Microsoft had positive news this week, as it reported strong results for its first fiscal quarter of 2011 and solid sales of Windows 7. The company's revenues of $16.20 billion represented a 25 percent rise over the same quarter last year, when businesses and consumers kept their wallets firmly shut in the wake of the global recession.
Strong sales of Windows 7, Office 2010 and other flagship products suggested that Microsoft's fundamentals are sound, although questions remain about the ultimate financial viability of the company's "all in" cloud strategy. Net income increased year-over-year by 51 percent, and all business segments apparently enjoyed growth. Some 240 million Windows 7 licenses have sold to date, according to Microsoft.
And in news that should surprise exactly nobody, "Halo: Reach" sold pretty well.
"This was an exceptional quarter, combining solid enterprise growth and continued strong consumer demand for Office 2010, Windows 7 and Xbox 360 consoles and games," Microsoft CFO Peter Klein wrote in an Oct. 28 statement released ahead of the earnings call.
Although Microsoft's cloud-centric products have yet to generate substantial cash-flow in the spirit of a Windows 7, there were some positive signs for the company's online initiatives: online advertising grew 13 percent, and Bing's market share continues to increase. Within a quarter or two, it will be more readily apparent how Microsoft's search-and-advertising deal with Yahoo, which involves Bing powering the latter's backend search, will play out on Redmond's balance sheet.
Microsoft executives insisted that businesses were continuing their PC refresh cycle. "We are seeing improved business demand and adoption," Microsoft COO Kevin Turner wrote in an Oct. 28 statement.
Microsoft's earnings came just as the company kicked off its Professional Developers Conference (PDC) 2010 in Redmond, which again highlighted its executives' intention to move with all due speed into the cloud. Amitabh Srivastava, senior vice president of Microsoft's Server and Cloud Division, told eWEEK that developers would play a key role in those initiatives.
"The further we got into this journey into the cloud, we saw that more and more people were writing cloud applications in Java," Srivastava said. "There are three things we need to do. One is tooling; we're going to make the whole Eclipse integration with Azure be first class. Second is we're going to expose the APIs in Windows Azure in Java. And third we're investing in optimizing the performance of Java applications on Windows Azure."
Microsoft CEO Steve Ballmer highlighted Microsoft's overarching strategy for cloud apps and a platform that incorporates not only PCs and the cloud, but also mobile devices.
"Microsoft is combining the power and reach of the cloud with both Web and local device experiences," Ballmer wrote in an Oct. 28 statement. "There has never been a better time for developers to bet on Microsoft."
The company used the pulpit of the PDC to announce two new features for Windows Azure: Windows Azure Virtual Machine Role, which allows an instance of Windows Server 2008 R2 to run in the company's cloud, and Server Application Virtualization, which allows for the transfer of application images to Windows Azure. That comes in addition to several new Azure services for developers, including the Windows Azure AppFabric Composition Model, and the Windows Azure Marketplace.
Meanwhile, Ballmer also used the PDC to tout Windows Phone 7, Microsoft's new smartphone platform-and to suggest it has a chance of succeeding within the evolving mobile market.
"I think we kind of nailed it. When you see it, you just go -oooh'," he told an audience during an Oct. 28 speech, according to CNNMoney.com. "Make no mistake about it, we're all in."
In a contrast to the grid-like pages of individual apps that define both the Apple iPhone and Google Android user interfaces, Windows Phone 7 aggregates content into six subject-specific "Hubs," such as "People" or "Games." For the past several months, Microsoft has been encouraging developers to build apps for the Windows Phone Marketplace, recognizing that a key part of Windows Phone 7's success will be an app ecosystem capable of challenging Apple's and Google's offerings.
Some 1,000 apps have reportedly been built for the Windows Phone 7 platform, including some from marquee names like Twitter and eBay, but overall that lags far behind Google's and Apple's app stores, which contain hundreds of thousands of apps.
"We need your best work," Ballmer told developers at the PDC, according to the Associated Press.
Earlier this week, departing Chief Software Architect Ray Ozzie suggested in a blog posting that cloud and mobile, together, would ultimately decide Microsoft's fate.
"Certain of our competitors' products and their rapid advancement and refinement of new usage scenarios have been quite noteworthy," he wrote. "Our early and clear vision notwithstanding, their execution has surpassed our own in mobile experiences, in seamless fusion of hardware and software and services, and in social networking and myriad new forms of Internet-centric social interaction."
Translation: Microsoft's mobile initiatives need to match Google and Apple.
"Organizations worldwide, in every industry, are now stepping back and re-thinking the basics," Ozzie continued in his posting. "Doing so is necessary for their long-term growth and survival. And our own industry is no exception, where we must question our most fundamental assumptions about infrastructure and apps."
The future, as Ozzie sees it, involves "continuous services" connected to the cloud through "connected devices" available in a "breathtaking number of shapes and sizes, tuned for a broad variety of communications, creation and consumption tasks." In other words, the "PC-centric/server-centric" model, which helped elevate Windows and Microsoft top the top of the tech heap, is rapidly giving way to a new paradigm.
Whether Ozzie proves correct, and whether Microsoft can execute a cloud and mobile strategy that leverages that future, will help determine the company's balance sheet for years to come.