Rethinking Microsoft

You missed it — the new Microsoft is already here. 

This week Windows 8.1 became publicly available as a free update to Windows 8 users everywhere. The controversies surrounding Window’s 8 are well known in the tech press. At this point,the consensus is that Windows 8.1 is a solid update that goes a long way toward simplifying and refining Microsoft’s most radical change to its flagship product in years.

It’s also only the latest in a series of moves by the company over the past year to leave behind its widely lamented “lost decade” of a stagnant stock price and product fizzles.

If the investor-pundit class is not paying attention this time it is because they have seen this movie before. Windows Phone, Bing and Zune were good products that never (or have not yet) turned into the market leaders Microsoft had hoped. Microsoft has a history of launching imperfect, but pioneering, products that hit their groove with a second effort- only to be greeted with a modest corresponding market reaction.

That is certainly the case in mobile, where Windows phone 8 has been singled out for its freshness and functionality despite its low market share. There have been some notable successes, such as the Xbox and Microsoft’s living room strategy generally.

However, at this point there is so much inertia behind the narrative that Microsoft can’t compete with its savvier rivals that any true change in Microsoft’s trajectory would be slow to take hold in the mind of the Technorati and Wall-street types alike.

And so, with Steve Balmer on the way out and a bold company-wide reorganization in progress it just might be time to give Microsoft a second look. Frankly, I think the starting proposition that Microsoft is a dog of company is as much a product of silicon Valley’s “who’s up” culture as it is an assessment of business fundamentals. The tech industry as a whole is very young. People are unfamiliar with what a mature tech company looks like. When one makes the transition to blue-chip status it is often seen as an anachronism instead of a success story.

That said,Microsoft has made plenty of mistakes and its stock stagnation is not entirely undeserved, but their are reasons to think its big moves are starting to pay off.

1. They have the most cohesive “three screens and a cloud” strategy in the industry. Unifying the apps,data and interfaces used in PC’s, mobile and television is the holy grail of consumer facing tech. Apple has icloud to power its Apple TV, iOS, OSX triple play and Google has a mix of (at times) competing platforms doing the same. Microsoft is unique in that all of their platforms now share a common user interface paradigm and increasingly a software stack. Perhaps more importantly they have an immeasurable lead in the living room through the success of the Xbox platform.
2. It’s little noticed, but they are pulling off a pretty radical change in business models. Microsoft made its name selling perpetual software licences to computer manufactures and enterprise customers. While that is still a huge part of their business, Microsoft is making it clear that direct to consumer subscription based offerings and cloud services for the enterprise are its future. The fact that a company of its size can make a play this big without either hurting its financials or disrupting product continuity is a huge testament to its organizational focus and ability to adapt. It might not be flashy, but it’s incredibly impressive.
3. The Nokia Acquisition is about more than Window’s Phone. You can make a strong case that Microsoft was boxed into buying Nokia’s mobile business. With no strong partner to pick up the torch if Nokia jumped ship to Android, they had little choice if they wanted to continue to develop the platform. That said, it still may turn out to be tremendously savvy. If Microsoft ever wants to be a high growth darling again (or something close to it) it has to be a leader in the developing world. When it acquired Nokia’s mobile phone business it got more than just the ingredients to produce high end hardware, it inherited a sprawling global supply chain with business relationships across the globe. Couple that with the still strong cache of the Nokia aesthetic in Asia, Africa and Eastern Europe and you have Microsoft’s Trojan horse into the next big markets for cloud powered devices and services.
4. Apple and Blackberry have big challenges that give Microsoft an opening to win customers. Blackberry’s problems are well known and the latest murmurs of a move out of the consumer space to focus on enterprise software is less than comforting. Corporate IT departments like products and services that integrate seamlessly and Blackberry’s move out of hardware will hurt their ability compete with Microsoft. On the hardware front Apple is still moving tons of units, but they haven’t had a big innovation win in the post Steve Jobs era. The proliferation of uni-body construction and high end materials are making Apple hardware harder to differentiate. When looking at cloud services Apple’s track record is poor with few signs of improving. This is all happening at the same time that Microsoft’s Skydrive and Office 365 are maturing into well integrated, accessible and highly functional products.

Of course, all of this does not matter is consumers don’t feel in their gut that Microsoft products are innovative, accessible and yes… hip. Microsoft’s live tile Aesthetic found in Windows 8, Windows Phone and on Xbox has gone a long way in rehabilitating their stuffy image and hopefully will push consumers to take a second look at Microsoft during their next big tech purchase.

It would be a shame if they did not, because behind all the hyperbole of Steve Balmer’s exit there is a a truly agile and innovative company waiting to be rediscovered.

It is just a question of who sees it first — you or them.