What Microsoft Should Do Next

Microsoft Vision

I just returned from New York, and it was clear that Microsoft, Apple, Google and Amazon are gearing up for their holiday season sales, and of course this was the weekend before Black Friday, so there was clear pressure to get customers into stores by showcasing the most exciting new technology.

Their prospective customers were presented with a clear proposition around products, clearly saying, “here is what you do, this is what you get”. Unless you were looking at Microsoft’s displays, where users were playing with Windows 8, Windows RT, Windows Phone and Xbox, without a clear messages for how these systems tie together and which one (or combination) you should buy.

With Microsoft’s long-term CEO Steve Ballmer poised to retire next year and the board looking for a successor who can accelerate his plan to reinvent Microsoft as a “devices and services” company, it’s clear that big changes are coming; and possibly can’t come fast enough. However regardless of who is chosen to lead the company, there is a wide range of ways to envisage that strategy.

I believe Microsoft’s future lies in mobile and ubiquitous computing, using the Azure cloud platform and embedding Microsoft services (including future versions of Windows and Office) into as broad a range of devices as possible, rather than fighting ecosystem wars with Apple and Google. In fact, far more value could be generated by moving away from the current view of technology as a “zero-sum game”.

The Google Problem

Google is the most obvious challenge to Microsoft, and one which is going to need a creative solution. Google is undermining all of Microsoft’s core businesses, from desktop with Chrome OS to office software with Google Apps, while ensuring that all its activities draw more traffic to its own core search business.

While it’s still arguable whether Google’s view of a cloud-centric future where all services are provisioned at the cost of mining users’ data is the future we all want, what is not longer in doubt is that the future will be mobile and powered by strongly connected data.

This means that the battle is to provide a user experience that is available everywhere; to become a reliable constant in a rapidly changing world. Much like IBM and Apple when faced with Microsoft’s dominance with Windows, Microsoft needs to find an intelligent solution to the Google problem which both companies can live with and return their focus on delighting users.

Of course, the challenge with trying to come to terms with Google is that it requires Google to be willing to come to the table. In recent years, Google has looked increasingly antagonistic as it has tried to build rivals to its competitors’ key products, but there are signs this could be changing.

Firstly, it’s unclear to what extent Google has actually intended to take over the desktop and office software businesses; even the runaway success of Android was started out of fear that Apple would dominate the mobile market and be able to demand concessions in exchange for allowing Google’s services.

This implies that Google would (quite rationally) prefer a market in which its services are freely available across a range of operating systems, but will not accept being put in a position of existential threat. Windows doesn’t threaten Google, but trying to replace Google search with Bing (for example) does.

Secondly, the latest offerings in the Android ecosystem support my belief that Google is trying to move away from the more antagonistic elements of Android to focus instead on making Google services interoperate better and provide a smooth user experience under the Chrome brand. The Chromecast USB dongle, the Moto X and now Nexus 5 smartphones all move towards this future state.

Embed Microsoft Into All Devices

Rather than focusing on the presence of a single product, Windows, as the definition of a Microsoft device, Microsoft would be better served by ensuring that Microsoft services can run anywhere. The key service is of course Office, but the Azure cloud platform is also gaining traction and is a very effective way of getting enterprise services onto the cloud.

Microsoft has had a remarkable run of selling almost identical services to enterprises and consumers, and while devices are now becoming more differentiated we are demanding access to services everywhere, all the time. While traditional PCs are a saturated and declining market, the total number of connected devices is set to continue growing and if anything they are becoming more “personal” computers.

Further, Microsoft already gains a significant income from patent licensing in Android sales, showing that the company is very capable of surviving in a world where not every device runs Windows. As Office remains the most feature-rich and compelling office software suite there is the potential for a lot of revenue if Microsoft creates fully-compatible versions for iOS and Android.

It’s not only Office that could benefit from this approach: Microsoft has a long history of developing fascinating technologies that it simply can’t get out into the consumer mainstream. Skype, already one of the world’s favourite VoIP services before Microsoft bought the company, is starting to look like the next of these.

Very little seems to have been done since the acquisition to embed Skype deep into all Microsoft services and make it the default messaging tool for all Windows users. Microsoft needs to take a good look at its suite of products and identify ways to rebuild as many as possible as cloud-based services, from the Dynamics enterprise suite through the business analytics services to more consumer-oriented software.

