Top executives from Microsoft held a gathering on Sept. 19 in Bellevue, Wash., to discuss the company, its vision and the state of its operations with financial analysts.
While preparing to retire from the company he helmed for 13 years, Ballmer indicated that Microsoft has already begun to lay the groundwork for ensuring the software giant not only survives the post-PC era, but also thrives in it. On July 11, Microsoft announced a sweeping reorganization effort to speed up the transition from a software company to a provider of devices and services.
To accomplish this, the company is adopting a strategy called “One Microsoft” that is meant to drive innovation by, in part, shaking up a culture that has long been criticized for its glacial reactions to IT trends and highly publicized bouts of internal dysfunction. During the analyst meeting, Ballmer and other top executives discussed how they plan to shape the company’s immediate future.
One Microsoft, Four Pillars
“Over the near term there are four things we’ve got to get right,” said Ballmer while discussing the company’s new strategy in light of its recent and ongoing reorganization efforts.
“No. 1, Office 365 and Azure have got to be a touchdown,” said Ballmer. Encouraged by brisk Office 365 adoption, he predicted “that by this time next year we will overwhelmingly have the most popular paid service in the enterprise, bar none, and we will have an engine really with Office 365 to which we can attach new services and new options, both for the IT department as well as for end users, marketing departments, etc.”
Secondly, Microsoft must endeavor “to ensure that the PC stays the device of choice for people when they’re trying to be productive in life,” said Ballmer. And that job falls to Windows.
The upcoming Windows 8.1 OS update “is a very distinct improvement,” he said, adding, “We are going to have to put time and energy, not only into Windows PCs, but into ‘brand Windows’ overall.” Devices, too, fall into the branding strategy. “Our device brand more than anything is brand Windows: Windows Phones, Windows PCs, Windows tablets.”
Admitting that “we have almost no share” in the mobile device space, Ballmer nonetheless expressed optimism: “Anything we have low market share sounds like upside opportunity to me. We’re paying to do it all day every day.”
The Nokia buy is pivotal to capturing more market share and improving margins. Noting that Nokia is responsible for more than 80 percent of Windows Phone sales worldwide, Ballmer said his company is “very excited to have a chance to capture the gross margin upside by actually being the device provider.”
Finally, Ballmer talked up the need “to continue to innovate in high-value activities.” Using the “meeting experience” as an example, he posed different scenarios such as connecting remotely, working with digital whiteboarding technologies, and perfecting pen-based input for annotation, drawing and sharing during work gatherings. “I guarantee you if we can get just a couple or three of these high-value activities to explode,” said Ballmer, “that is absolutely, at the end of the day, the thing that’s going to allow us to sell more enterprise services and the thing that’s going to help suck through our consumer services and devices.”
Enterprises Drive Microsoft
Microsoft Chief Operating Officer Kevin Turner offered a rare look at how his company generates revenues according to customer segment. “Well over 55 percent of the business is enterprise,” not counting some OEM business that could otherwise also be lumped into the category, he said.
Microsoft’s Future Glimpsed at Analyst Meeting
The company’s consumer and online divisions are responsible for 20 percent—also with some OEM overlap—while OEM is 19 percent. The small and midsize business segment is last with 6 percent.
Microsoft is foremost an enterprise software and services provider, suggested Turner. “When you look at that full picture, as a segment, it’s really telling of where we’ve got a lot of strength, and it’s complemented with our consumer presence,” he said.
Cloud Data Center Arms Race
In terms of cloud heavyweights, Ballmer evoked a cinematic classic to describe the competitive landscape. With Google, “there’s sort of this almost Dr. Strangelove kind of arms race that goes on,” he said.
It all boils down to designing data center facilities “as the unit of compute work in order to take cost and complexity out of the equation” and, of course, megawatts. “You know, how many megawatts are they buying this year? That’s sort of the way in which data centers are rated. How many megawatts will Google put in? How many megawatts will we put in?”
“Three companies … are really pursuing that at scale,” said Ballmer. “Amazon is, we are, and of course Google is.
Saving Surface, Xbox Style
Microsoft’s efforts to dethrone Apple’s iPad, or at least knock it down a few pegs, fell short. Surface RT sales were meager, causing the company to write off $900 million during the fourth quarter 2013.
Ahead of an impending Surface announcement, Julie Larson-Green, head of Microsoft Devices and Studios, suggested during an Engineering Leader Panel that the company is taking cues from its successful video game business, which is set to launch its next-gen Xbox One console in November, to help turns things around.
Asserting that a “combination of great hardware, great software, apps and services [is required] in order to win,” she said that the company already learned that lesson with the Xbox. “Hardly any games” accompanied the console when it first launched, “and it took a while for us to get going with it,” said Larson-Green.
Applying that experience to Surface, she added that Microsoft is “very optimistic about what we’re doing in terms of the changes that are being made in the software, the applications that are coming online, the services, and improving the hardware, both in terms of speed, performance and the integration with the software.”