112

Long term thinking: Can Microsoft stay in the consumer game?

This week we’ve seen the recent set of financial results from both Microsoft, and it’s soon-to-be-acquired mobile phone business from Nokia.

It’s pretty easy to paint a pretty picture for Microsoft. They beat the Street’s expectations on revenue and earnings, and things are going well in terms of enterprise sales. On the consumer front, you could focus on the doubling of Surface sales and decent showing in Xbox sales.

But I’d like to open up the discussion a bit more. Let’s talk about the long term potential for Microsoft’s business. To pre-frame the discussion, consider that when I say “long term” I really mean it. I’m talking about the next decade or more.

Microsoft is exposed to the enterprise business as well as the consumer business. I think that for the next few years (at least) it’s tough to argue that Microsoft is in any kind of trouble. They’re growing across the board whether it’s SQL Server or Azure or Office 365. All of these are recurring revenue businesses, which I think is wonderful.

But in the consumer market it’s a much tougher battle. Microsoft obviously holds the leadership position in the PC market but consumer Windows sales declined by 20% year over year. That’s a huge decline, and a clear result of the success that (mostly) Apple and (also) Google have had in both the PC and mobile markets. There is no debate about this; Windows is in decline when it comes to the consumer desktop and notebook.

Will mobile sales (Windows Phone and Surface) offset this? That’s a tough one. Yeah, sales of the Surface doubled last quarter to hit almost $900 million. But can Microsoft keep fueling this growth? If they can, I’d say they’ve got a good shot at staying relevant to consumers. But if not, a billion or two in sales per quarter isn’t going to cut it. To put this in perspective, consider that analysts expect Apple to report about 25 million iPad sales in the most recent quarter. That’s probably $12 billion in sales. In other words, Apple is more than 10x larger than Microsoft when it comes to tablet sales. Talk about a tough momentum wave to overcome!

In mobile phones, Nokia is now classifying the device business as “discontinued”, since they’re about to close on the sale to Microsoft. But the disclosure in their financial results is clear: Sales declined in the mid single digits this quarter (versus Q3). It’s not a good sign when sales decline (by any amount) in the biggest shopping quarter of the year.

Nokia didn’t spend much time talking about mobile phones on their conference call, but from the little time they did spend it’s clear the focus is on emerging markets where devices are not subsidized. I think that’s a smart strategy because there is still a huge population out there who hasn’t moved onto a smartphone yet. At the low end of the market Apple is not a player, so it’s basically a fight between Android and Windows Phone. Why should Microsoft leave the entire market to Android?

I’m not going to get too obsessed over the Lumia sales decline in the quarter. Everyone slips and falls once in a while. People seem to really like their Lumia phones and Nokia makes great hardware. But it does seem to me like Microsoft has an enormous challenge ahead of it in terms of getting to a point where its consumer business is relevant for the sustainable long term. You could argue that Apple did just fine being more than 10x smaller than Microsoft in the OS game, but they served the high end of the market. Microsoft will be fighting for low end market share and (compared to iOS and Android) is still a drop in the bucket.

So what does the future really hold for Microsoft? They are financially very strong, they’re doing great in enterprise, and I don’t see that changing anytime. While the consumer business is under pressure. Even in the gaming market where Xbox has a strong presence, it’s possible that over the next 5 years the console market will shift to Android just as the phone market has. This would hurt Microsoft, Sony, Nintendo, etc.

The way I see it, over the next couple of years either Microsoft has to stage a strong recovery in consumer or it ends up being pushed in the same direction as BlackBerry; Enterprise becomes the absolute core focus of the company and everything consumer-related is a side note.

To be clear, this doesn’t mean the stock isn’t worth owning. In the past I’ve been quite bearish on Microsoft only to watch it soar in 2013. And with this week’s earnings results, the stock still seems like it could be on the cheap side. Analysts think the Redmond giant will deliver almost $3 in earnings per share next year and the stock trades at about $37, so it has a price to earnings multiple less than 13. For a business that just posted 10% growth and pays a 3% dividend, it’s interesting.

(Chris Umiastowski is a contributing financial writer to the Mobile Nations network. You can see the rest of his posts here at AndroidCentral, iMore and CrackBerry.)

2
loading...
0
loading...
33
loading...
0
loading...

Comments

There are 112 comments. Sign in to comment

bitemeblinky says:

Windows is still the main OS for gaming computers and even Steam Box won't be changing that any time soon. Also where is this Android console coming from did I miss something?

Zeroplanetz says:

I don't get the steam box. I mean my PC I built has steam on it and runs perfect. Amd I've got all the other PC luxuries.

4look4rd says:

Steam OS is a custom build of Debian, so you have a full OS running under the hood.  If Valve manages to bring AAA games to Linux then I will have no reason to use Windows at all.

