The Challenges Ahead at Microsoft

The strategy is devices and services. Here’s why the One Windows Mantra may [still] screw that up…

Satya Nadella may be the new CEO, and he may have 22 years at Microsoft already; but he’s got one hell of a job in front of him. Microsoft is a company VERY set in its ways. Hell froze over; and now Nadella has to figure out a way of getting Microsoft out of the rut they find themselves in. It isn’t going to be easy; and I do NOT envy the spot that he’s in. Everyone both inside and outside the company will likely expect it to get worse before it gets better. I would also expect to see a great deal more personnel churn before all is said and done.

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In the end, Microsoft needs to change. Devices and services are, I think, a direction nearly everyone can agree is the right way for the company to go. However, its execution is going to grate against the growth rings of yesterday. In other words, in order to make devices and services work for Microsoft, they’re going to have to become very good at both Android and iOS development. This means that they’re going to have to put development for ModernUI/MetroUI on the back burner. I mean, no one – in reality, very few shops – are even really doing Windows Phone or Windows Store development. The biggest reason why Microsoft won’t leave Metro development behind isn’t because it’s a bad business decision, but because in order for them to do so, they must embrace a non-Microsoft based product and technology; and Microsoft just doesn’t handle that well. Case in point – Microsoft Office for Mac. Where’s the next version that we’ve been promised? Based on previous releases, it’s over a year late…

The Nokia X is the Android phone that will “carry” a Microsoft brand if not in fact, at least in perception, as Microsoft is in the process of buying Nokia. Microsoft having an Android phone as part of a low-end offering makes a lot of sense. Low end Android devices sell very well, appealing to budget conscious Americans and to users in developing markets. Microsoft already makes approximately $3.4B annually from Android device sales thanks to patent agreements that it holds. With the coming Nokia acquisition, Microsoft could make a ton more from Android smartphones that it sells, if only because Microsoft won’t have to cover patent licensing fees and can undercut the market as a result. They may be able to successfully take on Android-powerhouse Samsung in this market, and win, as a result.

Even though Android currently commands more than 75% of the smartphone market worldwide, and Microsoft stands to make tens of billions of dollars in that market, it’s likely they will kill the Nokia X shortly after it launches and/or the Nokia deal closes. Microsoft did something similar to the Kin 1 and Kin 2 phones that it had spent so much time and money developing; and only after 1 month of sales. Microsoft would have no problem killing the Nokia X.

Why would they do that? It’s really simple – the One Windows philosophy still dominates their culture. In the heart and mind of every ‘Softie is the idea that Windows is good everywhere. It works and fits on every device. If that were true, then Windows RT and Surface RT/Pro devices (RT especially) would have been better received. If that were the case, Windows Phone devices would have a real piece of the smartphone market. If that were the case, we wouldn’t be discussing how Microsoft will likely kill the Nokia X Android smartphone because it simply wouldn’t need to exist in the first place.

Microsoft has to figure out a way of getting past the notion that Microsoft services can only run – and run well – on Microsoft platforms and devices. For example, Outlook.com should run well in any and EVERY browser. Currently, it’s optimized for Internet Explorer. Most other browsers can get to the site and can muddle through tasks, but they don’t work quite right.

I’ve said it before, Microsoft should skin the Android implementation on the Nokia X in such a way that it looks and functions like a Windows Phone. Microsoft Services like Outlook.com, Microsoft Office 365 and Microsoft OneDrive should all run and run well, not only on Android, but on iOS; and they should run SO well that people will want and desire them over Google Drive, Google Docs, iCloud and iWork.

The latter is easy. iWork still isn’t as cross platform as it could be or should be, and integrating iCloud into iDevices is so difficult that developers shy away from it or use another cloud service like Dropbox instead. Microsoft has an opportunity to move ahead of Apple in this regard, but needs to really put its head down and work when it comes to Google Services integration on an Android device. While both are good (OK in the case of Apple and its Services) on each of their respective native platforms, if Microsoft could bridge the gap and be good EVERYWHERE, this would go a long way to building device agnosticism into Microsoft products and into their culture. Microsoft will need both if they are going to remain relevant and profitable in the next 10-20 years.

Finally, Microsoft needs to change the way it does business. While Microsoft can still make, literally, billions on licensing Windows in the enterprise and getting OEM’s to pay for Windows when they build and sell PC’s, that business model is dying. If Microsoft is smart, it will abandon it sooner rather than later. There may be money left to be made in enterprise licensing, but if Microsoft is smart, it will begin shifting the focus of monetizing the software license to one that monetizes the service driven by the software.

This means that Microsoft will have to develop software for all platforms and give equal prioritization to releases on all those platforms. If it does turn sideways, this is where Microsoft will screw things up. Entrenched management will have a hard time shifting out of this gear. The whole “Windows first” philosophy that has dominated everything that Microsoft has done as a company over the past 20+ years will have to change. I think their current management team – maybe at all levels – will have trouble making the turn. Successful implementation of “devices and services” may require a huge, HUGE management shake-up at Microsoft. I just have my doubts about how well the company will be able to make the transition with current, entrenched management still walking the One Windows Way. Nadella is going to have be beat the devices and services drum very loudly in order to get everyone’s attention.

In the end, it IS all on Satya Nadella. As the new CEO, he has to set the tone for the new strategy at the company; and he needs to get that moving quickly. The longer it takes, the harder it will be for Microsoft to make the turn and rebrand itself as a company that provides computing services rather than one that provides computer software.

What do you think? Is Microsoft going to be able to recreate itself or will additional management and SLT (senior leadership team) changes be necessary? I’d love to hear what you have to say. Why not join me in the discussion area below and tell me what you think.

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