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7/22/2014
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Microsoft Earnings: 3 Things To Watch

Wall Street has given Microsoft CEO Satya Nadella two thumbs up, so far. But with Windows growth uncertain and Microsoft's cloud businesses still in infancy, Nadella will face questions.

use Microsoft Azure, which stores more than 30 trillion objects, supports more than 300,000 active websites, processes more than 3 million requests per second, and, via Azure Active Directory, handles 13 billion weekly authentication requests for more than 300 million users. Office 365 Home Premium subscriptions totaled more than 4.4 million as of last spring. With Microsoft pushing a cross-platform strategy and aggressively bundling OneDrive storage with 365 packages, continued growth is likely.

Nevertheless, Microsoft's cloud businesses might not be growing fast enough to offset flagging Windows momentum. Windows revenue is likely to be decent this quarter, given that the PC market has modestly ticked up after several quarters of decline. But much of the recent demand stemmed from Windows XP's retirement, making it unclear how much long-term growth Microsoft can mine from the PCs and laptops -- the only computing devices on which Windows remains the standard. Nadella has made clear that Microsoft's future as a "platforms and productivity" company relies on personalized, machine learning-driven experiences that translate via the cloud across devices, and help users manage both their professional and personal lives. But before the cloud can become Microsoft's future, it needs even more users.

The company is already iterating at a rapid pace with products such as Office 365, and has promised to bring new enhancements to its cloud-based Enterprise Mobility Suite and Dynamics CRM Online. Its hybrid approach, meanwhile, helps businesses transition to the cloud at their own pace. But some longtime Microsoft customers aren't persuaded that they should give up their familiar, and secure, on-premises environments -- a concern Microsoft's recent service outages surely did little to quell.

3. Has Microsoft found the right Windows licensing and device strategies?
Nadella has taken pains to distance himself from Ballmer's "devices and services" mantra, and now that he's initiated layoffs, it's clear first-party devices play a smaller role in Nadella's game plan than they did in his predecessor's. Even so, Nadella made clear that the company still intends to produce hardware. In some cases, such as the Surface line, the devices will be meant to inspire Microsoft's partners and showcase its cloud-based services. In other cases, such as integrating what's left of Nokia, Microsoft has heavier lifting to do, as it must grow Windows' modest mobile user base while simultaneously keeping hardware partners motivated. Xbox, meanwhile, has been slimmed down from an entertainment platform that included original content, to a product more narrowly aimed at gamers.

As mentioned, Microsoft still maintains a stranglehold over the traditional PC market. But even if it maintains its share, laptops and desktops offer limited upside compared to smartphones, tablets, wearables, and the larger Internet of Things ecosystem. Moreover, with Chromebooks becoming more popular, Microsoft will have to sacrifice margins to preserve its chunk of even the PC pie -- a fact COO Kevin Turner recently broached while hyping sub-$200 Windows laptops that will soon hit the market.

Turner also said 81% of CIOs plan to deploy Windows tablets this year, which gives Microsoft some hope as it attempts to better its 14% share of the overall computing market. Will Microsoft attract the user base it needs to keep Windows vital to both businesses and consumers? Or will it be forced, as it was with Office for iPad, to develop for more popular competing platforms before taking care of its own OSes? And even if Microsoft attracts users, will it funnel enough of them to its cloud services to compensate for diminishing device and Windows margins?

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Michael Endler joined InformationWeek as an associate editor in 2012. He previously worked in talent representation in the entertainment industry, as a freelance copywriter and photojournalist, and as a teacher. Michael earned a BA in English from Stanford University in 2005 ... View Full Bio

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MDMConsult14
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MDMConsult14,
User Rank: Moderator
7/25/2014 | 8:36:50 AM
Re: Expand the desktop/laptop franchise with compatible devices
Yes, leveraging mobile and big data to cloud is another area of Microsoft's strategy for growth. These expectations will see further improvements and it will revamp areas like Hadoop and analytics. The company is strong in cloud growth.
Brian.Dean
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Brian.Dean,
User Rank: Ninja
7/22/2014 | 7:02:36 PM
Re: Expand the desktop/laptop franchise with compatible devices
Microsoft could gain a share of the productive mobile market, if it invested in R&D and delivered a new kind of user input interface. This would be the equivalent of Apple's first line of touchscreen smartphones. Cameras have increased in resolutions and the Cloud enable massive amounts of computational power, maybe Microsoft would develop an analysis engine to detect keystrokes without a keyboard.
Brian.Dean
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Brian.Dean,
User Rank: Ninja
7/22/2014 | 6:49:43 PM
Re: RIP MICROSOFT
Agreed, at some point consumers are going to try to consolidate devices. It is already happening as the line between tablets and phones is becoming blurry, and consumers in emerging markets attempt to save capital by owning a single device that delivers multiple functionalities.