Tips_y says:

good for you.

MSFT should bid for Steam I mean, Windows And Steam games are so tied by DirectX that the Xbox One could be a Steam Machine perfectly. Get off the crapy Xbox service on Win8 and put instead Steam on. Would make billions and MSFT could grant the non disc dream that they had with the Xbox One.

Laura Knotek says:

I'd like that. I use Steam on PC, but I don't have any use for Xbox.

Comment #100.

~ Win win Windows!

rodneyej says:

Yeah, but how big is the gaming computer market compared to the console market❔... That's the problem.. That's like saying "yeah but Nokia is the biggest in the WP market""... Doesn't really say much.

Laura Knotek says:

I suspect that gaming consoles will be completely obsolete in 10-15 years. Tablets will replace consoles.

Psyk00 says:

That will never happen. Tablets wont't ever be able to replicate console titles complexity and graphics, not to mention touch controls limitations. After all millions of players want hardcore and immersive gameplay expierience in beatifuly designed virtual worlds, not 15 minutes of fingering the screen every day.

Laura, it's clear your'e not an avid gamer :)

Consoles could only be killed/replaced with cloud gaming... when the stars are right, like H.P. Loceraft wrote in his amazing stories.

rodneyej says:

Have you ever heard of the Surface Pro❔

Cleavitt76 says:

I tend to agree with her.  This might be the last generation of gaming consoles as we know it.  It's quite possible that in 10 years tablet hardware will be powerful enough to run graphics/AI that is well beyond what a dedicated gaming console can do today.  If you plug that tablet into your TV via HDMI and grab a couple of bluetooth controllers you are set.  Sure, the gaming console can always be more powerful due to it's physical size, but at some point the difference is not going to be worth it for both manufacturers and consumers.

VHMP01 says:

By the time tablets are as powerfull as today's PCs, PCs will have holographic gaming! I mean, as much as I like mobile devices, in bigger sizes bigger specs fit, laptops never got completely rid of PCs for the same reason!

 

Laura Knotek says:

I'm a PC gamer. Consoles to me are watered-down compared to PC gaming.

Hell yeah. I too was thinking of getting a XBoxOne or a PS4 but now I am looking over building my own custom gaming pc.

deansmilk says:

MS not worrying about Steam would be a huge mistake. Regardless of OS.  MS does not have that Steam equivalent as far as PC/mobile gaming goes ( Android and iPhone). Just as MS blew off Apple and Google in mobile, theyre doing the same thing with PC and mobile gaming. MS put their foot in gaming and now theyre not moving fast enough to stay ahead in that arena in all platforms. Steam, Apple, and Google could all put out consoles with their respective os's and potentialy take that away from MS. If that were to ever happen, MS has nothing to fall back on in the gaming business becasue those other companies are winning consumers through their brands ( Steam, iphone/app store, and Android/Play Store). Those brands dont need Windows. They have their own platforms now. Except for Steam but thats changing with Steambox/Steam OS. Yeah the majority of pc gamers have Windows with Steam on it, but dont count those devices/OS's out. Look what happened when MS did that to Apples iPhone. If those Steamboxes/Steam OS take off MS better have something in place for PC gamers to stay with Windows. MS basically needs a competing dd platform for the PC. Mobile gaming, well...

Nvidia (and I assume many others) believe Android will become the future OS for consoles. It's an interesting theory because it sure has worked out for phones, and it looks like a danger to the automotive players (QNX).

Don't think Android as in current Android hardware (phones).  Think Android as in open OS that anyone can build a console for (powerful hardware) and SDK tools, etc, to support game development in that market.

Google could open things up a lot here ... and wreak havoc for Sony, MSFT, Nintendo (and I'd argue Nintendo is already screwed)

based_graham says:

I am confident Microsoft is fine. Microsoft has the $$$ to make it happen. They have a foundation on mobile, workstation and living room. It's all about the back end integrating Skype, Xbox, Office into Windows providing a seamless experience for mobile, work and play. 

Mr Geek says:

$$$ does not make it happen. Microsoft need innovation, and introduce new technology to the world. They need to move forward to the future. 

psiu_glen says:

One point that would help, at least for the MS devices themselves, would be if they can take control in the US in regards to the carriers/devices. One device on all carriers, like the iPhone or S3/4/5. Take over responsibility for support/updates.

Also, they should change their name to Appsung, or possibly Smapple.

based_graham says:

I think future MS phones will be re-branded to Surface and will be available on all carriers. No more exclusitvity that might die with Nokia D&S. MS should make 3 modelsto start off with Low End, High End, Phablet. 

nitt_attaboy says:

Letting go off Nokia branding in emerging markets would be disastrous. My family members went for Lumia / WP because of Nokia Brand name or else they would have bought Samsung phones because of their marketing prowess .

mjrtoo says:

Agreed, Nokia is the ONLY game in the emerging market.

jcar302 says:

Letting go of the nokia name period is going to be bad for business.

