Microsoft Speaks

Microsoft Corp. executives, including CEO Steve Ballmer, were on the road this past week speaking to a multitude of strategic issues across the company’s many platforms.

Focal Points:

• Ballmer discussed the strategic importance of its Skype acquisition earlier this year, which was priced at nearly 32 times the messaging platform company's operating profits. Skype is intended to fit into Microsoft's business communications strategy, which houses the corporate Lync Server and instant messaging applications at its core. The integration of the two products will deliver a mashup that allows Lync's facilitates for internal corporate messaging to interface with the global phone system powered by Skype. Ballmer stated that his belief in the strength of this marriage is due, in part, to Lync's strength as the fastest-growing product offered by the company. It should be noted that many corporate customers acquire Lync as part of enterprise licensing deals; the number of active Lync users may be substantially lower than sales numbers suggest. Lync is also available as a hosted service as part of Microsoft Office 365. Also on the cloud front, Microsoft is deploying its Dynamics ERP to the cloud and will begin offerings service early in 2012. Ballmer noted that Microsoft's CRM and ERP software account for $1 billion in annual revenues and "hundreds of millions" in profits, though the company was aiming to quickly build that into a $10 billion business.
• At a Microsoft-sponsored event for students, Ballmer noted the importance of the company's Bing search service and core technology to the company's long-term strategy. Though the company currently loses billions of dollars annually with Bing, Ballmer believes the technology will fuel the company's future growth thanks to research and development that he believes is transformational. The CEO, who says Bing is the thing he's most excited about at Microsoft, notes that today's current search engines excel at finding resources but fail miserably at delivering resources that necessitate actions. Alternately stated, a search engine can find landing pages where content lives but is unable to take the user contextually deeper into a Web site's resources while incorporating user-specific attributes including location-based, login, and name identifiers. Microsoft's grand design is to allow Bing technology not just to find resources but to expedite tasks based on natural-language type requests. 
• Microsoft's mobile strategies have been disappointing to the company and to long-time fans hoping to make the most of an all-Microsoft ecosystem. Windows Phone President Andy Lees explained the company's design for its mobile devices is to integrate with an ecosystem wherein Windows 8 will ultimately run on smartphones, tablets, and PCs. He also explained that why Microsoft chose not to port Windows Phone 7 to tablets, citing the company's view that tablets usage is more akin to the PC than the smartphone as users desire functionality including USB peripheral access and printing. With the release of Windows 8 targeted for 2012 and the company's focus on building out an ecosystem, this may signify that the poorly-received Windows Phone 7 platform may be replaced sometime next year.

Experton Group believes Microsoft's vision of an all Microsoft ecosystem is an updated version of the design it has been pushing since the first days of network-connected devices. The company has seen its share of failures and successes of late, and should be better able to understand how its product development strategies need to align with market maturity and customer behavior to better increase its chances of success. The company’s biggest wins are those where it either helped to create the competitive landscape – like the Windows desktop and server platforms – and where it leveraged the strength of business partners to make a splash, as is the case with the Windows Xbox.  An ecosystem designed with Windows at its core is even less compelling than it has been previously. Much has been said regarding the "consumerization of IT," wherein lines of business (LOBs) and end users are driving the adoption of new technologies. This trend has taken hold in all but, and in some cases including, the most security-conscious corporations. Customers are increasingly selecting the most compelling platform and looking for open means of technology integration – a requirement Microsoft's corporate products have adopted slowly and only as the result of public admonition, outcry, and potential customer attrition. IT executives should expect many of the products and services Microsoft is building for the corporation to be compelling, but requiring a few iterations before platform bugs and openness allow for integration with the non-Microsoft world. IT executives should pilot new products in spaces where business and technical requirements are met, particularly when enterprises are already invested in previous Microsoft solutions.