Microsoft is getting beaten in so many emerging innovations ( phones, devices, search, cloud) that they face serious risk in being left behind.
At the previous company I was at, in the late nineties - we used windows servers, IIS, everyone used outlook, excel, word, IE, sharepoint. We built part of our solution with windows servers, built a desktop client using visual studio, source safe, c++, dll's. Microsoft was an integral part of our technology lives.
Today at Livemocha, only a handful of people use Windows, we use cloud apps for email, documents, wikis.
The next decade is going to make devices like smartphones, ipad etc. central to our lives. Most people are going to browse, consume content, interact with others online with these devices. I already read more blogs on my iphone than laptop.
By not being the #1, #2 ( even #3) in these devices - they risk people not using their OS, browser, search, services etc. on these newer and more prevalent devices. That's why google is working so hard to get into that space otherwise companies like apple, rim (blackberry) will dictate how people access information (e.g. google or bing) from these devices.
Instead of focusing on search over the past 3 years Microsoft would have been better served by focusing on the tablet and phone. The only way they can beat google is if the platform changes and the mobile, tablet provided them that shift. It's probably too late now.