There is a reason most windows phones are nokia's, people trust the hardware.

The average user that walks into the store and gets a microsoft phone is not going to have a very secure feeling in their decision.

dagrepont says:

I agree. These carrier exclusives are stupid. While I understand that they are done so they'll advertise a company's phone, it doesn't seem like that has worked out too well for Nokia relying on AT&T. I know some people who would love a 1020 but refuse to go to AT&T.

sco0by1 says:

And it doesn't help when the store rep of the exclusive carrier try's to talk you out of the wp and into a iPhone or Android phone.

nitt_attaboy says:

Maybe at&t reps. Are Trojans from iOS or else why try to manipulate the customer's choice.

I've never had anyone at AT&T try to push me to an iPhone or talk me out of Windows Phone. A Verizon rep did put the Android moves on when my girlfriend went to upgrade her craptastic old HTC Eris. She already wanted another android phone, so it wasn't a big deal, but he was so dismissive of the others that she was turned off and left. Ended up doing her business with an independent Verizon reseller who wasn't a douche.

nitt_attaboy says:

Same as I thought from their QE report. I also came to the conclusion that maybe in another 4-5 years time they may start ignoring consumer side of their business & there may be calls for selling it like there is now for Bing search.

Editguy1900 says:

With the direction MS has taken, I think that they are on track to continue solid growth. Because of their diversity, they don't have to sell as many hardware devices as Apple. I would be more concerned if I was Apple. If the "i" fad ever dies, what does Apple have left to sustain the company?

jjmurphy says:

Nokia once had big moolahs as well. If you're a one trick pony, it's a dangerous game.

nitt_attaboy says:

Really? Nokia? I thought they had more patents than moolahs, which they kept for their own OS.

TheMacamush says:

Oh, Nokia had the moolahs. That's what kept the company alive the last 3-4 years

TheMacamush says:

And the brand ofc, a name change in Europe would be devestating, Microsoft is not a quality name here :P

brmiller1976 says:

More like "Nokia had the ability to issue bonds to get moolah to replace the ten billion euros they burnt through."

Zeroplanetz says:

I personally won't buy am iPad ever or an android tablet ever. Or there phones. If MS dies out in the consumer market for products (software) ill be downgrading to a dumb phone. Because BB isn't really there anymore.

nitt_attaboy says:

I may switch to forked android

Zeroplanetz says:

I won't because its still android based. But that's my personal opinion. Its kinda like I chose AMD because Intel markets there processors with the (I) scheme.

nitt_attaboy says:

So what about Nokia Normandy?

thirdday2002 says:

If my house burns down, I think I'll just downgrade to a tent or cave. Moving to another house just isn't a viable option.

Zeroplanetz says:

I buy what I like and don't what I don't like. Same as you and everyone else.

Marco Gomes1 says:

The xiaomi phones with cyanogem mod are pretty cool.

rodneyej says:

As long as WP, and Lumia devices keep pumping out of factories.. That's all I care about...

Rem97 says:

+1 to that!

As long as I can get all the goodness of WP, Windows, Xbox, SkyDrive, Skype etc. then I don't care about other consumers. However, this may not be sustainable long term though.

rodneyej says:

They need to be more edgier, more bold, more provocative, and less conservative, less soccer mom, and less reserved... Its time for them to say "fuckit❕ Let's make the damn thang do what it was put here to do❕❕❕"""
Seriously, that's the only way they are going to survive long term... Poking fun at Google isn't going to cut it unless they are just plain relentless at it, and spend hundreds of millions bashing the others until the public thinks MS is the only cool way.. But, silly little online "Scroogled" campaigns aren't the way..
They really just need to beat Apple at Apples game and blow every little thing new that MS does out of proportion.. Quit letting Apple, and Google, appear to the average consumer to be the first at everything.. If the come out with Cortana I want MS to have commercials everywhere saying that Cortana is the first true personal assistant.. I want to see countless claims that MS invented the personal assistant, voice control, and even smartphones❕ I might sound crazy saying this, bit this is what MS needs to be planning for marketing from this point on, no matter what the risk.. Nobody cares about a scared little conservative, unexciting, old-school company who say's that they are secure, safe, perfect... What kind of message is that? What kinds of things subconsciously come to mind when people hear that?.. Definitely not edgy, stylish, hip, fun, cool...
And finally, MS needs to understand that adults also are looking for edgy, stylish, hip, fun, cool... A 40 year only today isn't the same as a 40 year old back in 1989, or 79... I know because I'm 36, and these 16 year olds can't keep up with me..... Microsoft, just hire me❕ Damnit❕... It's not rocket science.... Just shock people❕

Rem97 says:

I agree with you 100%❕ only time will tell I guess. Also, I'm 16 and I think I could keep up with you ;).

rodneyej says:

Lol!!... No, no, no you couldn't..

