Microsoft Beyond Windows

Microsoft is going through an evolution. Microsoft has always been a “platform” company and for decades that platform was Windows. Microsoft is in the post-Windows era but they are still poised to be a platform company. The only difference is that the platform resides in the cloud rather than on billions of PCs.

Windows runs on about 1.5 billion PCs. Not every single one of those PCs is owned by a single individual. Many are in offices and never leave. Many are in screens at retail, powering point of service terminals or visual displays. Some sit in internet cafes all over the world and, of course, many are in people’s homes. The challenge staring Microsoft in the face is the 1.5 billion copies of Windows being used is not increasing and is, in fact, decreasing. To put it bluntly, Windows, as Microsoft planned it, has gone as far as it can go. That is because the primary computing form factor Windows runs on has gone as far as it can go. Desktops and notebooks are not growing in sales and not attracting first time buyers in any meaningful numbers. Computers in the shape of a pocketable device are where the growth is and Microsoft has little play for a platform on those screens. This is why the cloud platform matters. Microsoft may not be able to acquire new users for its Windows platform but it can potentially touch several billions more than Windows ever could as a cloud platform player.

The Line Ends at Services

Study the technology industry long enough and you start to recognize patterns. One pattern that is consistent, and I believe remains consistent in modular ecosystems ((A modular ecosystem is one where many critical parts of the stack are owned by many individual players. This differs from an integrated ecosystem where a single player controls the key parts of the stack and thus defines the ecosystem unilaterally.)) like Micosoft’s, is how the value chain always ends at services. In the early stages of a segment, the value starts in hardware, then quickly moves to software (once the hardware is good enough), and, finally, all the opportunity shifts to services. This is why, at the end of the day, services companies are the best positioned for the future in modular ecosystems (which generally encompass the largest user bases).

We have quickly moved out of the hardware value cycle, which is why we are seeing ASPs of things like PCs and smarpthones rapidly decline. Software is also mostly commodity and all the upside is quickly moving to services. Understanding this is essential. Because, at a fundamental level, services are not easy and not everyone can do them well. So there is an opportunity for a cloud platform player to emerge as a service enabler for a broader ecosystem. This is where I believe Microsoft fits in and where their greatest upside lies. By being a cloud platform company, Microsoft can create products and services that transcend local platforms like Windows, OS X, Chrome, Android, Windows Phone, Blackberry, Firefox OS, Tizen, and any other local platforms that may show up.

A great first example of this is the Microsoft Band — a purpose-built fitness tracker specifically designed for the health enthusiast market. The hardware itself contains 10 sensors, all specifically integrated into the bigger story of Microsoft’s health platform. The Microsoft Band is simply a front end to the data. It is hardware and, more importantly, sensors as a service. Microsoft is building a health platform that gets smarter and better the more data it has about you and others. Jawbone, Fitbit, and many others could benefit from this service and simply provide the hardware and software front ends to a bigger data story. They are examples of companies who need to be investing in services and Microsoft could be a great partner in this.

The Health example is one of many where Microsoft can invest in cloud platform services and help other companies with their necessary services strategy.

It is my firm conviction that, for many hardware companies, their future success and revenue depends, not on monetizing the hardware, but in monetizing the services. In similar ways the early PC companies went to Microsoft to license Windows in order to deliver hardware value, the next generation of hardware companies can go to Microsoft to license their cloud platform to enable the next generation of hardware and services. Few companies are as well positioned to capitalize on this shift from hardware to services as Microsoft. They still have a long road ahead of them and they need to build trust with these next generation companies that they are a true partner and not a competitor. Nonetheless, I like where Microsoft is sitting with a focus that resides in the clouds.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

37 thoughts on “Microsoft Beyond Windows”

  1. A lot of PC companies like Dell (or HP before they became incompetent) use their hardware as a “gateway drug” to their services. Buy a printer, then buy the service contract from the same company… or give discounts on your services if your customer runs it on your hardware. So from that direction it looks like this transition you’re talking about started a long time ago.

    The problem Microsoft is having is rooted in the fact that under Ballmer they spent the past decade clinging to selling their software, instead of transitioning, like the PC makers did, to giving it away (or selling it cheaply) and leveraging it as a gateway to services. From the outside, it looks like there are still factions within Microsoft that haven’t gotten the memo and are still trying to sail the ship on the same course that Ballmer held it to for a decade, which is the course that led them to their current Scrooge McDuck-like state, of sitting alone on a huge pile of old cash in a vast money fortress, while all the activity and vitality, and all the new money, has moved outside.

    1. That’s the best analysis of Microsoft I’ve seen in a long time. I would only slightly disagree in the sense that maybe not quite *all* the vitality has moved outside, because Microsoft does have Azure. Other than that, I agree with you. “Scrooge McDuck-like state” is correct!

    2. Check your history… Balmer started the course correction with Azure and Office for iOS and Android. I’m no Balmer fan but give credit where credit is due.

  2. I believe that MSFT has a cultural problem with the “others” in the mix of tech. I really haven’t seen any change in their “ownership of game” mentality. I was in services for 35 years and people don’t take to a culture of self rightness. To MSFT they are the product and you are insignificant. Snark from a salesman will not sell and they have a monopoly on snark,same with Samsung. Service is a soft business, it is relationship. And trust is only established on the outside of the organization not on the inside. Develop that and maybe MSFT will have a chance at services.

  3. With Apple Watch coming out early next year, I wonder if Apple contemplate tying their Watch into MS Health platform in addition to their own.

  4. Two things:

    First, I can see how everything in the computing industry might evolve towards services. I’m not sure though that the services company who doesn’t have a significant share of the platform market will be among the winners in the services race. Google raced to build Android because they didn’t want Apple to have the power shut them out off their access to smart phones. Heck, Microsoft was able to kill Word Perfect, Borland and Lotus basically through its control of the platform. There are a thousand and one ways the guys who own the platform can outwit, outfox, and outmaneuver a services vendor. Question is, is Microsoft’s platform dominance in PCs enough to ensure their survival in mobile services? Google Maps is supposed to be much better than Apple Maps but it still lost a significant amount of views on iOS when Apple Maps deployed.

    Second, the premise that all hardware eventually commoditizes might be true for the enterprise market, it is certainly not true for a certain category of goods in the consumer market, a category that includes computing devices.

    1. Googles development of Android had nothing to do with Apple. Google stated explicitly when they bought Android that the reason was to stop Microsoft from dominating mobile the same way they dominated the PC. At that time MS’s OS was second to Symbian with around 25-30% market share and for variouse reasons there would have been no antitrust problems with MS making their search engine the only one you could use on their platform.

      1. Initially, yes. But then when iPhone came out Google drastically reworked Android from a Blackberry imitation to an iPhone imitation. To their credit, Google realized right away that the phone to watch out for was not Microsoft’s (or Blackberry’s or Symbian) but Apple’s. Anyway, regardless of which phone OS Google was wary of, the main point still stands –that Google built Android because they knew that if they didn’t have their own phone OS, their access to people’s smart phones will be imperiled.

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