What Has Microsoft Been Doing All Year?

For Microsoft (NAS: MSFT) , 2011 has mostly come and gone with a whimper.

It was a telling sign when the Redmond giant kicked off the year with an ear-bleedingly boring opening keynote at the Consumer Electronics Show held in January in Las Vegas each year. CES is a technophile's dream and typically represents a preview of the types of gadgets that will be seen throughout the industry in the coming year.

What happens in Vegas ...
Microsoft's keynote has always been a main event, but this year CEO Steve Ballmer detailed lackluster offerings like Avatar Kinect, which allows your Xbox avatar to mimic you, complete with facial expressions. He also mentioned Windows Phone 7's update, which played catch-up with features like copy-and-paste. Windows on ARM Holdings (NAS: ARMH) architecture was briefly mentioned, but that's still in the pipeline for next year.

Fellow Fool Tim Beyers had said the announcements might get value investors a little excited, but growth investors have little to see here. Microsoft has also said recently that next year will be the last time making an appearance.

The beginning of the end of IE dominance
Throughout the year, Microsoft has seen Internet Explorer's share in the browser wars steadily decline, mostly to the benefit of Google (NAS: GOOG) Chrome. It's a trend that has been forming for years, and 2011 was no different. Mozilla Firefox wavered but is relatively flat compared with Chrome's rapid ascent and IE's steady decline. Chrome just overtook Firefox as the No. 2 browser in the world, and it has its sights set squarely on IE.

Windows Phone: from bad to worse
Microsoft landed a pretty major smartphone OEM partner with Nokia (NYS: NOK) in a February deal that reportedly involved having Mr. Softy pay more than $1 billion up front for the Finnish vendor's support. Nokia just launched its first Windows Phone device, the Lumia, in late October; meanwhile, Windows Phone's market share has faced a similar fate as IE's browser share. Instead of a commanding position steadily deteriorating like with browsers, Microsoft's smartphone share has gone from bad to worse.

According to Gartner figures, Microsoft claimed a 4.2% smartphone market share throughout 2010, lagging Android, Apple (NAS: AAPL) iOS, and Research In Motion. By the third quarter, Gartner says Microsoft's slice of the pie has fallen down to 1.5%. The dreary numbers throw some cold water on Gartner's own predictions that Windows Phone will eventually overtake iOS by 2015.

All your Android are belong to us
The little bit of good news for Mr. Softy in the smartphone arena is that it has been banking on Android. The company started bullying Android vendors last year, and it has reaped the fruits of its labor mostly this year. Ever since inking a patent licensing deal with General Dynamics division Itronix over the summer, Microsoft has been on a roll, steadily growing its list of enslaved Android vendors. Before 2011, it counted only HTC as a licensee.

Microsoft is hot in pursuit of others, including Motorola Mobility and Barnes & Noble, for their Android devices, while B&N is praying for some divine intervention. In all likelihood, Amazon.com (NAS: AMZN) has probably received a strongly worded email with the subject line "RE: All Your Kindle Fire Are Belong to Us," politely requesting mountains of cash.

The next Windows
At the BUILD Windows Developers Conference, Windows gave a preview of the next major version of its flagship operating system, Windows 8, which will run laptops, desktops, and tablets alike. It will support ARM-based processors as well as traditional x86 chips from Intel (NAS: INTC) and Advanced Micro Devices.

This will create some fragmentation within the platform, since software will need to be rewritten for each chipset. WinARM laptops are supposedly en route for a late 2012/early 2013 entry, and Windows has taken a page out of Apple's playbook in how it's setting up its Windows Store for Metro style apps.

The official public release of Windows 8 isn't slated until late next year, but a preview is in the hands of developers -- along with a Samsung-built tablet featuring healthy specs.

Xbox TV?
Microsoft has been aggressively working to transform the Xbox into a TV hub, bringing on content partners such as Time Warner and Comcast, among others. As a pre-emptive strike against Apple's presumably upcoming Siri-controlled TV, it built voice control into the popular Kinect.

The company will be trying to take on Google and Apple to lay claim to your living room, with Google allegedly even contemplating becoming a TV service provider.

Microsoft's biggest problem
Even though the year started off showing little to no promise, Microsoft was able to scrounge up a handful of good announcements. I think Windows 8 has a decent chance, but mainly for tablets instead of traditional PCs, although it will be incredibly late to the show.

Leveraging the installed base of more than 57 million people for its Xbox TV platform push is a smart choice, giving it a first-mover advantage while Google's and Apple's respective offerings will be more comprehensive.

The biggest thing holding Microsoft back continues to be Steve Ballmer. While the recent misguided speculation that Bill Gates would return to the software giant was short-lived -- after Gates promptly shot it down -- someone needs to step in. Also this year, hedge fund master David Einhorn expressed a sentiment that I fully support: Ballmer needs to go.

Microsoft's invitation to the mobile party was lost by the USPS, so it had to find its own way. By the time Bing Maps provided a route and Mr. Softy made an appearance, the festivities for what will be the biggest revolution of a generation were well under way. Despite Microsoft's tardiness, the oncoming mobile onslaught promises to be The Next Trillion-Dollar Revolution. There are lots of companies that are set to cash in on it, but one in particular has excellent prospects. The company is one of few players that will help power the mobile devices of the future (it is one of Microsoft's Windows 8 chip partners), and it also has exposure to the explosive growth in China. Get access to this 100% free report to find out what company I'm talking about.

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

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