I can and will keep up with you.

NIST says:

It's like Microsoft has no idea how to leverage their brands. It's baffling. Like Rodney's purple fedora.

NIST says:

Rodney is a hot dog eating champ.

rodneyej says:

Well, your mom out ate me in the weiner munching contest...

rodneyej says:

Trust me.. You could never keep up.. You don't understand who u dealing with... Strait thunderstorm over here..

joeynox says:

The problem with Microsoft and consumers is that Microsoft is simply Microsoft. They are too legacy. Windows phone, xboxone,Zune,windows 8, windows rt surface. They are behind the times even when they try. They ruin everything they buy when it comes to consumers related things. Look at the poor Xbox brand. Ruined lion head, bungie (left) , rare, ruined relationships with countless companies . Devastated the Xbox with poor policies. (will never be #1) ruined games for windows.

Microsoft needs to separate the windows from consumer related items.

based_graham says:

3.9 million in sales. Xbox is fine. Xbox One is just the beggining more to come.

nitt_attaboy says:

That ought to be the problem with Great grannies. Can't help it.

mjrtoo says:

Behind the times, come on, you must be from Colorado and just sad a few puffs right? If not, you're out of touch with technology.

nitt_attaboy says:

Gotcha, I'm from India, & no i don't smoke.

sayonical says:

They need to move faster in the consumer space - especially where Windows Phone is concerned. They need to not only match iOS in terms of apps but feature wise. They need to show consumers that they are serious about Windows Phone as a mobile product and its not just some experiment.

They also need to tread lightly with Windows 8. They had a major misstep by pushing the touch interface on desktops. 8.0 was pretty bad. 8.1 improved things. Here's hoping they make things right in the next update - that is - let desktop users choose how they want to use windows! Let metro apps run in a windowed mode in desktop. A start menu return that features live tiles etc.

They need to move faster in new technologies. Microsoft is absent in the wearables market. Same way they were first with tablets but lost the game due to lack of proper execution - they are dropping the ball to Google Glass, Contacts and even apple iWatch (if its not vaporware).

They need to move faster in the living room. Where's Microsoft equivalent of Nest? Where's the cheaper tv only Xbox one? Apple TV will soon become even more popular and the Xbox one is simply too expensive to serve as a setup box.

Windows RT has lost the edge of had against Google Chrome OS. Microsoft needs to nip Chrome OS in the bud quickly. Either make RT cheaper/free to use the way they killed Linux on netbooks with XP back in the day. They need to have $200 computers and tablets with good specs like the nexus 7.

Microsoft needs to be more nimble and respond faster to industry trends.

nitt_attaboy says:

Yeah rightly said, they could make RT free. This would hurt no one. In this way they can encourage nexus competitors. Also this will help windows app ecosystem. As free RT means more OEMs & more OEMs mean more interest in windows thus more sales and more users which ultimately lead to more apps. Vote for Free RT!

killerb255 says:

They don't need to match iOS. They need to -surpass- iOS. Average Joe would buy the "original" than a "me too" product.

SocalBrian says:

"you could focus on the doubling of Surface sales"

 

If you do then you also need to focus on the fact that they spent more (over $900 million) getting those sales than they earned from those sales, i.e. Surface lot money.

hopmedic says:

They have to. With BYOD so prevalent, if they don't become more of a consumer company, they'll slowly lose market in business.

based_graham says:

Microsoft made the right moves to improve WP low end instead of focusing on the high end. That is where the market is the weakest. With tight competiton in the low end space especially with Android 4.4 MS needs to aim back at high end to "awww" the consumer. Knowing that Q4 is a tought battle with high end flagship maybe Microsoft is aiming to release a flagship in Q3 so they can have the entire period to themselfs. 

Sonic98 says:

Yeah and if they're going to go low end, they need to make sure their phones are on the low-end carriers. Every time I drive past one of these budget carriers like Cricket or Boost, there is a big Android sign or figure outside their stores. 

it’s possible that over the next 5 years the console market will shift to Android just as the phone market has.

yeah, right. no playing subway surfers and other crap on my Xbox. 

based_graham says:

If Valve goes under with SteamOS and PC starts to sink what if Google buys them out and now they will have a stronger presensce in Mobile and Living Room. Only workspace Google is lacking is w/ workspace Chromebook and Android isn't going to cut it. 

