An often irreverent look at this week's news from the Microsoft Financial Analysts Meeting ...
Keeping It in the FAM
Microsoft held its 2013 Financial Analysts Meeting (FAM) yesterday, unloading a whole lot of love on Wall Street in the hopes that analysts will stop using the word "doomed" every time they discuss the company and its current corporate strategy. There was a lot of information at the event, and some very interesting tidbits about Microsoft's direction. So this edition of Short Takes will focus exclusively on news from the event. There's a bunch of it.
No Microsoft CEO News for You
The question everyone wanted answered at this year's event was dispensed with right up front when Microsoft CFO Amy Hood announced that the firm would not discuss this process. "There will be no further update on that today," she said, causing me to scurry for a bit to find the previous update. "The board continues on the process that we laid out in late August. So while I appreciate the questions, we're working the process that we laid out, and we'll update you when appropriate." So there you go.
Related: "Assessing the Ballmer Years"
Steve Ballmer's Biggest Regret
Speaking of the CEO, Steve Ballmer's FAM presentation was interesting on a number of levels, but the most poignant moment was when he expressed his biggest regret at Microsoft: focusing so much on Windows that he neglected to see the market shift toward smartphones and smaller, simpler computing devices. "I regret that there was a period in the early 2000s when we were so focused on what we had to do around Windows that we weren’t able to redeploy talent to the new device called the phone. That is thing I regret the most. It would have been better for Windows and our success in other foreign factors." Today, Windows Phone has "almost no share," to use Ballmer's words. But in a "making lemonade" moment, he also claimed that situation provided the firm with "significant upside opportunities" for growth. Sure.
Microsoft Is Now Naturally Very Focused on the Consumer Segment
Explaining that Microsoft's business was both balanced and diverse, Microsoft COO Kevin Turner made a reasonable case for why the company must focus on consumers. But the accompanying chart, shown below, has caused some to misinterpret Microsoft's customer base, as it appears to suggest that 61 percent of it is business-based (enterprise + small and midsized business) while only 20 percent is consumers. Not so, Turner explained: "A fair piece of the OEM [business, which is 19 percent of Microsoft's overall business] is also consumer," he said. Which makes sense: OEMs are the PC makers and other hardware makers that indirectly sell Windows to end users. Turner never explained what "fair piece" means mathematically, but if it's a 50-50 split, then fully 30 percent of Microsoft's revenues come directly from consumers. And I bet it's higher than that.
Surface Did Upset Microsoft Partners, but Windows 8.1 Has Made Everything OK Again
I'm not sure I follow the logic on this one, but Turner also admitted that Microsoft's entry into the PC hardware business with Surface last year caused "a lot of consternation" among its PC maker partners. But somehow now everything is A-OK. "Today, [the PC makers] would tell you that the progress we made in [Windows] 8.1—because we have a first-party product at Microsoft—is far superior to anything we've ever delivered." Um. So I'm just going to call BS on that one and tell you what I think is the real reason that PC makers are suddenly OK with Surface: Surface has utterly failed in the marketplace and has provided Microsoft with a nearly $1 billion sinkhole in its first year alone. It's no wonder they're in better moods.
Related: "How to Make the Surface Pro v2 a Success"
What's the Role for Windows RT Going Forward?
Windows RT, the ARM-based version of Windows, hasn't exactly set the world on fire. So it's only natural that analysts had questions about this platform and wondered why Microsoft would continue to invest in a product no one wants. According to Terry Myerson, the former Windows Phone executive who now leads all OS development at Microsoft, Windows RT's future will involve a merging with Windows Phone. I think. "Windows RT was our first ARM tablet," he said, incorrectly, since Windows RT is a software product. "And as phones extend into tablets, expect us to see many more ARM tablets, Windows ARM tablets in the future." Elsewhere he noted that Microsoft would "have one silicon interface for all of our devices ... one set of developer APIs on all of our devices. And all of the apps we bring to end users should be available on all of our devices ... We have a very clear vision of what we want to get done, and we're moving very fast."
Related: "How to Makes Surface RT v2 a Success"
Ballmer: Google Is a Monopoly
Mimicking comments I've made many times, Microsoft CEO Steve Ballmer said at FAM—in passing, sadly, since this is a big issue—that, yes, Google is a monopoly. "Google has this incredible, amazing, dare I say monopoly, [and] we are the only [company] left on the planet trying to compete with [it]," Ballmer said. "But other than that, most of the consumer services companies just don't make enough profit to really register at this scale. Maybe Facebook will. People mention Dropbox, Evernote. [But they aren't at that scale today.]" Now I'd like Mr. Ballmer to take the next step and demand worldwide regulatory oversight of that "incredible, amazing" monopoly. You know, before it's too late. It probably already is too late.
Big Wins Over Google
Speaking of Google, COO Kevin Turner also mentioned that Microsoft had won back 440 business customers from Google in calendar year 2013 alone—meaning customers who switched to Google's web services—Google Apps, and so on—and then discovered they were decidedly lacking. "We're winning them back one account at a time, one hand-to-hand mission at a time," he said. "And that's an incredible compliment to the technology and all of the work that ourteam did to enable that, and it's a compliment to our people who have earned the trust of customers. Because it turns out that security, privacy, data protection, enterprise-grade cloud are very, very important to enterprise customers. And we don't think that's going to change; we only see that accelerating."
Office 365 Is Now a $1.5 Billion Business
Whenever one discusses Microsoft and financials, the notion of "billion dollar businesses" comes up again and again. Office 365 is routinely described as Microsoft's most recent billion dollar business, but as Mr. Turner explained, it's actually quite a bit better than that. "Office 365 became the fastest-growing product in the history of Microsoft last year," he noted, "the fastest to $1 billion. We did over $1.5 billion last year, and it continues to accelerate and grow." I'm guessing it will be a $2 billion or $3 billion business soon, and will launch into being one of the firm's biggest businesses overall within a few years.
Yes, "Touch" Versions of Office Are Coming to Windows, Android, iPad
I was closely following yesterday's event to see whether any mention of Office for iPad would happen, and a Turner slide showing OneNote on Office got me briefly excited until I realized what I was looking at. But then Microsoft Applications and Services Executive Vice President Qi Lu unleashed this bit of news. "We are working on touch-first versions of our core apps on Office," Lu said, though it's worth mentioning that we already knew this was happening on Windows 8/Windows RT. "We will bring these to Windows devices and also to other devices in ways that meet our customers' needs and value, and in ways that make sense economically for Microsoft and in the proper timeframe." In other words, Office is coming to Android tablets and iPad. The only question is when.
Steve Ballmer Bids Adieu
Microsoft wasn't talking CEO successor yet, but current CEO Steve Ballmer did take the time to say goodbye, sort of, to the assembled analysts. "I'm a believer in Microsoft," he said. "I'm a believer in the company, I'm a believer in what we can do. I don't normally give you the sales pitch. It's been my tradition to try to highlight risk factors and blahty-blahty-blee. Not today. Today, I'm speaking as an ... all of you, get up. You all own Microsoft stock. Cheer for it, for God's sake. We all want it to go the same direction: up ... And we'll bring in a new CEO, and that new CEO will have opinions and ideas and thoughts. And my greatest desire will be to see the company be so much more successful four or five years from now than it is today ... I'm 'MSFT,' if you will, all over. It's in my blood, it's in my heart, and I'll have been glad to have served."
But Wait, There's More
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