This month, I’d like to evaluate where Microsoft is in its transition to a maker of devices and services. This is the biggest transition in the company’s history, one that will affect customers and users. Using Microsoft’s most recent earnings release, let’s rate the company’s progress and determine which strategic transitions might affect you.

Microsoft announced its results for the first calendar quarter of 2013—what it calls its third quarter of fiscal year 2013—in April 2013. The results were stunning and unexpected: Microsoft reported net income of $6.06 billion on record revenues of $20.4 billion. That the company did this during the worst downturn in PC history is perhaps a testament to both the diversity of its business and the success of the ongoing transition of its core businesses.

Much of the information Microsoft provided in the press release, earnings conference call, and other related material focused on what I call “momentum marketing.” Normally, this is information I’m not particularly keen on, and it’s been my experience that when Microsoft talks momentum this means it has nothing interesting to say.

But in the case of quarterly financial announcements, in particular this one, product momentum is actually important. And that’s because Microsoft is changing.

As you know, there are two aspects to the new Microsoft: devices and services. “Devices” refers to the devices Microsoft makes—a small lineup, admittedly, that includes the Surface tablet as well as the Xbox console—but also, indirectly, to a growing and diverse range of heterogeneous devices (based on Android and Apple iOS, for the most part) that Microsoft supports with mobile apps.

“Services” also has two meanings: online services such as Bing that are standalone services with no corresponding on-premises alternative, and those services that represent what I see as Microsoft’s future: its traditional on-premises client and server products remade as online services.

In the case of server products, the transition is easy enough to understand: Exchange, SharePoint, and Lync can (conceptually at least) be hosted in the cloud as easily as they can in your own data center, or that of a partner. In the case of clients, Microsoft still needs to deliver bits of code to PCs and devices.

But what’s changed—in products like Windows and Office, for example—is how these bits are deployed and, going forward, how they’re serviced. This happens, as it does with online services, with smaller and more frequent updates than in the past.

I wrote about this transition last month in “Windows 8 Blue and How Microsoft Is Delivering Software as a Service,” describing it in general and examining how Windows 8, in particular, will be updated going forward. Now, I’d like to evaluate the broader Microsoft product families called out in Microsoft earnings, see where the firm is in transitioning those products to match its new focus, and discuss where you should focus your own platform transitions.

Office: Microsoft's Biggest Business

Microsoft’s biggest business is Office, not Windows. In Q1, the Microsoft Business Division launched what the firm calls “the new Office,”or Office 2013, the first version of the suite to utilize Click to Run, meaning that the software can now be delivered and serviced like an online service.

This new Office looks and works a lot like its predecessor, so training costs will be nonexistent to low; on disk, the product is virtually identical. It’s possible to deploy the new Office the old way (legacy MSI-based installers are still available) but there will be a lot to learn for those who want to move forward.

This shouldn’t quell enthusiasm. While discussion around Microsoft is focused on Windows 8 these days, the new Office is as big a leap forward as is Windows 8. But in this case, the important changes are all on the infrastructure side. Microsoft’s historic “better together” vision is realized when organizations roll out the new Office servers—Exchange, SharePoint, and Lync 2013—in either on-premises or hosted forms alongside Office 2013. For users, the integration between these products—including such simplicities as tying SharePoint-based document libraries to the applications as default save and open locations—offers huge benefits.

And hosted Office is here to stay. One in four of Microsoft’s enterprise customers now uses Office 365 in some capacity and the business is on a $1 billion annual revenue run rate. With this new generation of Office, the hosted versions of the products will be updated frequently with new features and functionality.

This transition of Office to a service is profound, and the division’s plans to update the products—quarterly, as with Office 365—are both transparent and sound. Now is the time to begin thinking about when and if your business’s on-premises Office servers can be moved to cloud services.

Server: Including Windows Azure

Microsoft’s Server and Tools division is responsible not only for Windows Server but also SQL Server, System Center, and the evergrowing Azure business. As with Office, the transition to the cloud is now in full swing, and this past quarter Microsoft delivered Windows Azure Active Directory alongside the new version of Office 365. As Microsoft puts it, the firm is now “the only cloud provider that can offer customers a comprehensive hybrid cloud solution that integrates existing IT infrastructure with all the benefits of the public cloud.”

That said, infrastructure doesn’t transition quickly or lightly. Over the past decade, we’ve seen ever-increasing Microsoft support life cycles on both the client and server, and a confluence of distrust in the cloud—especially the public cloud—and a fairly regular and impressive increase in the quality and functionality of Microsoft’s Windows Server product line, in particular.