ScubaDog says:

I absolutely agree the challenges for Microsoft in the consumer market are formidable.  As much I really do prefer Microsoft products over Apple or Google, I'll be the first to admit that they've made boneheaded choices in A) being slave to the carriers--and fibbing about it initially--and B) marketing blunders left and right.  Having the false start with Windows Phone 7 didn't help matters, either, although for people like me it was a welcome change from Windows Mobile--which I'd grown to HATE--and ANYTHING from Apple or Google. They are still playing a bit of catch-up in some aspects of the mobile platform, even though some of the aspects people SAY they are playing catch-up on are areas that Microsoft really, by design, negated the need for.  Sadly, far too many people are so stuck in old ways of doing things (because iOS and Android forced you to be concerned with them) and just don't get that some of those aspects/features are passe'.  I equate this to being forced by consumers to add a place on the automobile to store your buggy whip.  Admittedly, I have a very low opinion of most consumers in the modern age.

However, having said all that, I really believe that if Microsoft pulls off the melding of the desktop world with the mobile world and, dare I say, the console world, they stand the best chance of righting the ship.  Apple just today sneered at the idea of uniting their platforms, calling it a waste.  This may be the opportunity Microsoft needs.  As a consumer, I thoroughly want the world of the Iron Man movies.  I want to seamlessly move from desktop, to laptop, to tablet, to smartphone, to console and control my world, my data, my media.  Neither Apple nor Google show any signs of doing that.  All they have is, in my opinion, consumption toys that some people pretend to be productive on. 

Let me give you an example of how Microsoft is making a new path.  I'm 51 years old.  I grew up from DOS all the way to Windows 8.1.  I also grew up with quite a bit of the Apple stuff...which I hated all along, particularly as a technician.  I also passed on the Palm but jumped on the PocketPC with the iPaq 3630.  But I've never, ever done gaming consoles.  One trick ponies.  I'm a PC gamer exclusively.  The games look better, perform better, are more social (when I want them to be), and run on an existing equipment I have.  But the Xbox One is the first console I've purchased.  And I don't have a game on it.  It's a 1.0 product, to be sure, and it's got some improving to do.  But it has already changed how we do home entertainment.  And it has further fueled my demand for voice and gesture control of EVERYTHING.  I've even started using the voice features on Windows 8.1.  I'm more likely to start an app on my Lumia 1020 by voice than by touch.  And my family has fully embraced the cloud.  But the piece that's missing is the full ubiquity of it.  THAT is what the unification of platforms holds as the promise.  Having my documents, my content follow me wheever I go is what I demand.  Ability to tie into other system is what I demand.  I've already submitted the suggestion to Vivint that they create an Xbox One/Windows 8 app so that I can control the lights, temperature, alarm system of my house completely through voice or gesture.  This is the world we are moving to, and this is the world that is quite possible even now.  The company that is poised to do this quickest, in my opinion, is Microsoft.  And this world I'm describing isn't exclusive to consumers, but also quite important to business.

mrolympia74 says:

I absolutely agree with you. You took right out of my mouth. Very well said

NIST says:

Really? You want me to predict what Microsoft has planned in the next 20 years? The only person who knows is Microsoft, and I doubt their going to show their cards before then.

Dean McCrae says:

Believe me, they do not know.

Luc4 says:

"Windows sales declined by 20% year over year"

Wasn't that Windows 8 only excluding tablet devices? From MSFT:

"Windows OEM revenue declined 3%, reflecting strong 12% growth in Windows OEM Pro revenue, offset by continued softness in the consumer PC market."

And Surface sales were up. I think people aren't as crazy to update their PC's every other year like most tablet users but PC is far from dead for next few years.

The mobile market is tougher one since that's where the real uphil battle is. They have the money to keep going. Example is Bing and Xbox. Neither at beginning at much significant market share so it's still possible they will slowly increase market share but impossible to predict. For that matter it's also impossible to predict whether Apple will be able to keep growing since Google took quite a share out of that.

nitt_attaboy says:

PC wouldn't be dead till all the ease of customization & power under the hood of it comes to a hybrid or tablet. And that's probably 20- 25 yrs. Away because along with hardware improvements there are also increasing hardware requirements.

Pacus1x says:

"Even in the gaming market where Xbox has a strong presence, it’s possible that over the next 5 years the console market will shift to Android just as the phone market has"

No, no and no... after using the OUYA and try out the Gamestick, those "consoles" are just no competition for consoles business.  I say MS should continue to push into the consumer market, i always say that MS make excellent products, but lacks a proper marketing management.

mythos13 says:

I would say the Xbox One sales are more than descent, espeically when you considier it's $500. 3.9 million was beyond everyone's expections.

