Xv) Microsoft

The dominant player in computer software for desk tops/lap tops since the 1980s but now under threat from mobile phones/pads players like Apple, Google, etc in the post-PC world

Around 2006,

"... Microsoft had to contend with US regulators who sought to break apart the company and a slew of fines in Europe after it failed to comply with the region's demands. A legacy of Microsoft's anti-trust fight was that it distracted the software giant while allowing new competitors, including Google, to thrive..."

Tony Romm 2018

In 1985 Microsoft starts Windows Operating System (managed the complex interface with other hardware/software, etc) for personal computers (PC); by 2005 it dominates all computers (96%); but now under threat from mobile phones/pads players like Apple, Google, etc. Microsoft has exploited its dominance with computer users via Windows software.

With the rapid technological advances in mobiles phones/pads and less around desk tops, Microsoft has lost its dominance as there is no indication that desktops and phones/pads will use the same operating system and user interface. The loss of dominance by Microsoft is shown by the poor performance of Windows 8, ie the latest, mobile-inspired version of its operating software and its earlier Vista fiasco. Players in the mobile phones/pads arena like Apple, etc have pushed Microsoft aside, ie

"Windows 8 is a remarkable piece of engineering but the world does not buy remarkable pieces of engineering, it buys useful products"

Michael Cusumano as quoted by John Gapper, 2013

In addition to falling behind on new trends like mobile, internet search, cloud computing, etc, Microsoft is overstaffed with 50% more staff than Apple yet 50% less revenue & profit (2013)

For years Microsoft has squeezed cash out of existing businesses and it expected to continue to do so. Its challenge is that its operating systems and business software divisions account for 80% of operating profits.These divisions' core products were developed for personal computers (PC). Yet the PC is in decline, eg 2013marked the worst decline in global PC shipments with 7 consecutive quarters of falling demand; this threatens Microsoft's core products while mobile phones are rising and there is a transition to "cloud", ie

"...The new cloud workloads and mobile apps that are redefining how millions of people interact with the digital world are already running on Amazon Web Services and the iOS and Android platforms...Google has beaten Microsoft...creating a hardware ecosystem with the free android operating system; a position it has cemented with the pending sale of its Motorola handset business to Lenovo, which removes the risk. It will compete with its own hardware partners. Apple has taken the profitable high ground with the alternative, integrated approach represented by the iPhone. That has forced Microsoft to buy Nokia's handset division to maintain even its current tenuous foothold in the business..."

Richard Waters, 2014

The development of android and iOS destroyed Microsoft's near monopoly in operating systems in a mere 5 years, with people adopting mobile computing more than 3 times faster than they did a desktop. It took around 15 years for Microsoft to dominate the desktop market from the 1980s. 2013 marked the worst decline in global PC shipments in history, ie 7 quarters of declining revenue. Microsoft has fallen behind on new trends like mobile, internet search, cloud computing, etc & overstaffed with 50%more staff than Apple yet 50% less revenue & profit (2013)

Some recent products have had a mixed impact. One new product (server software) is a success while others (online services, Xbox, phones) have been failures.

There is a trend towards software sales becoming server sales. It is uncertain how the license sales/action sales mix is going to change.

Technology companies are rising and falling faster. As consumers and businesses are becoming more mobile and data intensive, the likes of Microsoft, Apple and Google are becoming vulnerable to smaller, nimbler competitors. For example, the once invincible Microsoft failed in its attempt to take on Apple's iPad. It is hoping to counter this trend to computers going mobile, it purchased of Nokia's hardware division (US $ 7 b.) to protect its core business (Windows Operating System, Office & Software) This acquisition turned another industry icon into a footnote in history books!!!

In early 2014, there was a senior management shakeup in Microsoft when it appointed Satya Nadella as CEO to replace Steve Ballmer; Bill Gates has moved into a more technical advisory role.

Microsoft is trying to re-invent itself by  i) re-branding (2011 - 2012), eg logos, products, services, website, etc
ii) acquisition (since 1986 purchased around 200 firms; with 22 in 2015) iii) new products iv) staff changes Some acquisitions - aQuantive (US$ 6 b. in 2007 - Internet advertising) - Skype (US$ 8.5 b. in 2011 - VOIC) - Yammer (US$ 1.2 b. in 2012 - social network) - Mojang (US$ 2 b. in 2014 - maker of home video games like Minecraft; replaced Xbox that started in 2001)
- Noki's handset business (US 7 b. in 2014) to protect its core business (Windows Operating System, Office and Software) with computers going mobile
- LinkedIn for US$ 26.2 b. (2016) Developed some new products  - Bing with Yahoo (2009) - Azure (2010 - entry into cloud computing market for Windows) - Windows server 2012 - Patent tracker (2013) - Kinect (2010 & upgrade in 2013 - motion sensing input device) - Surface (2012 - first computer in the company's history to have its hardware made by Microsoft)
- Outlook.com web service (2012 - competes with Gmail)
- Surface Hub (2015 - interactive whiteboard)
- Windows (2015 - latest version of computer operating system)
- HaloLens (2016 - 3D headset)

