The New Microsoft - will they survive the next 10 years ?
In the last year or so of Steve Balmer's reign at Microsoft - the direction of the company was a "Device and Services" company and the introduction of the Surface tablet and the acquisition of Nokia's devices business were reflective of that strategy.
But Surface lost money for the first 2 years and it wasn't until Surface 3 Pro that it began to gain traction. The Nokia acquisition has been a nightmare with MS recently having to take a $8.6B write down - actually more than they paid for Nokia and jettison some 8,000 employees and re-position their mobile strategy.
Shortly after the Nokia purchase Steve Ballmer announced his transition out of MS and the role of CEO would transition to Satya Nadella.
In Satya's term to date some 26,000 employees have been let go from MS and while it still has several billion dollar franchises - some of them - Windows included have been on a reduced trajectory and in fact have been shrinking.
Satya realigned MS to a "Mobile First, Cloud First" strategy.
The Mobile First part has been interesting. MS has done something it hasn't done in a long time and that is acknowledge other operating systems. For nearly 20 years MS developed and sold Office for Mac and it was the only Non-Windows offering.
Today there are almost as many iOS and Android versions of Microsoft Apps as there are versions for Windows. Especially with the true money making apps like Office. The hope is that iOS and Android users will be willing to pay for Office365 subscriptions. But I seriously doubt it. The highest ranking MS app in iOS is Outlook at 157 - Word, Excel, PowerPoint - do not show up in the top 300.
With the recent realignment of the Mobile group under Windows head Terry Myserson and the release of Stephen Elop - MS acknowledged the change in their own mobile device offerings. Windows Phone has less than a 5% market share worldwide and it looks as though MS is going to try the same approach they did with Surface - which is develop some reference offerings and then hope the OEMs release their take on the reference.
But the challenge is that the OEMS are not lining up. 98% of all Windows Phones in the market are Nokia or Nokia/MS offerings. Even with some promising new devices coming this fall - MS is so far behind Apple and Samsung that I seriously doubt that Microsoft's phone will ever be more than a me too product.
Then there is the Cloud First side of things.
MS does have two very good and very profitable cloud business in Office365 and Azure.
But Office365 in my opinion has been cannibalizing revenue from traditional Office licensing and even Exchange, SharePoint and Lync licensing as folks move from traditional on-prem to cloud. And MS has had to effectively slash the price of Office to get people to stay with it.
Let's use this example. I have 5 computers that could run Office and I typically run Office Pro - so including Outlook, Publisher, Access. Office 2013 Pro is
$399 per machine at the MS Store. So to license all 5 would be nearly $2000. Or I can purchase a Office365 Home Licence for $99 / year for all 5 PCs - plus my iPads, iPhones, Android Phones, etc. Assuming MS releases a new version every 3 years - It would cost be $300 vs $2000. That's a huge difference.
Azure has become one of the premier enterprise cloud offerings and MS continues to expand offerings available. But with that said - as I see every day in the market place - more and more of the new apps out there in analytics, HPC and Communications are based on Linux and various Open Source models. MS has not released a new server application since Lync and products like Exchange, SharePoint and SQL are slowly being replaced by Cloud or Open Source counterparts.
While MS annual revenue's continue to grow - the most recent quarter showed $22.2B in total revenue - it is now dwarfed by Apple who did $49.6B in the same period. Also MS did $23.3B for the same period in 2014 - so a $1.1B loss versus Apple's $37.4B or a $12.2B gain.
The challenges for MS to me are the following....
1. The business model has changed - MS for years made a ton from OEMs who included Windows on their devices. Now that is not quite the same as PC sales are shrinking. In the cloud space the model is to drive prices down and provide huge scale - the leaders in this space are using Linux - not Windows Server..
2. How to compete versus free. Today a person or a business could buy a Chromebook and basically get eMail and Productivity for free. The old model of buy and install product is changing and while MS has Office365 - less and less people feel the need to use a full blown tool when they can edit on the web. Same with SaaS and PaaS - the latest offerings are not running on Windows.
3. There are good alternatives to Windows. Apple's OSX is an excellent OS on excellent hardware and Apple's productivity tools are included. Chromebook also works for a lot of uses cases and there are several good quality Linux distros - i.e. Ubuntu and Mint that are quite good and Office Libre works fine and is free.. Finally a lot of folks just use a tablet and an iOS and Android tablet and don't need Windows or Office. 10 years ago Macs were rare in the Enterprise. Today almost every enterprise I know provides Mac as an alternative to PCs.
4. Finally and most importantly - MS has lost in the Mobile space - the recent $8.6B write off is proof. And while MS will continue to expand it's offerings for iOS and Android and continue to try to develop a mobile platform - MS has lost an entire generation of developers to iOS and Android who see no need to develop for Windows. So MS will miss out on the one thing that helped drive Windows for 20 years - apps.
So to me one half of MS's GTM strategy - Mobile First - is not necessarily a given considering the head winds.
Only time will tell - but I am not seeing anything coming out of MS that is compelling for consumers or enterprises - basically just more of the same and that is what will ultimately kill MS.
Windows 10 is a prime example of that. In my experience with Windows 10 there is nothing that MS has done that tells me - I have to have it. Sure I'll upgrade to stay current - but I could just as easily stayed on Windows 8.1.
Sure MS will get a wave of corporate upgrades and of course Windows 10 Enterprise is NOT free - but does it matter. MS recently announced an increase in Client Access Licensing (CAL) for many of it's server products of 13% - which is pretty large. To me that says that this is the only way MS increases their revenues - not by providing a new and compelling offering that customers will want.