For WP, I think Microsoft should continue to tackle all ends but get away from those self-defeating carrier exclusvies. Samsung must shake their heads in bewliderment when they see Nokia pushing so hard for exclusives while they sell tons of SG's on every carrier. Then Microsoft should work hard on getting the next gen 1020 out as soon as possibe and make it best as it can be and get it on Verizon right out of the gate. The CTO of Verizon once said "They could make Windows Phone the same way made Android". Microsoft should take them up on that offer.

Also Microsoft has to close the feature gap with WP--it's ridiculous. I think there are about 50 million people on the planet who like Windows Phone more than Microsoft--if only they would work on it harder!

Microsoft sadly keeps away from gimmicks and good-looking hardware. Windows 8 looks good but that is debatable.

Back to the gimmicks, Microsoft isn't like all the other OEMs; it focuses on functionality more than gimmicks like finger-print scanner, iris scanner or air gestures, instead they focus on what the consumer needs.

To be honest, All I wanted when I was younger was the MacBook Air because it was slim and it looked good but when I grew up and realized what I want to use, I realized that all I want was a slim windows ultrabook and not a MacBook Air. Same goes to the Surface, the iPad (Air) looks way better than what the Surface (2/Pro 2).

Let's be realistic, the average consumer is stupid. They probably had a bad experience with windows because they downloaded and opened even program off the web and caught every single malware and virus so they are moving towards Apple.

I didn't say that Apple is bad but all consumer are slowly crawling towards it, tbh their lack of knowledge is making them crawl. Same goes to Andriod smartphone user, they are getting a bad experience with their smartphones so they move to the infamous iPhone (I doubt that they will move to Windows Phone 8).

Microsoft and Nokia have to start making better adverts!!! I hate the children's play ad from Nokia...when compared to the Sony X1 or whatever it's called ad. It's an ad that really kind of hits home. Where as the Nokia ad (and many of the Microsoft ads - although they are getting better) reek of desperation!!!

ripthuggery says:

If Microsoft integrates there products they'll do great! Integration is very important

toddpart says:

I always enjoy Chris's articles. However, I think this one askews two points. First, when comparing the number of tablets sold vs iPad you need to count everything...Surface, Lenovo, Asus, HP, etc. Those are ALL Windows tablets, the success or failure of Windows on a tablet/convertible form factor is not dependent on MS Surface sales alone. Second, maybe it's just the way I am interpreting the article, but it seems to imply that MS may be in trouble if it just focuses on Enterprise....it could "end up like Blackberry." Um, since it's inception MS has been and Enterprise first company. It's only in the second half of its life that it has pushed to establish a footprint for themselves in the consumer market. They're as solid as can be in Enterprise and probably look at consumer as an opportunistic growth segment...and there is nothing at all wrong with that strategy IMHO. Because we like consumer devices here we sometimes have a tendency to get a bit myopic and freak out if a business with many pokers in the fire is not hitting on all cylinders in consumer. Lets not forget MS is a software company first. They want to switch to SW/Services/Devices and nothing will make me happier than to see them ultimately triumph, but if they fail at devices their software and services businesses are still gong to be fine.

You're reading way too much into what I wrote in such a way that it doesn't reflect what I mean.

Ending up "Like BlackBerry" was said in the context of focusing on enterprise, not any implied financial success or failure.

Microsoft was all enterprise, then became big in consumer just like BlackBerry.  Then, because of competition, BBRY has retrenched into Enterprise, so the question I'm asking is "Will MSFT do the same?"

The answer isn't obvious yet.

EspHack says:

the thing is, they NEED and WANT the consumer market, at all costs, and "cost" is something they can afford, windows phone and rt are here to stay, nowdays you cant build a single piece of the market and claim your seat as a major company, you need an entire ecosystem to hold your customers at every sector, that means having a phone, watch, tablet, glasses, home console, work/home computer and even your car's displays with the microsoft flag, and the ones who fail to spread over the entire "smart devices" bussiness will fall, it is apple/google whom should watch there backs if you ask me, they only have phones and tablets and thats a device you change every year, now see how much your laptop/desktop lasts there, or your xbox... well thats what i call LONG TERM

DJCBS says:

That thing about "consoles going Android"...uh...that would require a MAJOR rewrite in Android's own structural code. Android is not prepared for the gaming that consoles require at all. Neither is WP or iOS. Yet, even if they did, SONY would most definitely be the least affected by it...since they already have their PS system integrated with their Android smartphone offerings. From the 3 great console OEMs - Sony, Nintendo and Microsoft - Sony would be the most prepared to immediately embrace Android anyway.

