Indeed, Microsoft needs to do better and customers need to see the evidence sooner than later.
Hood said the process will take time, but with Windows 8, the company might not be in position to be patient. If the company's recently announced restructuring doesn't start paying off within the next several months, the obstacles standing between CEO Steve Ballmer and his "one Microsoft" vision will only grow taller, and in some cases, become insurmountable.
Ballmer wants Microsoft to be more collaborative, and to produce products that enhance one another. This kind of cross-divisional cooperation is something with which the company has so far had mixed success.
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Azure and Office 365 have reinforced one another, for instance, but Microsoft has struggled to use Office to promote Windows 8. The company has declined to release Office for the iPad in an attempt to make Windows 8 and Windows RT tablets more attractive, but so far, only niche users have embraced the Modern UI. Apple, meanwhile, continues to sell millions of iPads.
In a Friday blog post, Forrest analyst J.P. Gownder noted that if only 10% of iPad users are willing to pay $100 for Office, Microsoft would book $1.4 billion in revenue, more than enough to wipe away the massive Surface write-down that the company reported on Thursday. As the unsold Surface inventory attests, Microsoft seems to have overestimated consumer demand for tablets that run Office.
Perhaps once Windows 8.1 hits, that demand will solidify, but in the meantime, Microsoft's strategy is not working.
Microsoft is committed to the Modern UI as the core of its future, so it's not surprising the company is willing to take short-term losses in the pursuit of long-term gains. But there's always a tipping point. Microsoft isn't there yet, but if Windows 8 doesn't start performing, especially with consumers, Ballmer will be forced to compromise his plan.
Microsoft is not on the brink of disaster. The company continues to own the enterprise market, and several of its fledgling projects should prolong that dominance for years to come. The reorg could potentially help these newer projects along.
Bing has lost billions, for instance, but its potential as a development platform is fascinating and far-reaching. Ballmer talks about Windows apps that understand a user's context and needs, and with Bing's intelligence and Internet-spanning reach riding along Azure's backbone, developers might be able to create this vision.
Though this sounds great, certain portions of the market, namely consumers, aren't going to wait around for Microsoft's next-gen apps to materialize. If Microsoft finally has a compelling mass market product by the fall, that will be one thing. But if the company is 12 or 18 months away from being truly competitive, that's another story. Microsoft is already playing from behind, and at some point, the deficit will become almost impossible to surmount, barring a genuinely disruptive new product or a major misstep from Apple or Google.
Following Thursday's earnings report, Microsoft value shed $32 billion. The 11% decline represents the biggest single-day sell-off of Microsoft stock in more than a decade. Steve Ballmer is accustomed to stockholders treating him like a punching bag, of course. But what if Windows 8 is still in disarray after the holiday season? What if businesses that use Windows XP users don't accelerate their migrations? What if most of these businesses stick with Windows 7, leaving Microsoft without a strong presence in the enterprise tablet market?