Bottom line - will MS be around in 10 years. I say yes - but I also say that MS is on a slow steady decline and they will be much less of an influencer in the marketplace and will struggle to grow without a much more aggressive strategy.
But Surface lost money for the first 2 years and it wasn't until Surface 3 Pro that it began to gain traction. The Nokia acquisition has been a nightmare with MS recently having to take a $8.6B write down - actually more than they paid for Nokia and jettison some 8,000 employees and re-position their mobile strategy.
Shortly after the Nokia purchase Steve Ballmer announced his transition out of MS and the role of CEO would transition to Satya Nadella.
In Satya's term to date some 26,000 employees have been let go from MS and while it still has several billion dollar franchises - some of them - Windows included have been on a reduced trajectory and in fact have been shrinking.
Satya realigned MS to a "Mobile First, Cloud First" strategy.
The Mobile First part has been interesting. MS has done something it hasn't done in a long time and that is acknowledge other operating systems. For nearly 20 years MS developed and sold Office for Mac and it was the only Non-Windows offering.
Today there are almost as many iOS and Android versions of Microsoft Apps as there are versions for Windows. Especially with the true money making apps like Office. The hope is that iOS and Android users will be willing to pay for Office365 subscriptions. But I seriously doubt it. The highest ranking MS app in iOS is Outlook at 157 - Word, Excel, PowerPoint - do not show up in the top 300.
With the recent realignment of the Mobile group under Windows head Terry Myserson and the release of Stephen Elop - MS acknowledged the change in their own mobile device offerings. Windows Phone has less than a 5% market share worldwide and it looks as though MS is going to try the same approach they did with Surface - which is develop some reference offerings and then hope the OEMs release their take on the reference.
But the challenge is that the OEMS are not lining up. 98% of all Windows Phones in the market are Nokia or Nokia/MS offerings. Even with some promising new devices coming this fall - MS is so far behind Apple and Samsung that I seriously doubt that Microsoft's phone will ever be more than a me too product.
Then there is the Cloud First side of things.
MS does have two very good and very profitable cloud business in Office365 and Azure.
But Office365 in my opinion has been cannibalizing revenue from traditional Office licensing and even Exchange, SharePoint and Lync licensing as folks move from traditional on-prem to cloud. And MS has had to effectively slash the price of Office to get people to stay with it.
Let's use this example. I have 5 computers that could run Office and I typically run Office Pro - so including Outlook, Publisher, Access. Office 2013 Pro is
$399 per machine at the MS Store. So to license all 5 would be nearly $2000. Or I can purchase a Office365 Home Licence for $99 / year for all 5 PCs - plus my iPads, iPhones, Android Phones, etc. Assuming MS releases a new version every 3 years - It would cost be $300 vs $2000. That's a huge difference.
Azure has become one of the premier enterprise cloud offerings and MS continues to expand offerings available. But with that said - as I see every day in the market place - more and more of the new apps out there in analytics, HPC and Communications are based on Linux and various Open Source models. MS has not released a new server application since Lync and products like Exchange, SharePoint and SQL are slowly being replaced by Cloud or Open Source counterparts.
While MS annual revenue's continue to grow - the most recent quarter showed $22.2B in total revenue - it is now dwarfed by Apple who did $49.6B in the same period. Also MS did $23.3B for the same period in 2014 - so a $1.1B loss versus Apple's $37.4B or a $12.2B gain.
The challenges for MS to me are the following....
1. The business model has changed - MS for years made a ton from OEMs who included Windows on their devices. Now that is not quite the same as PC sales are shrinking. In the cloud space the model is to drive prices down and provide huge scale - the leaders in this space are using Linux - not Windows Server..
2. How to compete versus free. Today a person or a business could buy a Chromebook and basically get eMail and Productivity for free. The old model of buy and install product is changing and while MS has Office365 - less and less people feel the need to use a full blown tool when they can edit on the web. Same with SaaS and PaaS - the latest offerings are not running on Windows.
3. There are good alternatives to Windows. Apple's OSX is an excellent OS on excellent hardware and Apple's productivity tools are included. Chromebook also works for a lot of uses cases and there are several good quality Linux distros - i.e. Ubuntu and Mint that are quite good and Office Libre works fine and is free.. Finally a lot of folks just use a tablet and an iOS and Android tablet and don't need Windows or Office. 10 years ago Macs were rare in the Enterprise. Today almost every enterprise I know provides Mac as an alternative to PCs.
4. Finally and most importantly - MS has lost in the Mobile space - the recent $8.6B write off is proof. And while MS will continue to expand it's offerings for iOS and Android and continue to try to develop a mobile platform - MS has lost an entire generation of developers to iOS and Android who see no need to develop for Windows. So MS will miss out on the one thing that helped drive Windows for 20 years - apps.
So to me one half of MS's GTM strategy - Mobile First - is not necessarily a given considering the head winds.
Only time will tell - but I am not seeing anything coming out of MS that is compelling for consumers or enterprises - basically just more of the same and that is what will ultimately kill MS.
Windows 10 is a prime example of that. In my experience with Windows 10 there is nothing that MS has done that tells me - I have to have it. Sure I'll upgrade to stay current - but I could just as easily stayed on Windows 8.1.
Sure MS will get a wave of corporate upgrades and of course Windows 10 Enterprise is NOT free - but does it matter. MS recently announced an increase in Client Access Licensing (CAL) for many of it's server products of 13% - which is pretty large. To me that says that this is the only way MS increases their revenues - not by providing a new and compelling offering that customers will want.
Bottom line - will MS be around in 10 years. I say yes - but I also say that MS is on a slow steady decline and they will be much less of an influencer in the marketplace and will struggle to grow without a much more aggressive strategy.
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