The recent news that Apple surpassed Microsoft in market share is an obvious symptom of an acute problem Microsoft is facing: it’s not innovating in the eye of the consumer. I’m not anti-Microsoft, and I don’t think all Microsoft software is bad. Far from it. But I do observe that Microsoft seems to be standing still in a world that is changing rapidly around it. We live in a time when people expect constant, incremental improvement with technology. Microsoft may be delivering this to developers but not consumers.

Microsoft’s harsh reality is in the market share numbers. When you have close to 95% of the market share in the desktop market, you’ve really got nowhere to go but down. If Microsoft’s user base begins shrinking as tablet computing overtakes traditional desktop computing, it will spell trouble for Microsoft—a company that has essentially be abandoned by HP and other companies making tablets to compete with the iPad.

And as the cost of PCs continues to fall, so too will profit margins. The idea of spending $200+ on a copy of Windows for a machine that costs that amount or less will seem increasingly silly to the common consumer–those who essentially use their computers to check email, Facebook, and browse the web. I don’t think we’re far from a day when we will pick up tablet computers off of Target end caps for less than $50.

Shrinking margins coupled with shrinking sales volume is a nasty cocktail that Microsoft will have to swallow or somehow do a major, major reboot of their system and change its current image as a non-innovator. If they don’t, Gen Y, born and raised on Apple mobile hardware, Google web apps, and Facebook connectivity will think of Windows as the OS their parents used. To them, using Windows to take care of daily web activities will seem like using a rotary phone to make a call.

Something has to give, and it’s not just on the consumer front. I was recently talking with a friend of mine who is a principal of an elementary school. He filled me in on the cold reality many schools are facing right now. A major education funding crisis is now in full effect. Schools are getting no help from governments, and PTA groups can only do so much.

And as bad as funding problems are today in schools, challenges are likely to increase–particularly in the realm of technology. There are legions of Windows-based PCs sitting in schools that will decay away in the next few years. Forget about buying Windows 7 licenses and upgrading hardware; just supporting the existing machines is becoming cost prohibitive.

Barring a major reversal of events, schools will have to make very difficult decisions as to how to keep technology in their classrooms. One solution could be to install free operating systems like Ubuntu or the future Chromium on the aging hardware. Believe me, principals who have to choose between ditching Windows or increasing classroom size will be open to any alternative offered. So it’s not hard to imagine that a significant number of school children will gain experience in non-Windows operating systems and non-Microsoft software in educational settings.

When you’re at the top, there’s nowhere to go but back down… unless you create a new top. That’s what Apple has done in the mobile space: set a new peak to climb—one that rises into a vast white space that was previously unknown. Google is doing a good job of keeping pace, but Microsoft seems content to stand at the bottom and watch—perhaps hoping that others will fall to their death—or simply fall back to the present, which looks more like the past every day.