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How Microsoft is like a Weeble

Microsoft is like a Weeble. The company wobbles time after time but it doesn’t fall down.

This ability for Microsoft to bounce back up after wobbling on shaky ground this past fiscal year came to a head this week as the company began shipping the Surface 2 and Surface Pro 2, and reported its commercial business was up by 10% during the first fiscal quarter of 2014.

Microsoft also declared its devices and consumer hardware division enjoyed an uptick in overall Surface revenue of $401 million while the Windows OEM Pro licensing revenue was up 6%. The 32GB Surface RT was the primary contributor to the division’s revenue, with demand stemming from the retail and education sectors. Microsoft in August offered steep price cuts of Surface RT.

Indeed, Microsoft this quarter made steady strides in the commercial business, with Office revenue up 11% and its server products up 12%. The company’s commercial cloud business – including Office 365 and Windows Azure — also grew by a whopping 103% when compared year over year – with more customer adoption for Office 365 seats and Azure customers, but Microsoft did not disclose a more granular level of details regarding the reason for such growth. Revenue for commercial licensing came in at nearly $9.6 billion, up from $8.9 billion the previous year.

Overall, Microsoft posted revenue of $18.6 billion, up 7% compared with $16 billion from the first fiscal quarter of 2013. Microsoft’s revenue included the deferral of $113 million of Windows 8.1 pre-sales to OEMs and retailers. Microsoft also posted a net income of $5.2 billion, compared with $4.4 billion for the same time last year.

The first fiscal year’s quarterly earnings represent a bright spot for Microsoft. The company has suffered from major events that impacted the company over the last year:

  • Microsoft transitioned to a devices and services company during a major reorganization of the business and CEO Steve Ballmer announced his retirement shortly afterwards
  • The company revealed a $900 million inventory loss for Surface RT
  • CEO Ballmer’s acknowledgement he missed the mobile device opportunity
  • Poor enterprise reception to Windows 8 and no enterprise story until Windows 8.1
  • The debacle over not providing Windows 8.1 and Windows 8.1 Pro RTM to its developer and IT pro communities at the outset.

In addition, just as Microsoft let out Windows RT 8.1 update last week during its official commercial availability, there was a snafu involving the configuration file reboot and Microsoft had to pull the update off the Windows store for a few days, tarnishing the commercial roll out of Windows 8.1 and Surface tablets.

And the list goes on. But Microsoft  has enough cash to keep it afloat as it transitions into a “new” company, hires a CEO, encourages enterprises to adopt Windows 8.1 and integrates the Nokia acquisition into its company pending approval. The company also steadily enjoys some positive highlights with the growing adoption of Office 365, Azure and positive reception to Windows Server 2012 R2.

I don’t believe Microsoft’s wobbles will end this coming year. It remains to be seen how the company entices the enterprise to embrace Windows 8.1 when companies are just migrating to Windows 7, or whether they’ll gain market share in the growing tablet space when iPads and Android-based products already enjoy commanding leads in the market.

But at least the company started the fiscal year on a good note with an uptick in Surface revenue which they said stemmed from its education and retail sales. During its September quarter, Microsoft had drastically cut the price of the Surface to $349 and had a special education offering that enabled K-12 schools and colleges to purchase the device for $199. Microsoft also dropped the price of the Surface Pro to $799 and this week, and cut the price of Surface Pro to $699.

Can Microsoft take some lessons learned this past year and apply it for the future? Of course.

For example, in recent meetings with Microsoft’s commercial Windows enterprise team, they said the decision to provide the Windows Enterprise 8.1 RTM about a week after Windows 8.1 and Windows 8.1 Pro RTM was made available to developers and the IT community early was all about timing. (And those releases only came out after developers and IT pros were up in arms when they did not get the Windows 8.1 and Windows 8.1 Pro RTM bits along with the PC OEMs.) If the new Microsoft really wants the enterprise, developer and IT community to support them, they have to court them in ways that work best for these communities.

Regardless, Weebles wobble but they don’t fall down.


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