Microsoft has been busy revamping its entire business model, hoping to change years of losing market share and profits and create a new, bolder, more dynamic company. Is this do-able? Yes. Will they follow through? Maybe. MS has a history of going into bold new directions and then suddenly stopping because they failed to find a market for the idea – or were beaten to the punch by leaner, faster rivals.
In this case, it’s probably do-or-die for the Redmond giant, though. They need to do something and soon or they’re going to eventually go the way of America OnLine, struggling to find a place as their relevance and market shares shrink towards oblivion.
So how can we know that Microsoft is embarking on a bold, new strategy and what, exactly, that strategy is? Easy. Look past the public relations statements and instead focus on what the company has actually been doing (acquiring, investing in, building) and what their statements to shareholders and government regulators have been in terms of required disclosures. From those, we see a fundamental shift in MS’ business model is happening.
Up until very recently, Microsoft has been focused on selling software. Most of its income has been from Windows-related offerings such as their operating systems, Office products, and so on. Some revenue has been seen from other investments and smaller projects, but the bulk of the MS income stream has been through Windows and its kin.
Annual reports to shareholders this year, however (i.e. the company’s 10-K for 2012), that’s changed. The word “services” is used a lot. By a “lot” I mean it’s become dominant. Add to that the corporate moves that Microsoft has made in the past year or so, including acquisitions and investments, as well as the addition of a brand new idea for the company – a branded, MS-owned hardware item (Surface) – and you see a bigger picture.
Microsoft has said it was going “all in” with the Cloud, but that seemed like just more rhetoric to appear relevant. Except it’s not. MS has been investing heavily in cloud-based services and infrastructure and has made product announcements through Office and others that it will be offering those through Office 2013 as a software as a service (SaaS) option called Office 365. Thus, the company will be taking its best-selling software and offering it as a cloud-based option for small businesses and individuals turned off by its large up-front cost to purchase outright. They tried this with Office XP, but did a horrible job of it. They might get it right this time, but we won’t know for a few months yet.
What about the aforementioned Surface? Many believe this is a marketing scheme to help stimulate hardware providers around MS products to get more creative with their marketing and offerings. Except that’s not how Microsoft has done business in the past. They’ve usually collaborated to try to build hype rather than used underhanded means to force it. Instead, it’s more likely that MS is serious about Surface and plans to actually do something with it. Further, the 10-K they released for 2012 shows that Microsoft is planning to “invest in new software and hardware products, services…” That’s a phrase that’s never been seen in a Redmond 10-K before. Usually, they use the term “partners” next to hardware in similar phrases from past 10-K filings.
So here’s what to expect: Microsoft is going to start releasing more hardware branded with the MS logo. Further, it will push more things into the cloud to be offered as freemium or SaaS options to attract small businesses and individuals. Finally, Microsoft will begin to push these services towards more gadgets outside of the desktop.
Will this work? We’ll see.