Microsoft's Turnaround Recipe: Copy Google and Salesforce

NEW YORK (TheStreet) -- The latest "fashion topic" in technology investing is Microsoft's (MSFT) return from the stock market backwaters. It's all about howMicrosoft's new and improved products will stem the market sharedeclines of the last couple of years.

The nature of these "new and improved" products is, however, extremelypoorly understood. The hourly explanations on CNBC seem to becentered on the Windows start button returning after a brief hiatus.

The key to understanding a potential Microsoft turnaround has nothingto do with fixing a small bump in the road in the form of a misguidedapproach to eliminating the start button. If that were the source ofMicrosoft's decline, then Microsoft must have been doing extremelywell until just before the launch of Windows 8 on Oct. 26, 2012.

But, of course, Microsoft was in decline long before the start buttondisappeared last Oct. 26.

Likewise, a Microsoft renaissance will be based on something entirelydifferent, and that is a total transformation away from localizedsoftware to cloud computing.

Basically, Microsoft's future residesin copying Google's ( GOOG) Chrome OS and Salesforce.com ( CRM).

Let me explain.

Traditional PCs -- both Windows and the Mac, as well as enterprisesoftware from companies such as Oracle ( ORCL) -- are based on the idea thatyou buy and install programs on your PC and server sitting in acloset. These programs need to be maintained and upgraded by yourin-house staff, or yourself if you're in charge of the household orsmall business.

Maintaining and upgrading software not only costs a lot of money tobuy, but it also takes a lot of time -- which is also a huge cost. Thisis good for IT consultants, Microsoft and Oracle, but not for anyoneelse.

This is where companies such as Google and Salesforce.com entered thepicture. These companies harnessed the open Web in order to deliversoftware as a service (SaaS). You don't need any special software toaccess Google and Salesforce.com -- just open a browser window.

Guess what? This is the direction in which Microsoft is going aswell. Let me offer a few examples of what is being implemented rightnow:

1. Outlook vs. Outlook.com:

If you were working in white-collar office America in the last 20years, you probably spent most of your computer time in MicrosoftOutlook. This remains the most powerful software of its kind, but itmay also be overkill for many users. It is also hugely cumbersome.

How often does your Outlook program warn you that your mailbox isfull? What about accessing Outlook from another device -- PC, tabletor smartphone?

Of course, you can access Outlook from other devices but it may becumbersome, slow or provide you with incomplete access, feeding youonly certain aspects of Outlook. In the meantime, the Outlook programswells in your server farm and on your main PC.

In other words, Outlook is the old world. It is inelegant and coststoo much money. It is also not well-suited to users of multipledevices on all sorts of alternative operating systems.

Enter Outlook.com. By moving your Outlook to the cloud, it becomeseasier to provide a consistent experience across all of your devices.In other words, just like Gmail.

Have an Android tablet and an Android smartphone? Fine -- theOutlook.com client makes it work just like Gmail. No file swelling ona PC back at the office, no server swelling inside a closet.

2. Windows 8 Apps:

One benefit with a traditional PC is you can install programsfrom anywhere. Sadly, it is also its Achilles heel. Regular PC usersare way too gullible in terms of installing software.

Apple ( AAPL) and Google solve this problem with tightly controlled appstores. Microsoft had started doing this too -- on the phone, WindowsPhone. Of course, Google has taken this concept the furthest in theform of Chrome OS, where there are essentially no apps at all, just abrowser.

Microsoft has taken a step in this direction with Windows 8 RT. Onlyapps coming from Microsoft's tightly controlled online store can beinstalled. This means the ultimate in security.

3. Microsoft Office Online:

How many times in the last 20 years did you buy a new version ofMicrosoft Office for $150 or $450, and install it on one PC? I usedto do it every three years.

This is changing -- on two fronts:
  • Instead of paying $150-$450 for a one-PC install, you now payMicrosoft $100 per year to use Office on five devices simultaneously.You get upgrades as soon as they hit -- not once every three yearsafter paying another $150-$450 per PC.
  • You can now access much of Microsoft Office online -- for free.No need to even pay the $100 per year. Just fire it up from insideany browser.

In other words, just like Google Docs. Or Salesforce.com.

If you want to understand where Microsoft is going this year withWindows 8, you have to understand that almost everyone in the industryrealizes Google's Chrome OS is the future for most of enterpriseand consumer markets alike. Yes, there will be special exceptions forthose who have unusual software requirements not yet available online.

However, as we see with Microsoft Office and Outlook, even thesespecial exceptions are migrating online. Even the world of gamingwill migrate increasingly online already in 2013. The cloud iswinning -- big! -- and Microsoft had better hurry up and copy Google'sChrome OS and Salesforce.com if it is to survive.

And it is.

When Microsoft launches its new software architecture in the next fewshort months, it will offer much of the same benefits as Chrome OS andSalesforce.com. Not completely, but in many important aspects, withmore steps to complete the picture in 2014 and 2015.

It is this architectural embrace of Google's Chrome OS andSalesforce.com that will save Microsoft -- not reinstating the startbutton.

What about the stock?

On the product side, Microsoft is moving the right direction in 2013.Microsoft will end 2013 in a much better position than it started.The product progress will be greater than any other recent year inMicrosoft's history.

Of course, on the unknown side is how much Google and Apple will movetheir competitive instruments in the same time period. Google isalready way ahead, and Apple has to catch up in terms of cloudservices and architecture. This article is too short for me to beable to outline these scenarios, but suffice to say that Microsoft'sreturn to competitive excellence is not without challenges.

The other dimension is profitability. Microsoft's historical modelhas been one of very high prices for its software. The cost ofWindows, Office and other licenses has been the envy of the industry.

Now comes Google, which gives much software for free in exchange for anadvertising model. Why pay anything -- even a small annualsubscription fee -- for Microsoft Office when Google Docs is free?

As a result, even if Microsoft's products copy the best from GoogleChrome OS and Salesforce.com, the economic equation may remain anuphill battle for Microsoft. Revenue and margins may decline, eventhough the users will cheer for the dramatically improved Microsoftproduct portfolio.

In the meantime, as a user I will be enjoying the new Outlook.com andthe fact that Windows and Office are moving architecturally in thedirection of Chrome OS. I'm just not sure what to make of the stock rightnow.

At the time of publication the author was long GOOG,AAPL, CRM and FB.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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