Staff changes
- Changed CEO, ie Satya Nadella replaced Steve Bulmer (early 2014)
- Starting in mid 2014, massive staff lay-offs as rationalised business, eg    
i) July 2014 - 18,000 out of around 130,000 staff    
ii) May 2015 - 1,850 staff    
iii) July 2015 - 7,800 staff (Wikipedia, 2016b)

In 2014 Satya Nadella replaced Steve Ballmer as CEO of Microsoft. Satya has reignited growth based on leadership style (eg his accessibility), cultural change and innovation edge like focusing on cloud device. When Satya became CEO, Apple could do no wrong, Facebook was changing the world of communications and Amazon was dominating cloud computing. At the same time, Microsoft had an internal culture of competition which was destroying the company; this is sometimes called Microsoft "lost decade".

In early 2017 the stock had doubled in value and was trading at its highest level ever, ie higher than the turn of the century tech bubble (see graph below).

In 2017, Microsoft started focusing on 6 priority industries, ie manufacturing, financial services, retail, health, education and government (AFR, 2017).

Satya Nadella (CEO) has nominated the transition from personal computer software business to cloud software as the engine of growth. Built into the cloud services are big data analysis and AI capabilities.

It is expected that sales and marketing jobs will require more technical and industry specific knowledge.

Microsoft is now focusing on artificial intelligence and cloud computing. Significant resources have been invested into Azure cloud computing infrastructure and in early 2017 it was number 2 in the marketplace after Amazon. It is making considerable progress with new products like cloud-based office 365 Productivity software and Dynamic 365 Enterprise offering plus Xbox Entertainment console.

Microsoft's new vision of "One Microsoft" and mission is "to empower every person and every organisation on the planet to achieve more" so that

"...can we do something that is unique, differentiated and, most importantly, valuable to our customers......and not to ever be driven just by competition..."

Satya Nadella as quoted by Paul Smith 2017

Microsoft, which used to have a reputation for dragging its competitors through the courts in anti-trust trials, is now working with them, eg

- Adobe is now offering its services on Apple devices

- embracing open source in a big way with Linux operating system is now supported by Azure cloud

- in 2016 Microsoft became the largest contributor to open source code online exchange GitHub (exceeding Facebook and Google).

On the organisation's culture, Satya is focusing on growth and innovation with a positive attitude; the growth mindset represents a desire to encourage staff to take risks when thinking about new ideas. Rather than worry about how to respond to popular products released by rival firms, he wants his staff to be thinking about what the company can do to forge new paths.

"...we had to go from being know-it-alls to learn-it-alls. This is not about new dogma, it is about being able to give team members breathing space to be able to bring their A-game, to be able to be vulnerable and not have to put on an act of knowing everything but to be curious and learn..."

Satya Nadella as quoted by Paul Smith 2017

"...at Microsoft we have this very bad habit of not being able to push ourselves because we just feel very satisfied with the success we've had......we are learning how not to look at the past..."

Satya Nadella as quoted by Austin Carr et al 2019

"...the company had been universally viewed as spiralling towards obsolescence, having missed almost every significant computing trend of the 2000s - mobile phones, search engines, social networking - while letting its main source of revenue, Windows, the operating system that comes preloaded in PCs, stagnate..."
Austin Carr et al 2019

For Microsoft to survive, it needed to change from a fixed to a growth mindset. This was achieved by cutting funding to Windows and focusing on building a cloud computing business. In 2018, the cloud was a $ US 34 b. revenue earning business for Microsoft. It is the second dominant player after Amazon Web services.

NB At its peak, Windows achieved a market share of 90%+ and is still very profitable as Microsoft received a licence fee on almost every desktop and laptop sold but people were replacing PCs with mobile phones. It still has an annual turnover of $US 20 b.

Some of the changes include
- its virtual assistant, Clippy, is a cloud-based service with more 200+ m subscribers (2019)
- Azure (Microsoft's cloud platform) has customers like Exxon Mobil, Star Bucks, Walmart, etc. It started as a provider of boxed software and is now a global computing engine that rents out processing power and online storage to businesses. In 2018, the entire Windows division was moved into other parts Microsoft including Azure.
- acquisition of LinkedIn (professional social network)
- GitHub (software code repository)

Most important was the management style of the current CEO (Satya Nadella).
"...he showed an ability to make aggressive changes with little drama, a departure from Gates's infamous temper tantrums of the 1990s and Bulmer's chest beating of the late 2000s...."

