It was inevitable that Microsoft would feel investor backlash following Thursday's earnings report. But for its core business, things could actually still get worse. Microsoft will still reap billions from the enterprise. For businesses, there is value in the way Office products are becoming better united and more collaborative. Many corporations will be intrigued by Office's emerging business intelligence functions, such as Power BI. Office 365 can also make on-the-go workers more productive while also ameliorating IT headaches. And Microsoft is cleverly positioning Azure as the go-to cloud infrastructure for mobile apps, allowing the company to benefit from the continued popularity of Android and iOS.
But a lot of that doesn't matter to consumers. Business intelligence? Whatever. Office 2010 is fine.
The bring-your-own-device movement has been disruptive, and without consumers, Microsoft will lose out on the windfall. BYOD has limits, and as a result, Microsoft will remain a strong enterprise player in almost any foreseeable scenario. But Microsoft's entire business philosophy has traditionally hinged on the clout it commands with Windows. If Microsoft's reorg can't translate some of that clout to the consumer market, Ballmer's full plan will never come to fruition.
The next generation of Surface tablets needs wider appeal, for example. Intel's new chips will help by delivering better graphics and longer battery life, and Microsoft will need to aggressively promote and develop the redesigned Windows Store that will debut with Windows 8.1.
But Surface tablets themselves need to evidence a more collaborative attitude from the ground up, starting with hardware. From a form factor perspective, the first round of devices hasn't maximized what Windows 8 actually has to offer; Julie Larson-Green's Devices and Studios unit must work closely with the Office, Windows, and SkyDrive teams to fix that.
With Windows 8, Microsoft has already misread consumer preference to an epic extent. The unsold Surface inventory speaks to these missteps, as does the possibility that the device's discounted price might still be too expensive.
Microsoft also dubiously assumed it could swagger into the premium tablet market by simply throwing Office into a nice piece of hardware.
Then there's Win RT itself. The product has confused consumers, who, thanks to Microsoft's misguided but ubiquitous advertising, don't understand why the lightweight OS even exists. The Modern UI also ignores much of what has made the iPad popular. It's natural that Microsoft wants to condition users to use the Search charm, for example -- but deciding not to include a prominent search bar in the Windows Store is just silly. How much momentum did the store lose while users figured out that buying Angry Birds necessitates navigating a series of menus or swiping a hidden charms menu into view? Windows 8.1 will fix this, but it's puzzling that Microsoft made such a stubborn miscalculation to begin with.
Given the company's consumer-oriented mistakes, one could charitably say that Microsoft was high on its own hubris with Windows 8, and that Windows 8.1 is a humbled step in the right direction. Then again, one could also look at Windows 8.1's ersatz Start button and conclude that Microsoft remains as out-of-touch as ever.
For Microsoft to meaningfully expand its consumer footprint, and for Ballmer's plan to stay on course, devices that ship with Windows 8.1 need to show tangible signs of a new, improved Microsoft. If not, the company can still retain much of its enterprise dominance -- but can it still keep Apple and Google from taking over the consumer and BYOD segments?