Microsoft's Next Moves: 11 Takeaways

Microsoft's top executives spent nearly four hours Thursday explaining why the company is charging ahead with retiring CEO Steve Ballmer's "One Microsoft" plan. The remarks came during Microsoft's first financial analyst meeting in two years and touched on a number of much-discussed topics, including whether Microsoft Office will be released for the iPad and why consumers are crucial to the company's core enterprise products.

What can Microsoft customers expect going forward? Here are 11 takeaways from Thursday's financial analyst meeting:

1. No news on Microsoft's next CEO.

Speculation about Microsoft's next CEO has run rampant ever since Ballmer announced in August that he will retire within the next year. Nonetheless, Microsoft CFO Amy Hood put the kibosh on any such talk Thursday. "There will be no update on [the CEO selection process]," she said as the meeting began.

2. Microsoft Office will come to the iPad... eventually.

Microsoft has been under pressure for months to release a version of Microsoft Office optimized for iOS. The company has declined to do so, ostensibly because it fears an iOS version would hurt the appeal of Windows tablets.

On Thursday, Microsoft never directly confirmed that an iPad-optimized version of Office is on the way, but company execs implied as much. "We are working away on all the things you think we should be working away on," Ballmer said, adding, "We don't have our heads in the sand."

[ Can Microsoft save the Surface? Read Microsoft Surface Tablets: 7 Things To Expect. ]

Microsoft Applications and Services Group VP Qi Lu also dropped hints, stating that the company is working on "touch-first" editions of Office that would be available on platforms other than Windows. He noted, however, that Microsoft will do this in the way the best serves the company's financial interests; with Windows 8.1 tablets about to hit the market, in other words, it will could a while before Microsoft extends Office to the iPad.

3. Microsoft makes most of its money from large enterprises.

Microsoft Office's inevitable release for the iPad speaks to Microsoft's consumer interests -- but the company makes most of its money from large corporations and governments. These customers comprise 55% of Microsoft's business. Consumers and online services are a distant second, contributing 20%. OEMs account for another 19%, and SMBs are a surprisingly small 6%.

4. Microsoft believes consumers are essential to its enterprise business.

After Ballmer announced his impending retirement, some wondered if Microsoft would change tactics, paying more attention to enterprise products and less to struggling consumer efforts such as the Surface RT. Since then, Microsoft has given every indication that it intends to keep chasing both consumers and businesses, and on Thursday, company leaders argued that the two categories are increasingly intertwined.

Ballmer said innovations in end-user computing require "the right hardware and software skills" and an understanding of both enterprise and consumer users. He also touted the importance of "the right machine learning and cloud infrastructure"-- references to Bing and Azure.

Ballmer also said that aside from Microsoft, only a few companies meet these prerequisites -- namely Google. Apple qualifies in many dimensions, Ballmer said, but lacks the investment in cloud infrastructure or machine learning. He said Facebook is one of the few others that might figure out how to monetize consumer services.

"Other than that, most of the consumer services companies just don't make enough profit to register at this scale," Ballmer continued, adding that Microsoft is uniquely positioned to "create something that might generate $30 billion, $50 billion, $100 billion of new economic value."

Microsoft COO Kevin Turner said because the company's consumer efforts involve "multi-tenant, at-scale gigantic services," they help Microsoft to produce enterprise services at scale.

5. Microsoft will still make most of its profit from the enterprise.

Consumer products don't always yield the profit margins of enterprise services. Ballmer conceded as much, noting that enterprise services and devices will fuel Microsoft's profits but that consumers are nonetheless important because their preferences bleed into the enterprise.

Turner illustrated how such consumerization trends are already impacting Microsoft's business products. Consumers have driven demand for social tools in the enterprise, which Turner said now represents a $38 billion market opportunity. He pointed out that 85% of the Fortune 500 use Yammer and 90% of the Fortune 100 use Lync. As for other enterprise focuses, Turner also touted Microsoft's advances in big data and the cloud, and Ballmer said that Windows Azure is among Microsoft's most important projects. 6. Windows XP migrations are coming along, and Microsoft is bullish on new hardware.

According to Turner, only 21% of Microsoft customers are still using Windows XP, and XP holdouts should drop to 13% by the time the OS loses official support in April. Turner also suggested new hardware could help ailing PC sales and jumpstart Windows tablet sales. He noted that Intel's new processors give OEMs the capability to build cheap, powerful, fanless devices that will "open up new form factors at new price points."

7. "One Microsoft" is more than Windows.

Turner emphasized that Microsoft is a "balanced and diverse business" that extends far beyond Windows. Windows is only the company's third biggest source of business, accounting for 25%, he said. Office takes up the biggest chunk of the pie, at 32%, while the Server and Tools division is second, at 26%. Microsoft's revenue streams are rounded out by Entertainment and Devices (13%) and by Bing and Online Services (4%).

Still, Windows revenue declined troublingly in the most recent quarter and still plays a huge role in Microsoft's portfolio. The PC market could also take a toll on Microsoft's important OEM revenue. The company is diversified and advancing, but remains tethered to some of its old methods.

8. Microsoft is already benefiting from making its own devices.

Given Microsoft's Nokia purchase and its imminent Surface event in New York City, it's clear the company intends to keep making its own devices. Turned explained that the effort is worth pursuing despite the struggles Microsoft has weathered, because making hardware helps the company to make better software. He acknowledged that some of Microsoft's partners didn't appreciate added competition from the Surface but stressed that Microsoft is still committed to working with a variety of OEMs.

9. Microsoft knows Windows Phone 8 needs to succeed.

By buying Nokia's device business, Microsoft has already shown that it's finally ready to double down on the smartphone market. Ballmer said Thursday that he regrets dedicating too few resources a decade ago to Windows phones. The attention went to Windows Vista instead.

"We have almost no [smartphone] share," Ballmer conceded before countering, "Low market share sounds like upside opportunity to me."

10. Windows RT's future might be in phablets.

A whiff of death has hung over Windows RT for months, but Microsoft VP Terry Myerson told attendees at Thursday's meeting to expect more Win RT tablets. He said the devices would proliferate as phones extend into tablets, suggesting that Win RT phablets might be in the company's pipeline, and that Windows RT and Windows Phone 8 might eventually merge.

11. Office 365 is building momentum and staving off Google.

Turner reminded attendees that Office 365 is already on pace for $1.5 billion in annual revenue. Next year, he promised, the cloud-based subscription service will "blow through" that mark.

Turner also took a customary swipe at rival Google. He said 440 of Google's corporate customers switched to Office 365 in the last fiscal year and suggested customers don't want Google snooping through their email or monitoring their Wi-Fi. It's hard to know what to make of the 440 defectors without knowing how many Office 365 customers Microsoft lost to Google, however.

Office 365's enterprise success story is well established, but CFO Amy Hood said the service is also gaining traction among consumers. She said it now has 2 million subscribers, up from 1 million in May.