Productivity is a big concern, the device that offers a high level of productivity will maintain a stronghold in the market.
tzubair
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tzubair,
User Rank: Ninja
7/22/2014 | 5:18:51 PM
Re: RIP MICROSOFT
"Anyhow, especially with IBM and Apple are teaming up, I'm not sure it's so outlandish to imagine accessing sensitive databases on Apple devices. Android might be a different story."

@Michael: I think that may just be a psychological phenomena. I don't see how Apple's hardware or software is any less secure than Windows. Yes Apple-based servers are unheard of, but I don't sense any potential security issues.
tzubair
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tzubair,
User Rank: Ninja
7/22/2014 | 4:17:50 PM
Re: Expand the desktop/laptop franchise with compatible devices
"It's best prospect is to make a phone that's compatible with and useful with Office software; that is, expand the existing franchise. That will be a lesser market than mainstream consumer smart phone and tablet market, but it's one that it can master.  "

@Charlie: I think Microsoft has tried doing that but it has never seemed to work. Perhaps now when they also control the mobile platform through their own OS and the hardware too, they can fuse the Office applications and integrrate with the desktop. I'm not quite optimistic about it but this seems like a chance now.
Henrisha
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Henrisha,
User Rank: Strategist
7/22/2014 | 2:07:11 PM
Re: RIP MICROSOFT
I think Microsoft is still relevant especially when it comes to computer software. Also, what they're doing with the Surface tab is something to watch out for, so I would not count them out just yet.
Charlie Babcock
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Charlie Babcock,
User Rank: Author
7/22/2014 | 1:45:44 PM
Expand the desktop/laptop franchise with compatible devices
The gap in computing devices lies between those p;rimarily used for office work and those used as mobile, personal computing devices. Microsoft still has a lock on the office market and will for the next decade but it's lacked insight into the personal consumer device market. It's best prospect is to make a phone that's compatible with and useful with Office software; that is, expand the existing franchise. That will be a lesser market than mainstream consumer smart phone and tablet market, but it's one that it can master.  
Michael Endler
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Michael Endler,
User Rank: Author
7/22/2014 | 12:45:45 PM
Re: RIP MICROSOFT
Thanks for the thoughts, @anon.


You're right that it's somewhat misleading to lump smartphones, tablets and computers into a single "computing device" bucket, since, as you indicate, you can't use an iPhone and a Windows PC in the same ways. That said, in terms of ecosystem buy-in, there is some validity to the "overall computing" thinking, particularly as it applies to users in emerging markets. Also, I wouldn't blame the media for inventing the "overal computing" concept-- Microsoft was the one floating the 14% figure, and before that, it was the research analysts who were popularizing it. You can certainly quibble with the media's interpretation, however, including, say, over-emphasizing the extent to which Microsoft competes with Google, and under-appreciating the extent to which Microsoft competes with IBM or Oracle.


As for Windows and better enterprise management-- that's still true in broad terms, but I think it's becoming less true all the time. Windows isn't going to get driven out of the enterprise (far from it), but the range of workflows for which Windows is ulitized could be disrupted. Anyhow, especially with IBM and Apple are teaming up, I'm not sure it's so outlandish to imagine accessing sensitive databases on Apple devices. Android might be a different story.
anon4770296517
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anon4770296517,
User Rank: Apprentice
7/22/2014 | 11:37:48 AM
Re: RIP MICROSOFT
As Moore's Law continues to apply, it's not so clear what will happen with the PC market.  All the news media assumes that a "computing device" is the same market, that is, that cell phones are the same market as tablets which are the same market as PC's.  And nowadays, what exactly is a PC?  Is it a desktop system, is it a laptop, is it a hybrid tablet with a keyboard?  So the news media places Microsoft as a competitor with Google.  But they are also a compteitor with Oracle, which is software. They are also a competitor with Linux and Android.  But Linux has been freely available for several years as a free O/S you can put on your laptop, but sales of Chromebooks are minimal compared with Windows laptops and hybrid tablets.  Dell tried to sell a linux laptop for awhile.  As an MCSE, it is MUCH easier to control Windows clients and secure them in an Active Directory environment (think Fortune 500 businesses for those of you who don't have a clue what Active Directory is).  It is unlikely that Fortune 500 are going to let you access their highly secure company databases (like the H.R. system, the Accounting system, the I.P. databases), with an Apple/Android cell phone.  If they did they'd put their crown jewels at risk and triple the IT resources needed to support the required security.  

In reality, most eveyone in business will continue to have a cell phone and Windows business laptop/hybrid.  Cell phones now are getting to be so large it's hard to attach it to your hip, but if you have one then you don't need a separate tablet.  If you're like me you'll have a cell, a tablet or two or three, and a laptop, maybe a desktop too.
JohnD985
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JohnD985,
User Rank: Strategist
7/22/2014 | 10:10:27 AM
RIP MICROSOFT
Microsoft has ceased to be relevant.

Requiescat in Pace.
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