There is plenty of speculation in the industry this quarter about the future of Microsoft given the challenges facing Windows 8. Microsoft reported flat revenues in the Windows Division today, citing the transition in the PC industry overall.
The good news is that Microsoft is a diversified business with strengthening enterprise multi-year licensing revenues of 16% as one good sign. New licensing models for Office and the release of Microsoft Azure IaaS platform are both positives, with Online Services Revenue up 18%.
To help add colour to these results, we've collected comments from several Forrester analysts with direct coverage responsibility for several areas of Microsoft's business, including J.P.Gownder, David Bartoletti, James Staten, Christian Kane, Christopher Voce, Richard Fichera, and yours truly:
How will the Windows 8 situation affect Microsoft as a whole? (David Johnson) Microsoft is in the throes of a market misfire with Windows 8, but it's diversified as a business enough to get through it, and the rumoured forthcoming Windows Blue update to Windows 8 promises to address Windows 8’s shortcomings as well. Meanwhile, Microsoft is executing well in many areas, including Windows Server 2012, and Windows Azure. While there are revenue and technology dependencies between most of the elements in the Microsoft portfolio, the installed base of Microsoft Windows on the desktop in earlier versions is enough to sustain profitability as it moves to get its groove back on the desktop and mobile.
What will the effects of a Windows 8 misfire be? Temporary. (David Johnson) And we think Microsoft is learning that some of the assumptions it used in deciding to make tablets the leading strategy for Windows 8, were flawed. For example:
- Corporate manageability is not necessarily an advantage to individual tablet buyers. (David Johnson) Consumers and business consumers are leading the charge with tablets and want their companies to support, but not manage them. It turns out that this is reasonable for iPads but more difficult for Windows 8 devices because Windows takes a lot more care and feeding than iOS at the device and application level, and the audit and security requirements for Windows 8 devices are higher. This high-touch management requirement remains a serious underlying risk in Microsoft's Windows 8 tablet strategy.
- A full Windows desktop on a tablet device may not be so critical as touch apps evolve. (J.P. Gownder) Non-Windows tablets are holding their own for more and more use cases, and it's the combination of the experience of lightweight, easy to use features, high quality, and a rich app experience that people are after. While Windows 8 brings the Windows desktop to the tablet, it's not clear yet that buyers are willing to take compromises in the other things they currently value about non-Windows tablets to get it
Microsoft underestimated the implications that corporate PC management policies would have for company-owned Windows tablets. (David Johnson) Companies are already talking to Forrester about how to get to a single image across different brands and models of Windows 8 tablets, and how to lock them down given the new Windows Store capabilities, etc. In contrast, our conversations with clients on iPads have moved from basic policy and control to how to let employees have the native app experiences they want, but secure the apps on the device and keep data transmissions to corporate systems secure.
Apple has made sure that employees will always be able to install software from the Apple App Store, so people see an iPad as more of a personal freedom zone. Corporate management only matters to corporate buyers, but not to business consumers. Microsoft needs to find a way to improve the worker experience on corporate-owned and managed devices to keep competitors at bay.
Microsoft's tablet strategy is partially flawed, but there is still time to fix it. (J.P. Gownder) Microsoft desperately needs a tablet experience, it needs to move people into that experience to compete with Apple and Google, and that experience needs to be fresh and different. At the same time, its existing Windows installed base customers crave familiarity and consistency. Of course anyone can Monday-morning quarterback, but perhaps it would now be better to:
- Develop a version of Windows for tablets that's fresh and new, and where touch is king, but the standard Windows desktop is there when needed (which we have).
- Develop a version of Windows for laptops and desktops where the mouse and keyboard are king, and familiarity is essential, and touch is available for devices that can support it (hopefully coming with Windows Blue).
- Keep commonality and interoperability where it makes sense. If they share commonality for essential management and security, and the tablet version is optimized for tablet hardware, this could be a viable strategy in the future as well.
Office is still king of the productivity suite hill. (David Johnson) Microsoft needs a polished version for iOS and Android devices (at least for now) to keep competitors like Google Apps, QuickOfficeHD, and Apple’s iWork at bay. A failing Windows 8 strategy opens the door to alternatives to gain ground where Microsoft is not: on non-Windows tablets.
Windows Software Assurance insulates Microsoft from upgrade apathy. (Chris Voce) If companies don't move in droves to deploy Windows 8 across the enterprise, does this have catastrophic implications on quarterly revenues? No. A significant portion of Windows revenue comes from Microsoft's annuity maintenance relationship - Software Assurance (SA). Companies invest in SA in 3-year cycles. Whether or not a company deploys Windows 7 or 8 is irrelevant; they're still paying Microsoft the same $$.
When Microsoft introduced SA over 10 years ago, the main selling point was that it granted rights to deploy any new versions of software so long as SA was active. Microsoft has been trying for years to shift the focus from upgrade rights to other "benefits" like the right to install the Enterprise editions of Windows 7 or 8.
So when companies elect to skip a version of Windows, the impact on revenues is somewhat muted. Enterprises are paying the same in SA whether they run Windows 7 Enterprise for the next 5 years or the latest version of Windows - and Microsoft books that revenue every quarter.
Microsoft lays down the price gauntlet in the public cloud. (James Staten, David Bartoletti) On Tuesday, Microsoft announced GA for its IaaS public cloud service, which has been in preview since last summer. This extends Azure even further, after a solid year of enhancements to the PaaS platform, which included more Linux support and expanded open source developer toolkits.
James Staten covered this expansion of the Azure public cloud into Amazon AWS territory yesterday and noted how it’s mainly a me-too entry into the cloud infrastructure market, but that’s a good thing. It means more competition and even more options for Azure’s 200,000 customers to extend their production application workloads to the public cloud. In a bold move, Microsoft hasn't just entered the public cloud market, it's kicked the door in by promising to match Amazon Web Services continually falling prices.
Increasingly it’s not about PaaS vs IaaS clouds any more - it’s about the hybrid, extended enterprise, where customers can build and deploy production apps wherever they find the right tools, the right price, and the right SLAs. And plenty of these production apps are Microsoft apps, of course. Microsoft has made it even easier (and cheaper) to extend those to Azure with a host of validated instances ready to run your critical MS workloads. Cloud getting faster, easier and cheaper? We’re in.
Posted by David Johnson