As for the consumer market of Microsoft...
Well, as far as their future smartphone offering goes, my wishes are clear and known - crash and burn. I read Nokia's report on Q4 as a positive signal of that impending crash as a result of the MS deal.
If anything, Microsoft should be focusing in offering a mobile OS aimed directly at enterprise. There's no chance WP will beat Android and the ones it could beat - iOS - has a huge brand following. So far Microsoft only had a brand loyalty similar to that of the iPhone, with Nokia. But guess what? They threw that away with that stupid deal. So the Nokia-loyal fans will most definitely be gone (some will keep with WP, many others will move to Android and iOS). Microsoft has, therefore, nothing in their favour in the mobile market anymore. Specially considering how badly and slowly the WP Team works.
If I were Microsoft's new CEO I would just scrap the Windows Phone project altogether and redirect the teams towards a mobile enterprise OS. Windows Pro Mobile or something. Companies are buying more and more iPads and iPhones...their next step will be obvious - replace Windows PCs with Macs. Microsoft just can't let that happen.

As for the tablets...yeah...I wouldn't want to lose another billion with the Surfaces. So that would be gone too in favour of, again, enterprise.

For the consumer market I would leave Xbox for gaming and work more on Windows and Office offerings to make the OS appealing again to consumers and leave the hardware to OEM partners like Sony, HP, Lenovo etc.

 

Microsoft can never be a successful OEM as long as they can't solve their brand image problems. And since nothing that they do seems to be aimed at fixing that...I wouldn't even waste money trying.

HansTj says:

Points taken. HIGH FIVE!

brmiller1976 says:

Microsoft only had a brand loyalty similar to that of the iPhone, with Nokia

Sorry, but Nokia in 2014 is like Apple in 1996 -- a dying brand with a cult of fanatics. Unlike Apple, however, Nokia didn't turn around, because it didn't focus on what consumers wanted -- it focused on what carriers wanted instead.

 

Microsoft needs to build a truly successful, future-facing brand, not live off of the past glories of a brand that stinks of failure in the modern era.

Large Enterprises will NEVER scrap PCs to go with Apple Computers. The divide in cost is too great. They have to pay an IT department anyway, and repairing their cheap Dell machines when they crap out every once in a while is still more cost effective than purchasing iMacs and Macbooks.\

The reason iPads are successful in enterprise is because they are relatively cost effective, especially since enterprise is buying up old models to hand out to their employees. You won't see employees getting iPad Airs.

The Verge:
That's 8.2 million Lumia sales during the latest quarter, an 86 percent increase from the same period last year, but a drop from the 8.8 million record in the previous quarter.
- - - 
I consider a 86% YoY growth A WORLD RECORD SALES GROWTH
 

Integration and easier access to transition is key to success. Fragmentation and adoption is their Achilles right now. When you have a grip of people on Windows XP, businesses just now getting on board with Windows 7 enterprise and many just understanding Windows 8, oh while some are still locked behind Vista, there is a problem!

ViktorG says:

Lets see...

  • Windows is #1 OS in the world 
  • Microsoft is the only company which makes tablets with a full OS, not chopped stuff like Android and resized iPhone OS for iPad. RIP Windows RT, Microsoft realized that it's a dead path in like a rear or two. 
  • Microsoft bought NOKIA, which used to be #1 company in the world making the best phones and best smartphones! 

So yeah I think Microsoft deserves to be present and dominate. 

DJCBS says:

Except Microsoft did NOT buy Nokia. They bough Nokia employees that formed a division within Nokia.

brmiller1976 says:

And that's a good thing.  It allows them to build a brand for the future without the albatross of the Nokia brand weighing them down.

rodan01 says:

In previous quarters OEMs were outselling Microsoft in tablets. I don't know if that changed in q4, but I think Chris forgot a big part of the sales in his analysis of Windows tablets.

Consoles won't adopt Android, Chris need to read a little more about operating system before writing articles. Consoles could adopt Linux, and Microsoft doesn't have any problem with that, Microsoft could also adopt Linux if It's a superior solution. They did exactly that in the cloud, they are running Linux VMs on azure at a lower price than Windows VMs.

In fact, I think they will adopt Android in smartphones if WP doesn't take off this year. In this era services are what matter, the OS and the hardware are just a distribution tools. Microsoft is investing billions of dollars in services for consumers, they don't need Windows to succeed. That's the change from a SOFTWARE company to a Devices and Services company, that they initiated the last quarter.

Marco Gomes1 says:

NOT if this "announced today, global availability in 6 months" politics continues.

danjer says:

I think the key is pushing Windows 8.x on more desktops. Once you get used to it you appreciate the familiar feel of Windows tablets and phones. Many people are afraid of upgrading but new pcs and laptops come with 8 installed so there is a forced training whenever you upgrade your hardware.

chrisgull says:

Look at where Apple was 15 years ago, then tell me you can predict a decade ahead. Things change. A lot.

