Windows 7 Earnings, Docs for Facebook Marked Microsoft's Week

Microsoft's week included strong quarterly earnings driven by sales of Windows 7 and other traditional lines of business, but a series of announcements and beta releases also indicated the company's continued desire to align itself with the cloud. Microsoft and Facebook announced the beta launch of Docs for Facebook, a cloud-based productivity platform that lets Facebook users create and share Office documents with their Facebook contacts. Microsoft also opened--and then closed to new testers--the beta of its Windows Intune service, a cloud-based management system for administrators of midsize businesses.

Microsoft's week ended on a strong positive note, with the company reporting that its fiscal 2010 third-quarter earnings had climbed 6 percent, year-over-year, to $14.50 billion. According to Microsoft executives on an April 22 earnings call, that rise in income was due largely to sales of Windows 7, although the company also saw upticks in other divisions such as cloud services and Xbox.

"Windows 7 continues to be a growth engine, but we also saw strong growth in other areas like Bing search, Xbox Live and our emerging cloud services," Peter Klein, Microsoft's chief financial officer, wrote in an April 22 statement ahead of that earnings call. "Our record third-quarter revenue along with continued rigor on cost management resulted in exceptional EPS growth."

During the actual call, Klein suggested a "return in business hardware spending" seemed to be in the works, with both the enterprise and SMBs (small- to midsize businesses) willing to open their wallets for IT infrastructure. Microsoft's enterprise services grew 5 percent during the quarter, while Windows server revenue also expanded. Many businesses had cut IT spending in order to better weather the long-lasting global recession; a return to IT infrastructure purchases suggests that at least a percentage of those same businesses are now more optimistic about the economy moving forward.

However, the financial numbers for Microsoft's various divisions remained mixed. While quarterly revenues for the Windows & Windows Live Division hit $4.4 billion, a substantial increase from the $3.4 billion reported for the same quarter in 2009, revenues for the Microsoft Business Division dipped slightly year-over-year to $4.2 billion. Year-over-year quarterly revenue for the company's Server and Tools, Online Services Division, and Entertainment and Devices Division were up slightly.

Even so, the overall numbers represent a marked change for Microsoft's fortunes from 2009, when business and consumer cutbacks in IT spending managed to depth-charge the company's bottom line. For the fourth fiscal quarter of 2009, for example, Microsoft reported a 17 percent year-over-year revenue decline, followed by a 14 percent decline for the first fiscal quarter of 2010. In response, Microsoft had instituted cost-cutting measures, including the layoffs of more than 5,000 employees in 2009.

Although Windows 7 sold some 90 million licenses by March 2010, business spending on the operating system has so far not matched consumer adoption; during a Jan. 28 earnings call, Bill Koefoed, Microsoft's general manager of Investor Relations, said that the company had "not seen a return to enterprise growth" and that "weak business PC sales" continued to be a drag. Now, though, it seems as if that trend of anemic business spending could be reversing.

The rest of Microsoft's week, though, dealt less with hardware and Windows 7 and more with the cloud. On April 21, Microsoft and Facebook announced the beta launch of Docs for Facebook, an online applications platform that lets Facebook users create and share Word, Excel and PowerPoint documents.

"Built on Microsoft Office 2010, the Docs app enables Facebook users for the first time to create and share Microsoft Office documents directly with their Facebook friends, using the Office tools they already know," Lili Cheng, director of Microsoft's FUSE Labs, wrote in an April 21 posting on the FUSE Labs blog. FUSE Labs took four months to build the beta, from concept to implementation, according to Cheng.

FUSE Labs was created in October 2009 with the express purpose of developing software and services that focus on social connectivity and rich media. In an Oct. 8 internal memo leaked to various news outlets, Microsoft Chief Software Architect Ray Ozzie suggested that FUSE Labs would "bring more coherence and capability to those advances development projects where they're already actively collaborating with product groups to help them succeed with -leapfrog' efforts."

Using and their Facebook Connect link, users can view documents shared by friends, or else create or upload their own documents. Those users can control which Facebook friends can see or edit a document.

Microsoft also launched-and then closed to new testers-a cloud-based management system for IT administrators called Windows Intune. Aimed at midsize businesses, Windows Intune offers those IT pros a variety of tools such as setting automatic antivirus policy and diagnosing unbootable PCs; for end-users, the Intune dashboard offers access to software updates and tech support.

"Due to overwhelming response to the beta invitations, we are no longer accepting new participants into the Windows Intune beta program as we have exceeded our pre-set account limit," a Microsoft spokesperson wrote in an April 20 email to eWEEK. "We appreciate the high level of interest from our partners and customers and are hopeful that this response to the beta will result in solid feedback to inform product development."

Windows Intune is scheduled for a month of beta-testing, followed by a general release within a year. In addition, Intune also offers a Windows 7 Enterprise upgrade subscription, although Microsoft executives have declined to break down how much a business might save in Windows upgrading costs by subscribing to Intune.

For the moment, it seems that Microsoft's traditional product lines-notably Windows 7-are the drivers of the company's fortunes; but the cloud is looming, and Microsoft also seems trying more than ever to position itself for that.