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How Microsoft is like a woodpecker

By Diana Hwang

As I sit on my friend’s porch in New Hampshire staring at a lake, I can see and hear the woodpeckers as they drum on various trees around her property in search of food.

Microsoft reminds me of a woodpecker as it hops from tree to tree pecking to find the one with the treasure trove of food. Microsoft has enough money to pick the tree it wants, work on it for a while and see if it likes the results. If not, it can fly away. If Microsoft does, it can stick with it and see how it can mark it as their own territory.

Microsoft has done this as it has come out with a host of new products such as Windows 8, Surface, Office 365 and the Azure cloud platform as the company transitions into a devices and services organization. Microsoft is playing in all spaces and deciding which one is best and building its strategy around it.

Indeed, as the $77 billion company wends its way through a changing technology landscape, Microsoft disclosed its fourth-quarter earnings and fiscal year’s end this week, following a sweeping reorganization of its business.

The industry has eagerly awaited the results.

The biggest winner? Office 365. The company is now on track to do a $1.5 billion run rate. As expected, the Windows business was down but still grew by 5% during the fiscal year. Like Intel, this was reflected by a sagging traditional PC market.

“This quarter, the Windows business declined as the market evolves beyond traditional PCs,” said Amy Hood, in her first earnings call as chief financial officer upon Peter Klein’s retirement at the end of June. “We’re working to transition the market to new computing with Windows 8. The journey will take time.”

And that journey will be long indeed, especially since customers are still moving off of Windows XP. Hood noted that three quarters of Windows users are now on Windows 7. If enterprises recently moved to Windows 7, why would they go to Windows 8 unless the new operating system makes sense for specific departments or use in a company?

Microsoft has taken a more conservative stance with Windows 8 after trying to innovate too fast with the modern interface and alienating its enterprise customers. This is too bad, given that the company has finally begun to turn Windows 8 around with more enterprise-level features and management capabilities in the Windows 8.1 version.

But does Microsoft have time to turn Windows into the one interface and OS the customers will use across all mobile devices? Net MarketShare recently noted Windows 8 surpassed Vista in operating system market share with just over 5% (not exactly a high point since nobody seems to like Vista anyway).

And speaking of devices, what about the Surface tablet?

“Surface is one part of our journey to bring innovative and compelling devices in the modern era of computing,” Hood said. “[Microsoft will] fine tune our action plan as needed.”

They need to, and fast, especially for Surface RT. It’s a device in no man’s land despite Microsoft’s attempts to get the product into the enterprise. Microsoft just slashed the price of the RT by $150 this week, but is this really going to be enough to stimulate adoption? I doubt it. I don’t think Microsoft will give Surface RT up yet, but if people are truly waiting to buy a Windows 8 tablet, they’re going to go after it this fall when Windows 8 Bay Trail-based tablets come out with price points that are expected to be $199 and below.

We’ve already seen the first 8-in. Windows-based tablet come to market by Acer for only $350, and Hood hinted at more to come.

Microsoft recently launched a commercial channel program for Surface, enabling enterprises to buy the product through authorized distributors and resellers. Hood promised more would be coming in the following months. Microsoft should have had this out at the beginning if it knew that Surface, especially the Surface Pro, was going to be aimed squarely at the business user.

Nowadays, it’s all about the apps for mobile devices, and if Microsoft can’t get developers to create more compelling apps for Windows 8, buyers won’t be satisfied. Microsoft sits somewhere between Apple and Google — both are strong in the consumer market. Those consumers are enterprise users too, and they buy apps. If apps sell devices, then there had better be some good apps for Windows mobile devices. It’s a vicious cycle, but it’s part of the bigger ecosystem.

It will be interesting to see how Microsoft moves going forward. Terry Myerson is at the head of the Windows operating system team for all products, while Julie Larson-Green heads up the devices and entertainment team. That’s good news because everyone can now “talk” to one another without feeling that they’re working in competitive silos.

But doing this on paper doesn’t mean it’s going to work in practice. It’s collaboration in a big way, and that’s not easy. It’s kind of like that “one interface across all mobile devices” strategy, a la the Modern UI. The leaders of all engineering groups need to make sure they can pull their teams together. It’s the three C’s: create, collaborate and communicate. All C’s intertwine, and Microsoft needs its new senior leaders to do so to take the company forward.

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