Austin Carr et al 2019

In the 2018 both Amazon and Microsoft were in fierce competition on the cloud. In addition to competing on infrastructure improvements and database products, Microsoft joined engineering and sales to improve its performance.

Also, Microsoft has taken a different approach from some other tech players. Some examples
- autonomous-vehicle (instead of concentrating on autonomous-vehicle hardware like Google and Amazon, Microsoft has focused on AI and analytical tools necessary to sell self-driving technology to car manufacturers. Microsoft is not pushing its brand in these cars)
- operating safety operations like for Chevron
"...analysing hundreds of terabytes of data from as many as 2700 wells, while Microsoft's augmented-reality HoloLens headset allows engineers at Chevron's offices in Huston to virtually repair equipment located in the Permian Basin. Collected data is used to optimise drilling efficiencies, the ultimate purpose is to prevent any Deep Water Horizon-scale disasters..."

Austin Carr et al 2019

The main criticism of the new approach is that Microsoft's portfolio of products, Azure, GitHub, LinkedIn, Xbox, HoloLens, etc have little to do with each other.

However, one of the keys to Microsoft's recent success, since Satya Nadella became CEO, is its diversification, eg service products and cloud services (Azure), productivity services (Office and LinkedIn), personal computing and gaming, etc. Conversely, other tech giants are more dominated by one source of revenue like Alphabet by Google ads and Apple by selling iPhones.

Before Nadella,
"...Microsoft was chasing a sexy, Apple-like version of itself and mostly failing. For every iPod, there was Zune; for every iPad, a Surface tablet; for every IOS device, Windows phone. The company was trying to be everything to everyone..."

Austin Carr et al 2019

Maybe Microsoft is becoming cool again!!!!

Nadella's approach has restored the classic Microsoft strengths:
"...the engineering might, the infrastructure plumbing and...... ambition..."

Austin Carr et al 2019

On the other hand, Microsoft still suffers the same old political infighting and bad employee behaviour, eg dozens of female Microsoft workers have reported years of sexual harassment and discrimination.

Changing role

As Microsoft has lost its visible dominant persona, its role is changing.

"...Microsoft has positioned itself as the tech sector's leading advocate on public policy matters such as protecting consumer privacy and establishing ethical guidelines for artificial intelligence......Microsoft is seen in capitals around the world as the most government friendly of the tech companies..."

Steve Lohr 2019

This is part of Microsoft's evolution over the years

"...it is less a consumer company than its peers. For example, Microsoft's Bing search engine and LinkedIn professional network sells ads, but the company as a whole is not dependent on online advertising and the harvesting of personal data, unlike Facebook and Google..."
Steve Lohr 2019

It no longer has the dominance it had decades ago; it is number 2 in the cloud computing (behind Amazon) and video games (behind Sony)

Linked to this is that it has become more outwardly focused and overtly seeks the views of policymakers, critics and competitors. Brett Smith, Microsoft's president, diplomat in residence and emissary to the outside world, is the driving force of this change and he has the backing of the CEO (Satya Nadella).

"...when your technology changes the world, you bear a responsibility to address the world that you have helped create..."

Brad Smith as quoted by Steve Lohr 2019

NB Confrontations with government, such as anti-trust, takes a long time, cost a lot of money and have much negative PR. Landmark cases over technology like the AT&T, IBM and Microsoft war went on for decades.

Also, the personal computer is no longer the centre of the world. It has been displaced by smart phones, Internet searches, social networks and cloud computing.

Traditional business taking back seat

"...to June, 2019 Microsoft lifted revenue 15% to $US 126 billion thanks to growth in sales across all its businesses, including its core cloud business Azure, its Hybrid Cloud offering, its Office 365 suite of commercial software and Windows......Microsoft has a number of managers as it tries to beat out its competitors......it has a commercial customer base of 100 million, a global distribution channel comprising of 275,000 partners, around 6 million developers on its open source platform .Net, and around 30 million developers cooperating on GitHub..."

Tony Boyd 2019b

The Azure cloud business and associated commercial apps are more profitable than the old Microsoft businesses like Windows

Nandela wants to focus on 3 key technologies

i) mix reality

ii) artificial intelligence

iii) quantum computing

Below diagram shows market capitalisation of tech giants, cloud market share and Microsoft's share price movements under the 3 CEOs.





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