Microsoft announced today it intends to lay off 5,000 workers (read article here).  This action, included in its announcement that Microsoft is going to miss its earnings estimate, spooked the market and is blamed for a one-day market dip (read here).  The company's equity value, meanwhile, dropped to an 11-year low – out of its 33 year life (see chart here).  Of course, the blame was placed on the weak economy.

But we all know that Microsoft has been struggling.  The Vista launch was a disaster.  A joke.  Techies resoundingly ignored the product – as did their employers.  Because Vista was so weak, Microsoft is looking to launch yet another operating system – just 2 years after Vista was launched.  Incredible, given that Vista was more than 2 years late being launched!  Additionally, in an effort to increase interest in Windows 7, the new product, Microsoft has dramatically increased the availability of beta versions for review (read here). 

Microsoft was once the only game in town.  But over the last few years, Linux has made inroads.  Maybe not too much on the desktop or laptop, but definitely in the server world.  The hard core users of network machines have been finding the cappbilities of Linux superior to Windows, and the cost attractive.  Additionally, netbooks, PDAs and mobile phones are gaining share on laptops every day.  Customers are finding new solutions that utilize network applications from companies such as Google are increasingly attractive.  By laying off 5,000, Microsoft is not addressing its future needs – to remain highly competitive in operating systems and applications against new competitors.  It is retrenching.  This doesn't make Microsoft stronger.  Rather, it makes Microsoft an even weaker target for those who have the company in their sites.

Why should anyone be excited about a company that is willing to cut 7.5% of its workforce while it is losing market share?  Sure, the company is still dominant in many segments.  But once the same could be said for Digital Equipment (DEC), Wang, Lanier, Compaq, Silicon Graphics, Sun Microsystems, Cray and AT&T.  All fell victims to market shifts making them irrelevant.  Not overnight – but over time irrelevant, nonetheless.

It's hard to imagine, today, a world without Microsoft domination.  After all, this was a company sued by the government for monopolistic practices.  Yet, we know that even market domination does not protect a company from market shifts.  Microsoft's layoffs demonstrate a company planning from the past – it's former dominance – rather than planning for the future.  Many industry leaders are already seeing a technology future far less dependent upon Microsoft.  Shifting software solutions as well as changing uses of platforms (largely the declining importance of desktop and laptop Wintel machines) is making Microsoft less important. 

Trying to Defend & Extend its past glory is not serving Microsoft well.  Once, any changes in its operating system was front page news.  Now, a new release struggles to get attention. Microsoft is at great risk – and its layoffs will weaken the company at a time when it cannot afford to be weakened.  When Microsoft most needs to be obsessing about competitor's emerging strengths, and using Disruptions to open White Space where it can put employees to work on new solutions, Microsoft is cutting back and making itself more vulnerable to competitors now surrounding on all fronts.  This should be a big concern for not only those being laid off, but those remaining as employees and those investors who have already seen a huge decline in company value.