Further, Microsoft shouldn’t assume that a standard subscription model will always be best: especially in consumer markets I would recommend considering other models, not just “freemium” either but genuinely different ideas such as purchasing a “run time” of a service, like on a pre-paid mobile phone.

I also wonder whether devices like the Chromecast might provide a glimpse of Microsoft’s future: Chromecast essentially runs Android with the Dalvik software, which runs apps, removed to make a very low-power device that does one thing well. It is entirely possible that some form of Windows kernel could be built into devices without requiring them to run full versions of Windows, thus providing cheap, easily integrated devices for the connected home.

The internet of things is likely to finally become reality in the near future, and will provide a wide array of devices for Microsoft services to run on as computing moves from fixed endpoints to a world of mobile and ultimately ubiquitous computing, whether through wearable technology or interconnected smart devices. In this world, long-term dreams such as the “connected living room” are actually bypassed, as consumers will achieve the connectivity functions of this through devices with far greater utility and flexibility than any box in the corner of one room.

Sell Bing & Xbox

There are two Microsoft divisions that I believe the company would be well advised to sell off, and these are Bing and Xbox. I know that many readers will be surprised by this, but I am not saying this just to court controversy: neither is core to Microsoft’s business; neither will help it refocus; and both could in fact be holding it back.

Bing is clear evidence that Google is far from the only company that feels sufficiently threatened that it tries to compete with its rivals’ core business. Microsoft has invested heavily in Bing in an attempt to create a rival search engine to Google, and then baked it into Windows. Not only is Bing the default (though changeable) search engine in Internet Explorer, but it also powers Smart Search, a key feature of Windows 8.

The problem for Microsoft is that Bing directly threatens Google’s search dominance and the lion’s share of its revenue from advertising. However, with Apple forging closer links with Yahoo in a move that is very clearly aimed at Google, removing Bing could signal an increased willingness on Microsoft’s part to work cooperatively and reverse the trend toward “walled gardens” on the internet; something that greatly concerns Google.

Xbox, meanwhile, is a product which doesn’t create rivalries but which does not further Microsoft’s core business interests as well as a different strategy could. Microsoft has been truly visionary in the area of the “connected living room”, and technologies such as Kinect are genuinely innovative.

However even without the bypassing of the “connected living room” discussed above, the Xbox has one major drawback: it’s viewed as a games console. Gamers are an intensely tribal bunch and they are both firmly split and intransigent in favour of PC, Xbox or Sony’s Playstation as a preferred gaming platform. As such it’s also far less likely to appeal to consumers who don’t consider themselves to be gamers: its other connectivity functions have to battle with smart TVs, traditional PCs, and tablets for consumer attention.

Consumer behaviour has changed radically since the early 2000’s with the rise of mobile, and getting consumers to buy an integrated media-consumption device is no longer the challenge. Rather, in a world where highly mobile devices have the power of full size PCs and will play media from any source simply by launching an app or logging into a web service, the idea of a dedicated media player seems curiously anachronistic.

As the Xbox division is also reported to be a significant money-loser for Microsoft (in part due to R&D investment) along with Skype and Surface, this is a prime candidate to sell off; instead, Microsoft should focus on creating the best media services that consumers will clamour for on whatever device they own.

The rise of web services such as iTunes, Amazon, Netflix and so many others shows that the real battle for consumers isn’t about devices but content, and the increased focus of both the Google Play store (rebranded from an app market for Android) and the new Xbox One as places to get films and music as well as apps and games shows that the big players are well aware of this. The next logical step for Microsoft is to separate the valuable content business which will draw in and keep new customers from its Xbox gaming platform.

This isn’t to say that Bing and Xbox are bad products and that they should cease to exist. Rather, as non-core businesses for Microsoft they are distracting the company from its true priorities and might be more successful if run as separate businesses.

In an industry that has become increasingly fragmented and lost in battles that end up harming users, the next Microsoft CEO will have the opportunity to repair some of the damage and set the company on a course that will steer it through the next wave of innovations.

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David Akka is Managing Director at Magic Software Enterprises UK. David is a successful executive manager with a proven track record as a general manager with a strong background in sales, marketing, business development and operations. Past experience in technology and service delivery include both UK and European responsibilities.