Microsoft recently posted its first-ever quarterly loss, marking the end of a 26-year run of profitability. The loss was associated with Microsoft's 2007 acquisition of aQuantive. As a result, a chorus of voices on the web think Microsoft's done, no longer relevant, and Ballmer must go. The recent Vanity Fair article describes Microsoft’s "Downfall." Forbes listed Ballmer as one of the worst current CEOs. Is Microsoft another victim of Apple (along with RIM, Nokia, Blockbuster, and others)? I don't think so.
One loss reported in 26 years! A bungled acquisition that took place in 2007--join the club. The fact is, Microsoft is about to make some big changes. The risks are high, as are the rewards.
Microsoft is attempting to turn its mighty ship in very short order. After years of planning, it's about to make frontal attacks on Apple (iPad, App Store, Mac); Google (Google Docs/Google Apps/Android/Motorola); Dropbox, Amazon (AWS); and a good portion of the UC vendors and carriers, with a slew of new offerings in the next few months. The company's vision is becoming visible.
First, the iPad. No vendor has been able to take on the iPad. RIM, HP, Cisco, Avaya, Amazon and even Google (including Samsung, Motorola, and others) haven't made a dent. But realistically, Apple can't hold its market share forever (As Microsoft could not hold its). The iPad was first launched in 2010, and it took several more months to determine it was a hit. Cisco and Avaya only targeted enterprise customers, HP gave up upon launch, and RIM is plagued with issues. Google responded with several tabletifying updates to Android, but only its latest, from just last month, might be a viable contender. Microsoft only recently threw a hat in the ring with its Surface announcement.
But Microsoft has an ace up its sleeve when it comes to tablets: Microsoft Office. Tablets are just hardware; their value is derived from the apps they run. Apple has the most apps, as well as economies of scale in manufacturing, and ongoing revenue from App Store purchases. Unlike the Android ecosystem, one company (Apple) earns profit on each iPad sold and each app purchased.
Microsoft Surface could bring the apps (and developers), and Microsoft announced a store and its own hardware. The coming battle won't be over the hardware, but the applications. The iPad will likely have a better display, better battery, larger screen, and more apps, but it doesn't appear to be getting Office. If Microsoft delivers a decent tablet (directly or via partners), with a superior Office experience, then Office could pull over a lot of users--especially in the enterprise.
Microsoft intends to continue leveraging Office for UC as well. Let's look at some of Microsoft's visible cards:
Skype: Skype is now supporting 250 million monthly connected users, compared to 170 million at the time of acquisition just eight months ago. There is no bigger UC network. In Microsoft's most recent quarterly earnings announcement, it revealed that Skype users logged 115 billion minutes of calls last quarter; that's over 50 percent higher than the prior quarter.
Enterprise Apps: Microsoft's Business division accounted for the company's highest profit, with $15.7 billion in revenue for the year. Exchange, SharePoint and Lync had double-digit growth rates in Q4, and Lync grew 45 percent. That's impressive since it is still a 2010 build--no other major UC vendor is still shipping its 2010 release. However, Lync 2013 is coming with new features such as multi-party HD video, H.264 SVC support, and voice and video support over the web app, plus VoIP to mobile clients. Also, Lync 2013 will be able to federate with Skype for IM and voice. Skype and Lync together are positioned to provide another example of Metcalfe's Law.
Windows 8. The concept makes perfect sense. If Microsoft pulls it off, Windows 8 will offer a single OS for tablets, phones, and desktops--including a single application ecosystem. It is a good strategy, but success lies in execution. Vista is still in the short term memory of both customers and Microsoft itself.
Office 2013: Office is the lynchpin--it crosses the boundaries of Windows and Macs, Business and consumers, SMB and enterprise, and soon desktop and mobile. Office 365 is tightly integrated with SkyDrive for access to files from anywhere. Office touches Lync, Exchange, and SharePoint, creating a strong fortressed value proposition aimed directly at Google Apps. Lync Online will expand Lync to SMB users. Office will also offer an hour of free Skype calls per month.
Microsoft will use Office to expand its UC portfolio in both enterprise and SMB with a strategy that involves integrated cloud and mobile solutions.
It's a strong hand, but we still can't see all the cards.
Yammer? Perceptive Pixel? Azure? And then other related assets such as Nokia? Yahoo? and potentially, RIM? Also, Microsoft has some tremendous benefits internationally such as the fact that its Nokia phones are supported on all three of China's mobile carriers.
Game over? Far from it. The fact remains that never before have Exchange, Windows Server, Windows Desktop and Office had such viable alternatives. Apple enjoys a tremendous head-start in mobility and brand affinity. Google has solid momentum in education and Government, and a huge head-start in mobility. Microsoft is jumping into several fronts simultaneously, including hardware design and direct sales. Another danger: Forbes reports that Microsoft can now eavesdrop on Skype calls, which may result in a backlash.
Dave Michels is a contributing editor and an analyst at TalkingPointz.com
