Microsoft became the worlds dominant software company in the early 1990s and from then on continued to operate at an unprecedented level of profitability—building up a massive cash pile on a quarterly basis. By the late 1990s Microsoft strongly focused on generating software technology for the coming media boom.

A good many Microsoft detractors believe that Microsoft is inherently unable to produce good software. They argue that “Windows has always been flaky and in recent years it’s become a security disaster, and the Office Apps are still lost in a desert of poor usability”. Arguably these things are true and Microsoft seems to have had a nightmare with Vista (which may not be over yet).

There is a counter-argument which I support, which says that Microsoft has invested strongly in really talented software engineers and has put together some awesomely good software. It could afford to—right? I support this argument because it’s true. In the area of Media, Microsoft has some extraordinarily good software—far better than the competition. I have a friend who is developing something for Windows XP/Vista who never ceases to be amazed at how well thought out .Net version 2 is (and how good version 3 is going to be). To this you can add the fact that the Microsoft server-side products in middleware and database are seriously good.

The irony then is that Apple with its awesome accent on usability has stolen the market right from under Microsoft’s nose. Microsoft comes to market later this year with its Zune music player, which is destined not to challenge the iPod. Meanwhile Microsoft’s Media Center PC is about to prove irrelevant, because Apple has decided to complete its media jigsaw with a simple TV plug-in device. The video will play from a Mac somewhere else in the house.

What we are witnessing here is the “big Mo” where Mo is for Momentum. Apple has an end-to-end capability; web store, Mac, iPods, iTV (code name for the new Apple TV plug-in) and retail outlets (including its own). Very simple, in a way. With all its excellent media software Microsoft is destined to flounder trying to find a point where it can gain a foothold against Apple. It reminds me of IBM desperately trying to gain a foothold with OS/2 in the wake of Windows. Microsoft thinks it can buy its way in, but money doesn’t help. It’s about channel strategy. Apple has one, Microsoft doesn’t.

Microsoft’s only effective way to compete now is through its XBox—but I don’t think it has the smarts to work out how. It has lost its edge.