Inability, perhaps. Unwillingness? You're out of your mind.
Microsoft has had their fingers in smartphones, music players, search engines, touch computing, web mail, [you name it] for YEARS. And they are not just dabbling... they have poured billions into these areas, trying to come up with something that gains traction.
Microsoft doesn't make "the occasional try" at innovation, they are a veritable firehose of attempts to innovate. Microsoft Research is HUGE (and well respected within the research/academic community) and as I mentioned above they spend billions every year trying to develop new products and break into new markets.
The fact that Microsoft's efforts in this area have been largely unsuccessful over the past decade doesn't mean they aren't trying or aren't willing.
Let's take smartphones for instance - look at the Kin. From all reports, killed b/c of politics, in favor of Windows 7. Why not have both and see what the market decides?
The Courier. Killed - who knows why? Most likely politics.
Microsoft has so many innovative ideas that we see in Research - but we never see them in products! It always feels like the right hand is slapping the left hand. Competing fiefdoms are fighting over resources, over pub, and over power.
Microsoft needs to empower it's best leaders to make a product, from start to completion - much like Jobs does with Apple. At the end of the day, the buck stops with Jobs, and his vision goes. What happens at Microsoft? You have 100 PM's working on one project. You work diligently. Your design is "design by committee" but hey, it looks like it's going well.
Then some jealous VP of some other division has a beer with Ballmer expressing some concerns and the project gets killed. This needs to stop. There was no reason that the Kin/Courier should have been killed. If it flops, let it flop. If you don't take chances, you'll never grow.
Microsoft right now is afraid of its own shadow.
Kin was killed after six weeks, the market decided it was crap and only a couple were sold. Actually not so much that the Kin itself is bad, but carriers weren't enthusiastic enough, and Microsoft had marketing problems for a product that would battle WP7 6 months later.
You illustrate another problem - I don't know why MS would view it as "battling" WP7 6 months later: 1) 6 months is a LIFETIME for a phone. The Pre went from amazing, potential company-saver phone to dud in less than that. 2) At the end of the day, all the money goes back to Microsoft. Why is that a battle? Internally it's a battle for mindshare - but MS needs to realize that they're both on the same team. Apple is happy cannibalizing its iPod sales for iPod Touches/iPhones.
3) If Microsoft wants to grow, several products are going to overlap. There seems to be a convergence towards "the one true device". A year from now, MS is going to start worrying if mobile phone sales are creeping into their netbook sales - they already worry that Office 365 sales are going to creep into Office licensing
The problem is that they have a sucky innovation model. They find something that's already successful, throw money at making a slightly better version (or whatever they can convince themselves is a slightly better version).
Sometimes it works, sometimes it doesn't. It worked when they copied the Macintosh to make Windows. It worked when they copied Netscape to make IE. It worked when they copied Playstation to make Xbox. It stopped working when they copied iPod to make Zune, and continued to not work when they copied Google to make Bing.
Why it's stopped working? Either (a) a run of bad luck or (b) folks have learned to preempt Microsoft's move or (c) the really good people don't work for Microsoft any more.
If that's a success I really don't want to see one of their failures.
I'm actually surprised if the xbox hasn't been profitable. It can't have been that costly to develop (get a fancy graphics chip and stick it in a box), they've sold a helluva lot of them, and they only update it once every five years, and they're making a crapload of money on the games too (don't forget they own Bungie) so I would have thought it would be a bit of a cash cow. But maybe they need to sell the consoles at a loss.
Until relatively recently when manufacturing costs dropped Microsoft were selling the hardware at a significant loss which means that you have to sell a certain number of games just to break even. This isn't an uncommon model for consoles (the Wii was an exception being profitable as a console from day one) but it was pretty extreme for Microsoft who were basically making an aggressive play for market share and damn the expense.
Up to 2005 the XBox gaming division (including hardware and games sales) had lost $4 billion (http://www.forbes.com/2005/09/12/microsoft-management-softwa...) on a total investment of over $20 billion and it continued to lose money up to 2009 including a cost of $1 billion for replacing bricked XBox360's in 2007 (http://www.engadget.com/2007/07/05/xbox-360-warranty-extende...). All in all I'd estimate up to 2009 total losses up to or even in excess of $6 billion.
In 2009 it finally posted it's first profit - $165 million, though it's probably worth noting that as a percentage of the $6 billion it had lost to that point this is basically nothing.
They have a total installed user base of 41 million consoles (360s) world wide. This puts it slightly ahead of the PS3 (38 million) - though it should be noted that the PS3 launched a year later and is currently selling faster - but way behind the Wii (79 million) and the PS2 (over 140 million). It's likely that by the start of 2011 once Christmas is out of the way they'll be last place in terms of installed user base - not a great reward for all that money spent.
(If these numbers don't feel representative of what you see it's worth noting that the XBox is far stronger in the US than in Europe and Japan).
