With a new CEO, a mobile hardware lineup and some success in the cloud, Microsoft's transformation is well under way. Now, IT pros wonder how Microsoft will reconcile its legacy in software with its broad mobility and cloud service ambitions.
The company launched Windows 8 in October 2012 with a radically new user interface, but was subsequently panned by critics for alienating its enterprise customers, who typically don't take to change as easily as consumers. Microsoft also took a $900 million inventory loss attributed to the Surface RT during its fiscal year fourth quarter in 2013.
Then, Microsoft consolidated its engineering business and reorganized into a devices and services company. CEO Steve Ballmer announced his retirement shortly afterwards, and his replacement, Satya Nadella, was named this month. Microsoft also acquired Nokia for $7.2 billion to become a distant third in the smartphone market behind Google Inc.'s Android and Apple Inc.'s iOS devices.
But Microsoft is no different from any other mature company that is undergoing a transformation to survive in a competitive and changing high-tech industry, such as IBM and Dell.
"Between the changes that Ballmer made and the fact [that] they got a new CEO, there are lots of moving pieces," said Brian Katz, head of mobile innovation at a large pharmaceutical company based in New Jersey. "In most cases, they have made a good decision, but now we have to see what happens."
Can Microsoft make it in mobile?
Microsoft may be perceived as regressive, however, by adding tablets to its product line in the hardware business and buying its way into the smartphone market, essentially competing against its large partners.
Bob Eganchief analyst, Sepharim Inc.
"It's interesting to see how Microsoft can transform from a company well-represented by the channel and their hardware manufacturers to one that ... has to build on customer engagement," said Ira Grossman, chief technology officer of end-user and mobile computing at MCPc Inc. in Cleveland.
Microsoft's steep history in desktops and servers serves the enterprise market well, but its lost opportunity in mobile was acknowledged by Ballmer during his last presentation at Microsoft's annual financial analyst meeting. Apple's iPhones and iPads grabbed hold of the consumer and enterprise markets and helped drive the consumerization of IT.
"Microsoft is a headless horseman around mobile," said Bob Egan, chief analyst and founder of The Sepharim Group in Falmouth, Mass. "They need to get control around this thing and make it happen."
All eyes will be on Microsoft's Nadella as he continues to expound on the mobile and cloud-first initiatives for the future. As the company heavily markets its Surface tablets and incorporates Nokia into its business, its emphasis on software and services has become more apparent.
"Devices are where this comes together," Nadella said during his first public meeting with customers and partners this month. "How does one define the boundaries of Surface Pro? A lot of applications running on the device have a back end in the cloud."
Some IT experts have questioned whether Microsoft has already missed out on the lucrative mobile market.
"Their advertising campaign [of one experience on every device is] clever, but is it too late?" said David Driggers, supervisor of desktop systems at Alabama Gas Corp., a longtime Microsoft shop based in Birmingham, Ala.
Microsoft is clawing its way toward delivering a better mobile vision after a rough start with Surface. For its second-quarter results for fiscal 2014, the company posted nearly $900 million in revenue, and it suffered from backorders during the December quarter. Now, as it prepares to integrate Nokia, Microsoft faces the challenge of combining two different corporate cultures.
"The acquisition of Nokia is telling in that this is a software company buying hardware to ensure its future in mobile software," said Chris Hazelton, director of mobile and wireless research at 451 Research in New York. "That was the largest [acquisition] deal of the year and the largest in recent history."
In a recent 451 Research ChangeWave survey of 1,481 IT respondents, 40% said they planned on buying a smartphone, with 12% of those respondents revealing their intention to purchase a Windows Phone during the first quarter of 2014. In comparison, 65% said they would purchase an iOS device, and 40% preferred an Android-based device.
Are apps the savior?
Microsoft's success in mobile may start with eliminating Windows RT, Katz said.
"We've seen two different OSes in their tablets and a third OS in their phone," he said. "It's one too many."
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Katz suggested removing Windows RT altogether and adding Windows Phone to the Surface tablet, which would give users more than 100,000 apps.
"Windows Phone scales up, and there is no reason not to do it. Now you can draw a bigger distinction between Surface Pro and Windows Phone," he said.
Microsoft must give application developers a convincing vision of what it will invest in and demonstrate that investment by delivering its own apps on the platform, said Rob Helm, managing vice president of research for Directions on Microsoft, an IT consulting firm in Kirkland, Wash.
"In the next 12 to 24 months, Microsoft needs to win back credibility with application developers," Helm said.
"It looks like the company is set to unify its [Windows] Phone platform with the platform for tablets," he added. "That would be the kind of step that would give it more credibility with app developers."
However, mobile is only one part of Microsoft's vast business. The company's products are so entrenched that businesses are not going to move away from it anytime soon, industry experts and IT administrators said.
"We're positive on their strategy, service offering and Windows client," said Chris Silva, director of enterprise mobility management research at Gartner Inc. He noted, however, that Gartner had been "more positive in previous assessments" before Microsoft's purchase of Nokia.
Microsoft declined to comment for this article.