With Windows Azure now beginning to offer a full spectrum of services, we’re entering a period of early evaluation only. Microsoft added 50 new services to Azure over the past year alone, and Windows Azure Infrastructure Services became generally available in April.

Most businesses would benefit more from moving email and communications infrastructure to the cloud (Office 365) before moving PC and device management (System Center/Intune) or identity, storage, and related infrastructure (Windows Server/Azure).

Windows: Not As Clear as Office

Windows 8 is evolving into the most controversial Windows release of all time, as much the result of our highly connected echo-chamber times as any functional weirdness. That Microsoft declined to release Windows 8 license sales figures with its quarterly financial results, is, I think, telling.

From 2009 to date, the firm has consistently sold about 20 million Windows licenses a month, and the suspicion is that Q1 2013 was the first quarter in which that didn’t happen. One can only conclude that Windows 8 confuses too many in a time in which viable mobile computing options—various tablets and smartphones—exist. And no business would ever broadly roll out the “touch first” Windows 8 this early in its life cycle.

The Windows division isn’t offering the same clarity as Office when it comes to updates. Microsoft CFO Peter Klein did note that there is “a new, accelerated pace for updates and innovations,” which includes the ongoing release of updates to the built-in “Metro-style” mobile apps that ship with Windows 8 as well as, interestingly, a routine monthly updating of the firmware in its own Surface tablets (of which there are Windows 8 and Windows RT variants).

Klein also noted that “the next version of Windows, code-named ‘Windows Blue,’ [includes] further advances to the vision of Windows 8 as well as responds to customer feedback.” That response to customer feedback—some of which surely included customers simply ignoring Windows 8 for the time being due to its many defects—is important, I think.

But it doesn’t change my guidance: Except when Windows 8 answers a real need—including vertical deployment scenarios in which a tablet device actually makes sense—no business of any size should actively be evaluating a Windows 8 deployment at this time.

Microsoft will reveal more information about the Blue release in June, and you can determine whether the change it’s making will overcome the training costs associated with Windows 8. My guess is that they will not.

Also pushing out the timetable on Windows 8 is the availability of new Intel chipsets that will help this fledgling OS make more sense on the mobile devices it was designed for. Microsoft notes that Intel’s fourth-generation Core processor, code-named Haswell, will help enable new devices that combine performance benefits with power savings, and will be shipping in volume by mid-2013. And later this year, a new generation of devices based on Intel’s Bay Trail Atom processors will drive prices down for low-end touch devices. Today, the cheapest touch devices are in the $500 range. Intel would like to see them sell for as low as $200.

Windows will transition to “a new era of mobile computing,” as Microsoft puts it, but that transition will take time, and Windows 8 will get better as we move forward. You should ride this one out.

Online Services

Despite its name, the Online Services division won’t affect most businesses directly. This is Microsoft’s Bing business and online advertising efforts, not its online services such as Office 365 or Azure.

Xbox and Windows Phone

Microsoft’s Entertainment and Devices division is responsible for a curiously diverse range of products, which can be simplified down to “Xbox and then everything else.” Microsoft’s struggling Windows Phone platform falls under this division. However, Microsoft has nothing but vague pronouncements on this front.

“Momentum with Windows Phone continues to build,” Microsoft general manager Chris Suh said. “The devices, now available at a broad range of price points, are receiving great reviews, and carrier support continues to grow. We now have over 10 percent share in several countries, but realize that there is still a lot of work ahead to break through in some key markets. With growing awareness of Windows Phone, and sustained innovation from our hardware partners, we feel well positioned to continue our momentum.”

The double appearance of the word momentum in that quote should trouble you: Windows Phone has roughly 4 percent market share worldwide and is utterly crushed by Android (particularly Samsung) and Apple iPhone in all of the markets that matter.

That said, those who have made big bets on Microsoft platforms across the board would do well to consider Windows Phone.

No other smartphone platform offers the same level of integration with Microsoft’s enterprise-oriented technologies, including a fairly fullpowered mobile Office suite (with an especially good version of OneNote), full support for Exchange ActiveSync policies, support for BitLocker, Information Rights Management (IRM), and more.

This is one area where I feel businesses aren’t moving quickly enough. If you’re using the Microsoft stack at all, Windows Phone needs to be on your radar.