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Microsoft’s 2010 was one of transitions-and make-or-break decisions.
Although Windows 7’s strong sales indicate the company still has a lock on the traditional desktop-bound software market, the tech industry as a whole has shifted its interest and efforts increasingly toward mobile devices and the cloud. To its credit, Microsoft seems to have recognized that transition, and devoted resources to embrace it. However, it very much remains to be seen whether those multimillion dollar bets will pay off or break the house.
On January 6, Microsoft CEO Steve Ballmer used his keynote address at the International Consumer Electronics Show in Las Vegas to detail the company’s initiatives in 2010. He had reason for cautious optimism: Despite some damage to Microsoft’s bottom line during the recession, people seemed to be purchasing Windows 7, and Bing, its search engine, had made incremental but noticeable market gains against Google.
Near the end of his presentation, Ballmer unveiled three tablet PCs, including one from Hewlett-Packard. “Almost as portable as a phone, but powerful as a PC running Windows 7,” he said, holding an HP device toward the audience. “The emerging category of PCs should take advantage of the touch and portability capabilities.”
Ballmer indicated that the tablet would be “available later this year” and include the ability to display e-books, access the Web and play “entertainment on the go.”
Tablets
Within weeks, though, Apple had unveiled the iPad, which reinvigorated the previously moribund consumer tablet market. By the last quarter of 2010, that device had become a massive sales success, while Microsoft’s presence in the tablet market was limited to the HP Slate 500, an enterprise-centric device that reportedly had a limited manufacturing run.
Why did Microsoft end up falling behind in tablets, despite having devices in development before the iPad’s launch? In the case of HP, its April acquisition of Palm for $1.2 billion may have disrupted plans to produce a Windows-powered tablet, as the manufacturer shifted focus to porting the Palm webOS onto tablets and smartphones. Meanwhile, a November posting on tech blog Engadget, quoting a “trusted tipster with a contact inside HP,” indicated that the company had planned an initial run of 5,000 HP Slate 500s.
Microsoft executives have been reluctant to discuss the inability to produce a viable iPad competitor, often deflecting conversation onto the company’s long history of researching tablet technology. Instead, the new story is that Intel’s upcoming line of Oak Trail processors will open the door to a new family of Windows tablets in 2011.
“We think that’s going to offer a lot of new capabilities,” Bill Koefoed, Microsoft’s general manager of investor relations, told the audience during an Aug. 10 talk at the Oppenheimer Annual Technology, Media & Telecommunications Conference in Boston. “Whether it’s better usage of battery life and the like, it’s going to really help move the category forward.”
Microsoft is reportedly planning to reveal a new line of Windows 7 tablets during this January’s Consumer Electronics Show, according to unnamed sources speaking to The New York Times.
Windows Phone 7
Windows Phone 7
Even as it figured out a tablet response, Microsoft spent the bulk of its year gearing up for the release of Windows Phone 7, which it publicly touts as a revamp of its smartphone franchise. In the face of fierce competition from the likes of the Apple iPhone and Google Android, Microsoft had seen market share for Windows Mobile decline over several quarters; with its remaining customers largely concentrated into an Alamo of sorts in the enterprise, company executives decided it was time for a total redo.
First announced during February’s Mobile World Congress in Barcelona, Windows Phone 7 doesn’t seek to replicate the grid-like screens of apps that define both the iPhone and Android. Instead, the smartphones aggregate Web content and applications into six subject-specific “hubs,” including “Office” and “Games.”
Over the summer, Microsoft began encouraging third-party developers to build apps for the platform, recognizing that a robust apps ecosystem was an essential part of the smartphones’ eventual success. By August, Microsoft had issued a series of online tutorials demonstrating the best practices for game- and app-building, and announced plans to debut the Windows Phone Marketplace in October.
That same month, Deutsche Bank analyst Jonathan Goldberg estimated that Microsoft would push nearly $400 million toward Windows Phone 7’s promotional efforts, underscoring the importance of the initiative’s success to the company’s future and bottom line.
“We missed a generation with Windows Mobile. We really did miss a release cycle,” Ballmer told the audience during his July 12 keynote address at July’s Worldwide Partner Conference in Washington, D.C. “We will give you a set of Windows-based devices that people will be proud to carry.”
In its all-consuming desire to reset the phone game, however, Microsoft pushed Windows Phone 7 out the door without certain features in place, including cut-and-paste. The company is reportedly planning a series of updates, the first as early as January 2011, to introduce some of this functionality.
Microsoft has been reluctant to discuss early sales for the first Windows Phone 7 devices, which went on sale in the United States in early November on T-Mobile and AT&T. “We’re not talking about numbers yet,” Joe Belfiore, Microsoft’s corporate vice president and director of Windows Phone Program Management, told Mossberg during a Dec. 7 talk at the D: Dive Into Mobile conference in San Francisco. “It’s just too soon to talk about numbers.”
But a report from TheStreet.com, paraphrasing an unnamed “market research source who tracks phone sales,” suggested that some 40,000 Windows Phone 7 devices had sold Nov. 8, the first day of U.S. release. Meanwhile, international news outlets such as DigiTimes have reported strong Windows Phone 7 sales in parts of Europe and Australia. A late-November report from U.K. retailer MobilesPlease indicated that Microsoft’s smartphones were being outsold by Google Android and Symbian rivals in that country.
