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Goldman highlights Microsoft's shrinking market share

Microsoft has taken a mighty tumble from its position of near-ubiquity on consumer computing devices from a dozen years ago, according to a new report from Goldman Sachs.

Back in 2000, Microsoft's operating systems ran on a whopping 97 per cent of consumer computing devices, namely desktop and laptop PCs, the investment bank said in a Friday note to investors.

This year Goldman predicted that the Redmond-based firm's share of that redefined market will tumble down to 20 per cent, with both Google and Apple surging past Microsoft as a result of the rapidly rising tide of smartphones and tablets.

In fact, Google's Android operating system took the lead in 2011, according to Goldman (see chart below). Last year Android had a 33 per cent vendor share of the "consumer compute" market to Microsoft's 25 per cent. That marked the first time in decades that Redmond was toppled from its leading position in that metric as calculated by the financial house.

In 2012, Goldman forecasts that Apple will surpass Microsoft. The iPhone maker had a 23 per cent share of the consumer compute market in 2011 and is expected to grow that slightly to 24 per cent this year. The big gainer, however, is Google, which Goldman pegs at capturing 42 per cent of the market to continue a remarkable growth story that saw Android's presence on consumer computing devices grow from just 1 per cent in 2008 to 3 per cent in 2009 and then carve an increasingly large swath through the rankings from 2010 through today.

But some industry watchers found Goldman's narrative to be dubiously useful at best.

Patrick Moorhead, principal analyst for Moor Insights & Strategy called the Goldman report "a bit of showboating by financial analysts."

"This is like throwing bicycles, motorcycles, cars, and trucks into one pile and calling it the 'vehicle market' and saying bicycles lead it," he quipped.

Jack Gold, principal analyst for J. Gold Associates, used nearly the same metaphor as Moorhead.

"Okay, so what is this saying? That Microsoft has little share in phones and tablets? That's kind of a big 'Duh!' They've had virtually no share of phones for years now," said Jack Gold, principal analyst for J. Gold Associates.

"While Apple and Android have had a major impact on phones and tablets, at least for now, Microsoft still dominates the PC space," Gold continued. "So if I were to use a real world comparison, it's like saying Mack trucks are losing out because even though big trucks are still selling, as an overall portion of the automotive market, small cars and pickup trucks dominate. That's all true. But is it relevant?"

However, both analysts said the market's shift towards mobile put pressure on Microsoft to develop products that can compete with Apple, Google, and other vendors—particularly tablets.

"Microsoft must win a reasonable share of the tablet market," Gold said. "That has a higher disruptive impact than smartphones do. Smartphones and PCs are complementary, but tablets not as much. And slipping PC sales are what could hurt Microsoft."

The good news for Microsoft, at least from Goldman's perspective, is that the software giant stands a good chance of regaining lost consumer compute market share in the coming years. Goldman's forecasting puts Redmond's share holding steady at 20 per cent in 2013, and increasing to 26 percent by 2016.

Interestingly, Goldman sees Microsoft's stake in the market growing at the expense of market leader Google, but not Apple, which the report forecasts will continue to build over the next several years. Outside of the big three, other OS vendors will see their presence on consumer computing devices shrink down to 5 per cent in 2016, the investment bank predicted.

In fact, Goldman places Google and Microsoft in its "challenged" category of major tech companies examined in the report.

Why the pessimism about Google? Goldman reckons the next great battleground of consumer technology will be television - an industry in which the search giant isn't as well placed as Apple and companies like Samsung. Another big difference between Apple and Google (and pretty much everybody else) is the iPhone maker's remarkable capacity over the past several years for maximizing profits with its mobile devices (see chart above).

Meanwhile, of the companies reviewed in the investor's note, Intel gets the harshest treatment and is rated as the lone "sell" by Goldman. Google and Microsoft are also both considered "challenged" but get "neutral" grades in terms of the firm's investment advice.

Rounding out the companies examined by Goldman, Apple, Facebook, and Samsung are all considered "well positioned" and "buys," while Amazon rates a "buy" but is also pegged as "straddling the line" between being in good shape for the future versus holding a shakier position.