Microsoft's Enterprise Business Humming, But the Future Is Mobile, Cloud

By Jeffrey Burt  |  Posted 2012-07-20

Microsoft's Enterprise Business Humming, But the Future Is Mobile, Cloud

Microsoft is continuing to see strength in its enterprise business, as illustrated by the solid results turned in by its Server and Tools division during the its fiscal fourth quarter. However, the software giant's focus will continue to be on emerging trends in the enterprise, such as mobile, cloud and collaboration, as it looks to find its footing in a time of stalling PC sales.

Microsoft's financial report July 19 illustrated how the company is continuing to rely on its traditional businesses€”the Server and Tools unit generated $18.7 billion during its fiscal year 2012, while Windows saw $18.4 billion in sales despite the growing anticipation over the upcoming release of Windows 8€”while rapidly adapting to post-PC models that have helped fuel rivals such as Apple and Google.

And though those traditional businesses will continue to make money for the software company, how Microsoft handles the transition to mobile computing, cloud computing and collaboration will greatly impact its long-term future.

€œWhile Server and Tools continues to drive long-term growth, the focus for Microsoft through the remainder of 2012 will be on embracing emerging trends, including tablets and mobile phones, to ensure the adoption of next-generation Windows and Office offerings at the conclusion of 2012,€ Allan Krans, an analyst with Technology Business Research, said in a July 19 research report.

Microsoft has engineered both Windows 8 and the new version of Office to support the range of new smartphones and tablets coming that are hitting the market, to embrace the continuing adoption of cloud computing and to leverage collaboration and social technologies, according to analysts. The company also will have to continue investing in search as it tries to chip away at Google's commanding lead in that space.

€œMicrosoft's dominance of the PC market has been overshadowed recently by the influx of devices, including iPhones and Android devices, that provide new functionality, particularly touch-screen capabilities,€ Krans said. €œWhile Microsoft has been a late entrant in the next-generation device race, the company made strides in making up ground in [the second quarter of 2012].€

The company on Oct. 26 will make Windows 8 generally available. The operating system has been optimized for tablet use, and comes with touch-screen capabilities. At the same time, Microsoft is coming out with Windows RT, a version of Windows 8 designed to run on ARM Holding's system-on-a-chip (SoC) architecture, which is found on more than 90 percent of all mobile phones and in most tablets, giving the software company another avenue into the booming mobile device space. Microsoft also is taking it a step further, releasing its own ARM-based piece of hardware, the Surface tablet.

The next version of Office will have greater capabilities around mobile, cloud and collaboration€”through its availability via the cloud, its support for touch-screens to enable use with mobile devices, and its incorporation of Skype.

€œAs tablets and mobile phones continue to complement, and, in some cases, replace, PCs, Microsoft's incorporation of cloud, mobile and social functionality on core products will ensure long-term success for the Office product line,€ Krans said.

Acquisitions in the quarter also illustrate Microsoft's focus on the new mobile and collaboration trends, he said. The company earlier this month bought Perspective Pixel, with plans of incorporating Perspective's multi-touch display technologies into solutions from Microsoft's Business Division for greater collaboration capabilities. Its $1.2 billion purchase of Yammer will bring greater enterprise and social collaboration features to such business applications as Dynamics CRM and Office.

Microsofts Acquisitions Underscore Its Focus on Mobility, Collaboration

€œThe competitive advantages thus far for and Google have been in their ability to deliver both functionality and collaboration capabilities to customers,€ Krans said. €œWith the acquisition of Yammer, Microsoft can better position itself against and Google by providing a platform for employees to collaborate both internally with co-workers and externally with customers.€

But as the software giant focuses on business, which is clearly its strength, Microsoft will still have to figure out how to shore up its consumer segment, according to Rob Enderle, principal analyst with the Enderle Group. Being strong in both enterprise and consumer will be important in a world where trends like bring your own device (BYOD) are blurring the line between the two.

€œConsumer is where the excitement generally is, and consumer is the seed corn for business,€ Enderle said in an email to eWEEK. €œStrategically, losing dominance in consumer may precede losing dominance in business, so Microsoft's future is tied to their recovering their consumer momentum and on the success of both Windows 8 and Windows Phone 8.€

CEO Steve Ballmer €œhas a history of under-resourcing [the consumer] space,€ Enderle said. However, the hiring this week of Mark Penn, a former White House advisor and CEO of the Burson-Marsteller PR firm, as corporate vice president of strategy and special projects, reporting directly to Ballmer, could help fix €œwhat has been a decades-long problem,€ Enderle said.

Online is also an area where Microsoft will continue to put a lot of investment. During a conference call with journalists and analysts July 19, chief financial officer Peter Klein called Web search a €œstrategic asset€ for the company, adding that revenue for the company's online division jumped 8 percent in the quarter.

However, it was the $6.2 billion write-down of Microsoft's ill-fated $6.3 billion acquisition in 2007 of aQuantive that helped swing the company to its first-ever quarterly loss. Microsoft bought aQuantive in hopes of bolstering online advertising revenue, but the gains never materialized. Enderle said the company is struggling to embrace the concept.

€œThey are having difficulty with ad revenue on the Web,€ he said. €œAs a packaged software company and increasingly [a] business solutions company, ad funding is apparently coming harder for them than expected. It is a difficult concept, though, where the folks you provide products for aren't the ones paying you. It may simply be too foreign to their culture for them to ever get their arms fully around it.€

However, the company will continue to push its Bing search engine. Though a distant second to Google, it appears to be making some headway.

Experian Hitwise reported that Bing's share of the search market jumped 5 percent in May, to 28.1 percent, while Google's dropped 5 percent, to 65 percent.

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