More Thoughts on Microsoft

So, my earlier blog post prompted some interesting discussions around the office. (See Microsoft Has So Much Promise...But Can't Seem to Deliver). Many thought I was a bit too harsh in chastising Microsoft for their direction and business sense. Here are a couple of quotes that typify the "pro-Microsoft" side of our office:

I'm glad Microsoft isn't rushing. If the next release is anything but perfect they're done. iOS 8 being rushed is the reason it sucks so bad.
I think it's an overstatement to say they're [shooting themselves in the foot] when they make record revenue and profits just about every quarter. They have been reactionary since Windows 95 but it's tough to argue with their bottom line.
I like a good debate as much as anyone, but let's look at a few things:

First off, Microsoft's revenue is up, but overall profits are down for 2014. The corporate side of their business is doing fine and because Windows XP is no longer supported, more and more business and consumers are having to upgrade, which is helping increase revenue Ironically, most of those upgrades are to Windows 7. More on that in a bit.

Secondly, although the XBox One hasn't really done what they wanted it to do, it has increased revenues compared to the XBox 360 volume. OF course, growth of the XBox One is partly driven by some tactics unheard of from Microsoft in the past: lowering of its price in the UK to help drive sales.

Next, Microsoft's services business has done well and their advertising revenue has jumped 15%. This is driven by the Azure platform, which, by all accounts I've read, seems to be a very robust and reliable platform. We're hoping to have more info on this in a future blog post. Their ad revenue is growing due, in no small part, to the fact that its about all that's available for Windows mobile. Ad networks like Google's AdMob, RevMob, Vungle, AdColony and others don't offer Windows SDKs for their services. AdMob has one for Windows 8, but with the push to Windows 8.1 on mobile, and no indication that Google is modifying their SDK to support 8.1, Microsoft's PubCenter is about the only game in town.

Finally, about 15% of Microsoft's stock value is based on its Windows operating system and desktop sales. Overall revenue has declined about 8% in this area.

Microsoft is a very diverse company with a significant amount of revenue coming from the enterprise, and that side of the house is doing fine. What is kind of funny is that the slow and steady transition of enterprises from Windows XP to Windows 7, and eventually to Windows XXX, has really helped Microsoft avoid a giant catastrophe. The current model corporations follow for the upgrade of their infrastructures is about every 5 years. That means that, essentially, the enterprise gave Microsoft 5 years to get Windows right.

However, the consumer market is struggling and Microsoft just can't seem to get any traction in it. If Microsoft continues to stumble and not win the consumer market, it will start to impact their enterprise business. Microsoft's initial entry into the enterprise was because they won the desktop. The question is, about 2 years from now when that 5 year cycle hits, will Microsoft have done what they needed to do to encourage upgrades enterprise level?

Over the years, Microsoft had the luxury of selling Windows to the consumer in the same way they sold it to the enterprise, using the same update systems, the same software life cycles, etc. With OSX, Apple changed all that, pushing free upgrades to their core OS, across all devices, and making sure the vast majority of their users are on the latest and greatest. And, that philosophy and strategy has been successful for Apple. So much so that it's making Microsoft now have to re-think how they market, sell, distribute to the consumer while still managing the enterprise. Clearly this has been a struggle.

On the flip side, Apple has no idea how to manage the enterprise. Apple's release philosophy is counter to the enterprise model. Therefore, there is very little threat to a substantial portion of Microsoft's revenue in relation to the enterprise but they are at risk of losing the consumer market. So we come full circle and back to my initial blog post;

Microsoft should be releasing an updated Windows, complete with the UI changes, prior to the holidays or they risk losing the consumer market entirely.

The Windows Experience is impacting the entire Microsoft brand and making it very difficult for the Windows Phone or Surface to get traction. Over the holiday season Apple will sell 50 million iPhones. About 50 million PC's will be sold over the holiday season as well. A new, exciting Windows release that focused only on usability would align very well with the $400 million Microsoft spent to promote the Surface with the NFL and would give the Windows Phone and the Surface Tablets a much needed boost! Instead, Microsoft blew their NFL marketing campaign by not coordinating some of the Windows improvements. Maybe if they had done this, NFL analysts would start referring to their tablets as "Microsoft Surface" tablets and not "iPad-like devices."