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Now 40, Microsoft faces a tough reinvention

Having just turned 40 years old, Microsoft (MSFT) has solidly hit middle age. It's been a rough ride, especially recently. PC sales, one of its business mainstays, have fallen off as consumers and businesses have gravitated toward mobile devices, an area in which Microsoft badly trails Google (GOOG) and Apple (AAPL).

Not that Microsoft has been in a financial slump. It's market capitalization of nearly $337 billion is nothing to sneeze at. Since November, the stock price has been trading in ranges approaching what it hit in 2000. Nearly 25.5 percent of Microsoft revenue becomes net income. Those may not be Apple-level achievements, but they're still impressive.

Microsoft gears up for new Windows 10 operating system

Under new CEO Satya Nadella, Microsoft is trying to create a renaissance -- a significant reinvention to keep the software giant relevant in the coming years and decades. But the changes will have to push against the company's long-standing corporate culture, which put the cash cows of Windows and Office in front of everything else. It also means going against customers who may find their old assumptions of what they can expect will change, for better or worse.

Here are some areas where Microsoft is trying to push ahead, and where it will face challenges.

New pricing model for Windows: The upcoming Windows 10 is the company's attempt to pull itself out of the mess it created with Windows 8, whose interface angered many long-time users, particularly because it was inefficient on machines without a touchscreen. Microsoft is trying to hold on to its desktop operating system dominance because it provides a powerful tool to further its interests. Even as PC sales decline and Mac laptop sales expand, this is still an enormous and important market.

One challenge is the rumor that Microsoft could move to subscription pricing as it has tried to do with a cloud-based version of Office. The advantage would be that the company gets an annuity from users. The disadvantage is that customers could revolt and walk away, either using Apple Macs or a Google Chrome-based machine and cloud services.

Microsoft is fixing a 10-year-old "freak" security flaw

Trying to improve Windows Phone -- again: Given the increased use of mobile devices and Internet connectivity, giving up on mobile would be like giving up on accepting credit cards. Microsoft plans a new mobile stand, creating a flagship device that makes use of Windows 10 by letting developers create software once and run it across many different platforms, including PCs, laptops, tablets, smartphones and even the Xbox gaming console.

But Microsoft faces a chicken and egg issue: App developers want to see many consumers using the platform before creating software for it, while consumers want to see the apps before using a Windows Phone.

Chasing consumer trends can anger corporations: Consumers expect support for the latest and greatest on platforms and a constant churn of innovation. Just one problem: Corporate IT departments, a critical customer of Microsoft, hate it. Changes mean jumping through hoops in testing new platforms against existing systems to see if they're compatible. The faster the rate of change, the more difficult IT departments find the prospect of transition. If Microsoft moves to a licensing model in which customers would get a steady stream of upgrades, it could make things even worse.

Microsoft gets open: In the past, Microsoft tried to keep a wall between what it offered and the churning world of open-source software, Linux and other developments that threatened to take control out of its hands. The stance was ultimately impossible because it required customers to ignore major developments in technology. Now the company wants to make some of its tools open-source, bring some important open-source tools to Windows and create free Office editing apps for Google Android and Apple iOS. However, increased openness threatens to increase the lack of control that Microsoft feared all along.

It's not that Microsoft's choices are bad, per se. Some of what it's doing is certainly better than burying its collective head in the sand. But after too many years of missteps and willing market blindness, all these steps may still be too little, too late.

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