On the positive side Kinnect is apparently priced so that it will be profitable from day one, they do have a decent installed user base for new games sales and live subscriptions, and console production costs are now a lot lower than they were which means that the next three or four years (the likely remaining life of the console) will all be profitable, however it would seem unlikely that they'll be able to bring the total investment to break even for the life of the XBox range.
Maybe we have different definitions but for me that's not only not a success, but it's not far off being a disaster, particularly given that this isn't a tale of a couple of years of growth at the expense of profit, but a decade long tale.
IIRC they've always made money off of the special edition elite consoles, they've been making a profit off of the elite as a whole for a while now, however these represent a small amount of their sales compared to the big sales of the arcade consoles they had.
PS3 made huge losses to try to stay competitive with 360, and never really dropped much in price and lost huge market share because of it.
However, both have been ridiculous profit makers for their parent companies as the entire devision makes wheelbarrow loads of cash from selling games for ridiculous prices (again something Sony fucked up with by getting greedy in the beginning, although Xbox eventually followed).
Sorry, this is completely untrue for the XBox which has haemorrhaged cash for it's entire life as a division, not just on hardware sales. I've linked to the figures in my post above.
The PS3 is in a similar position - it moved into profit on the hardware sales earlier this year and total losses are estimated at around $3 billion to date. I can't find any figures on the whole division profitability (other than that it is profitable) to know how likely it is to recoup this, though there are statements that they do expect it to make money over it's full life (though I suspect it will be questionable how much for an investment of that size).
If you're wondering how this can be possible, the console subsidies at launch were of the order of $250 - $300 per console. That's a lot of money to make up off of game sales and live subscriptions (remember you're making it off the profit on each game - maybe $10 - $20, not the revenue of $50).
> PS3 made huge losses to try to stay competitive with 360, and never really dropped much in price and lost huge market share because of it.
In terms of global (not US) market share the PS3 will pass the XBox360 shortly which isn't great news for the 360 given that it launched a year earlier so had a head start. Given that Microsoft's sales figures are based on shipped to retailers and Sony's are on sold to consumer's it's possible that the PS3 is already in the hands of more people (rather than sat on shop shelves). In the US the figures are better (18 million vs. 12 million) which might explain why you think it's doing well but that picture isn't reflected in Japan (1 million vs. 5 million) or Europe.
But if you're wondering where the next generation of consoles are, these figures should make it clear - they're nowhere. Both companies need to eek out the life of the current consoles for financial reasons before looking at further significant investment.
Indeed it may be the case that the XBox360/PS3 generation of consoles will prove to be a one off in terms of the level of investment made given the difficulty in recouping it, and that future consoles will be based on smaller, cheaper increments in power and functionality.
Just to be clear, I'm not knocking MS for the sake of it (I actually really like the look of Kinnect and give them great credit for the innovation) but the economics of consoles aren't quite what some people seem to think they are.
If you disagree and think that Microsoft's leadership is willing to change and has just not been able to, then their leadership must be phenomenally incompetent. Just ask yourself, what's their cohesive product strategy? Where's their commitment to excellence? How many of these research projects are designed to build on the strengths of Microsoft's offerings or fix their weaknesses? Why aren't these research projects winnowed down into economically viable and marketable products and services? What's the corporate vision?
A simpler explanation is that the leadership of Microsoft is afraid of anything that competes with their two cash cows: Windows and Office. If this explanation is correct, then any product or service that Microsoft makes (or participates in) will be sufficiently hobbled in order to keep Windows and Office at the forefront of their offerings. It's their "strategy tax." Mobile devices and web services both compete with Windows and Office, in some way, so the company has done relatively little to advance in these two areas.
It doesn't matter which way you look at it, though: spending billions and having little success to show for it isn't a merit badge, it's a mark of failure.
Yes it does. That is exactly what it means.
Throwing crap against a wall and hoping it sticks, even if you spend billions, isn't innovation, that's flailing.
End-user sales of Office may well decline, but if there were a good online version, Microsoft could sell two versions. A cloud-based, subscription version for smaller businesses, hosted by Microsoft. The second version would be a for larger corporations that want to host their own.
For a large corporation, licensing could then be simplified to some fashion of a site-license; the cost of upgrading ALL computers would be simplified.
Note that I'm NOT suggesting that Microsoft give up on a fat client for office, just that there's room for Microsoft needs to pivot if they wanted to, but that's easier said than done.
Though that might not happen before they've spent too much of their reserves (and don't have enough coming in) to do it.
I would think that the real problem is Microsoft's unwillingness to become something completely new, something other than Windows and Office. Apple was a computer company, then it became a cell phone company, a music company, a lot of other things.
Microsoft now sort of reminds me of Sun circa 1999: yes, they would sort of like to innovate and do something new, and they make the occasional try at it, but right now they have an insanely profitable product, so the easiest thing to do is to just keep milking it.