Microsoft has previously referred eWEEK’s queries about Windows Phone 7 sales numbers to AT&T and T-Mobile. When questioned in November, an AT&T spokesperson declined to cite exact figures, but offered a statement: “While we won’t disclose specific sales figures, we’re encouraged by the early demand from customers in stores and online.”
Microsoft has little choice but to succeed. Its Kin initiative-a pair of phones with social-networking applications, aimed primarily at teenagers and young adults-was a miserable failure when released in the spring. That spectacular crash-and-burn, paired with Microsoft’s eroding smartphone market-share, led Microsoft’s board to deny Ballmer his full potential compensation for 2010. But that’s nothing compared to the lost revenues and profits if Microsoft finds itself an also-ran in the mobile category, which has mushroomed over the past several quarters.
Cloud
Cloud
Throughout 2010, Microsoft has pushed what it calls an “all in” cloud strategy, which mostly involves pushing a variety of cloud-based IT services to both corporations and consumers. That strategy seems in part a response to companies such as Google and Salesforce.com, which forcefully argue that Microsoft’s desktop-centric software model is rapidly becoming outdated.
However, Microsoft executives argue the company is well on its way to embracing the new paradigm. It insists that Azure, its cloud-development platform, boasts more than 10,000 users. Under the “all in” cloud strategy, Microsoft has increasingly positioned itself as the company whose subscription services can remove much of the cost and complexity associated with on-premises IT infrastructure. In addition to those services, Microsoft is also planning a program, code-named “Dallas,” that will pull together enterprise and cloud data in a way that allows companies to make more informed decisions-which will allow Microsoft to compete more heartily in the analytics category against both IBM and Oracle.
“There’s nothing bad for us in the trend. It’s all good,” Ballmer insisted during the D8 Conference in June, in response to a question about the cloud’s challenges for Microsoft. “But it’s a transition, and as such it’s a period of tumult. So we need to be smarter and more vigilant. But not because we’re moving from a world that’s fundamentally good for us to a world that’s not. We’re moving [from] a world that’s good for us to a world that’s potentially even more good [sic] for us.”
In June, Microsoft first announced the availability of Office Web Apps, which offered stripped-down versions of Word, PowerPoint, Excel and OneNote via the cloud. This arrived as the company ramped up toward the release of Office 2010 and SharePoint 2010, the next versions of its flagship productivity software.
A few months later, in October, Microsoft offered a glimpse of the cloud-based Office 365, which consolidates Microsoft Office, SharePoint Online, Exchange Online and Lync Online onto a unified platform. “With Office 365, we’re delivering everything we know about productivity as a subscription service,” John Betz, Microsoft’s director of product management for Business Online Services, told an audience during an Oct. 20 session at the Gartner Symposium/ITxpo 2010. “We’re also updating the back ends of Exchange Online, SharePoint Online and Lync Online to the 2010 version.”
Microsoft also touted Office 365 as a customizable platform, allowing companies with simpler needs to access fewer products for a lower monthly fee.
With the strengthening of its cloud-based productivity and communications offerings, Microsoft has found itself in increasing conflict throughout 2010 with Google, which competes for many of the same enterprise and government contracts. In October, New York City Mayor Michael Bloomberg and Ballmer announced a partnership that would bring BPOS (Business Productivity Online Suite) to around 30,000 city employees. That followed Google’s own agreement to provide cloud-based applications to City of Los Angeles employees.
A recent survey by IDF Research Services suggested that 75 percent of companies are either integrating cloud-based solutions into their IT infrastructure, or plan to do so over the next five years. In conjunction with moves toward cloud services by various government entities, that means an increase in the pool of contracts potentially available to both Microsoft and Google-and to their competitors.
“There’s no doubt that businesses are talking to Google, and hearing their pitch,” Tom Rizzo, senior director of Microsoft Online Services, blogged Dec. 1 in response to Google’s winning a contract to provide Gmail and Google Apps to the General Services Administration, “but despite all the talk, Google can’t avoid the fact that [often] they cannot meet the basic requirements.”
Even as Microsoft plunged into the cloud, though, it lost one of the key figures arguing for the transition: Chief software architect Ray Ozzie resigned Oct. 18 for undisclosed reasons.
“With our progress in services and the cloud now full-speed ahead in all aspects of our business, Ray and I are announcing today Ray’s intention to step down from his role as chief software architect,” Ballmer wrote in an e-mail that day. “He will remain with the company as he transitions the teams and ongoing strategic projects within his organization.”
Ozzie’s departure made him the latest in a series of executives to leave Microsoft during 2010. In September, Microsoft Business Division president Stephen Elop had stepped down to take the CEO reins at Nokia, and an earlier shakeup within the company’s Entertainment & Devices division had seen the departures of both Robbie Bach, that unit’s president, and J Allard, its senior vice president of design and development.
But Ozzie had been responsible for the entire company’s spearhead into cloud and social-networking spaces. His FUSE (Future Social Experiences) Labs incubator had focused on software related to social-connectivity, real-time experiences and rich media; its initiatives included Docs.com, which allows Facebook users to create and share Word, Excel and PowerPoint documents with PDF support and full-text search. His departure, coming in the midst of such a massive paradigm shift, was somewhat startling.
Nonetheless, Ballmer in October defended Microsoft’s ability to proceed into the cloud without Ozzie. “We’ve taken a strategic direction anchored in the cloud,” he told an audience at the Gartner conference. “That vision is our company strategy. It doesn’t live in any one head or mind.”