now.

All your markets are belong to us
Ballmer makes it pretty apparent that he wants to compete in every market with Apple. That has some heavy strategic implications for Microsoft.

For example, the company recently announced its new Xbox Music service, which combines subscription streaming similar to Spotify, as well as traditional digital music purchases to compete directly with iTunes and Amazon.com's (NAS: AMZN) popular MP3 store. Google (NAS: GOOG) is still catching up trying to grow music sales in Google Play also, while Apple and Amazon are the two clear leading incumbents in the market.

More broadly, that implies that Microsoft would also have to either focus more or enter markets like education, software for creative professionals, e-books, first-party wireless routers, first-party PC hardware, portable music players (didn't it just kill the Zune?), and many others.

No stone unturned, right?

Surface phone ... ?
"Hardware-software innovation" is probably the most loaded statement in there. Not only has Microsoft jumped into first-party tablet hardware with its Surface device, of which Ballmer expects to sell "a few million," but his words also strongly imply the possibility of jumping into first-party smartphones.

Indeed, he didn't rule out this alternative when asked, instead pausing and saying the company is focusing on Surface right now, but then "we'll see what happens." He acknowledges the hardware partnerships with Nokia (NYS: NOK) and HTC in the smartphone arena, but not saying "no" is halfway to saying "yes."

Reality bites
Ballmer's aspirations frankly aren't realistic. He's spread Microsoft far too thin over too many areas, and that's now catching up. This is particularly evident in the wake of the $6.2 billion writedown related to the company's aQuantive acquisition as it hoped to challenge Google's advertising business. Microsoft killed the Zune for a reason, which presumably wasn't that it was making too much money.

Even the Xbox gaming console business isn't a financial success, despite its popularity. Consoles are typically sold at a loss, and the segment has lost billions of dollars over the years. The entertainment and devices division posted an operating loss of $229 million last quarter. The online services division saw $479 million in red ink.

Microsoft still needs to make its $8.5 billion Skype acquisition work to expand its presence in video-calling, while simultaneously jumping into professional social networking with the $1.2 billion purchase of Yammer. Yet it still wants to add more to its list of markets?

When Google CEO Larry Page visited Steve Jobs shortly before his death, asking for advice, Jobs set aside their companies' differences and talked about focus, telling him: "Figure out what Google wants to be when it grows up. It's now all over the map." Jobs said that Google's plethora of offerings was turning out to be just "adequate but not great," warning, "They're turning you into Microsoft." Just months later, Page would shift Google's strategy to greater focus and putting "more wood behind fewer arrows."

Ballmer would never admit it, but he should also heed Jobs' advice. The last thing Microsoft needs right now is a Zune resurrection.

Apple's intense focus has driven it to unprecedented heights, yet it still has plenty of room to run. Sign up for The Motley Fool's brand new premium Apple research service and get an in-depth report on all of the company's strengths and weaknesses. Even though Microsoft is a Dow dividend stock, it's not one of three that dividend investors need. This special free report will get you up to speed.

At the time this article was published Fool contributorEvan Niuowns shares of Apple and Amazon.com, but he holds no other position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Microsoft, Google, Amazon.com, and Apple.Motley Fool newsletter serviceshave recommended buying shares of Apple, Microsoft, Amazon.com, and Google and creating bull call spread positions in Microsoft and Apple. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days. The Motley Fool has adisclosure policy.

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