Step 3 for Microsoft: Milk the Cow.

Step 3: Milk the Windows Cash Cow

I know this is simple advice. But unbelievably Microsoft seems to need tis. Windows is a cash cow. It has dominant share in a mature and potentially declining market. While many are calling Windows and PC dead, let us not forget that this product generated $19.2B in revenue ( 2% growth) and made $9.5B in profits for Microsoft. If it was a standlaone company it would be #140 of Fortune List of America's Companies, just above Time Warner Cable.

But Microsoft has made the most basic mistake with its cash cow. It spent a huge amount of money trying to reposition the cash cow for growth with Windows 8. And like all cash cows, the result was pretty much as any Harvard B school student would have predicted. The huge investment did not lead to more growth and in fact led to a $2B decline in profits. Its called a cash cow because you don’t need to invest in it. Let the cow out in the pasture and eat the free grass and then milk the cow. Low Costs, Low Growth, but really high profits.

The Windows 8 debacle could have been worse. The massive user interface change that was foisted on users to try and win the unwinnable tablet market, could have killed the cow. I mean, if you have to learn a whole new interface, then why not bite the learning curve bullet and get a MacBook Air.  But the Windows Cash Cow is too strong to be killed or damaged by the user interface, It survived Vista, so this Windows8 thing should be little more than a cracked hoof for this strong cow.

So step 3 is simple. Do less with Windows. Move the development teams to higher growth businesses. You can still release incremental, non jarring upgrades every 2- 3 years to goose the revenue a little. People still need to upgrade to get your support and security patches, so no worries people will adopt even if the next version is incremental.

PCs are not going away. There are about 1.5B of them connected to the internet now and all the projections are that this number grows at about GDP. People may upgrade hardware less, but they still need your software. Hire a cost cutter and economizer to run the unit and boost profits above the 2011 levels and get them up to $12-$13B per year.

Step 4 tomorrow.