Tansen says:

I like to think Microsoft knows better than to sit on its laurels again. They did it with Windows Mobile 6.5, losing their at the time sizeable market share to android and iOS. Even Balmer at the time said "we missed a cycle". Point is, they are pumping alot of money and thought into trying to look into the future to determine what the best course of action would be for them. Having what they do, Bing, windows phone, windows, xbox, and now Nokia for the hardware, they seem to have all of the tools necessary for being self sufficient. In the long run this may prove to be very handy. The software can adapt accordingly, the fact remains that people will continue to need excellent hardware AND software.

MaulerX says:

People have been posing the same question every quarter for the last 10 years. And I reckon they'll do the same in the next 10. Microsoft is simply an amazingly resilient company that makes just the right moves when it needs to to keep up with the times and continue delivering record breaking quarters. I just don't see things changing much to be honest.

It's simple... IBM gave up the consumer space, lost business space, and barely survives in the high end enterprise.

Microsoft giving up in the consumer market accomplishes the same thing.

Daniel Meek says:

If I were king of MS for a day then there are 3 major things I would focus on.

1) MS is right that the new wave of technology is the 'sea of devices'... it is about time they acted like it! Way back in the 1990s (sorry, I was a kid at the time, so I don't remember details of when and where) I heard an interview with Bill Gates and he was talking about the future of computing, and how in the future we would have small handheld devices which would essentially control the world around us. I believe that he was talking more about it as strictly being a screenless pocket-sized box that could take over any screen or input device that you wanted to pair it with (this was pre-cell phone days), but he was certainly on the right track. This has never been more relevant than today with the rise of smart devices! Device makers make great devices, but typically horrible interfaces. I do not need every single potentially smart device in my life to have it's own screen, buttons, and onboard UI. Having simple seemingly plain devices with little to no UI is preferred, and being able to check the device's status, or control the device, from my phone or computer is the way to go. My phone (or in some people's case their tablet) should be the remote control for my life. It should be in control of my future smart-home appliances, my future smart self-driving car and in-car entertainment/navigation, my bank account, and be my key to all of my apps, files, and accounts for whatever computer/terminal that I am using. My phone may not do all of the processing for all of these amazing feats... but it should be the central way to control all of it easily and securely.
What made Windows the defacto OS was not ease of use, or support structure, it was almost entirely its ability to work with C(+, ++, #, whatever), and having a simple powerful platform that you could program for. Sadly this torch appears to have moved to Apple and Android and away from Windows. MS has done a lot of work to get UI to work great with touch (and getting better with voice), but they need to recapture developers of devices and software if they are going to win back their lost market share.

2) Any company offering services needs to have simple ways to interact with those services. MS has this screwed up on many levels. For example:
Office365 is a great service (I use it at work), and while $100/year for having full office on 5 personal devices is not a great deal, it seems to be a fair one... but many of us (dare I say most of us) don't have 5 devices. In fact, because I am in the WP ecosystem which comes with Office already, I only need it on my 2 desktops... and perhaps my poor old netbook. Somewhere in the $15-20/device/year is not a bad deal, so let us have access to such a deal.
Account management is a nightmare with MS accounts. Over the years I have managed to pick up 3 MS accounts with different services attached to each one. MS offers no way to unify my accounts, and what hack job it use to have of doing so went away last summer. This is a problem and it is not well thought out.
There is no nice way to make a family of accounts in order to divide up services. So if I have a family of 4, then am I expected to buy Office365 plus 3 skydrive account extensions? The 20GB provided is more than enough space for my family's document files, so there should be a way to split the space up among the family members, and have a bit of shared space as well. There should also be ways to split members off of the family account because things happen. Kids grow up, families separate, and life happens. But everyone within my family should be able to share purchased media (and games! though perhaps not software) freely, a master account should be able to divvy up limited resources such as skydrive space, and parent accounts should be able to monitor and limit child accounts.
Services need to stop changing. GFW, XBL, Music, xbox music, xbox video, the Microsoft store, the windows store... the list goes on and on. Have an account for music, an account for video, and account for software, and possibly a seperate account for games. Write up contracts in a way that these accounts and services can change a little over time rather than having odd concurrent platforms, or device specific platforms, or abandoned platforms, or whatever. I buy stuff on Steam because they are stable, and they are not starting new redundant services every year or two. If MS could get their act together then maybe I would not be so skiddish to throw money at the content they provide.
On a related note, there needs to be more a-la carte options. For sake of argument, maybe have $250/year gets me and my family the latest version of Office and Windows for our devices, live gold memberships, music pass, a bunch of skydrive space, maybe some skype minutes (not that we would use them), discounts on some apps games and hardware in the web stores, and access to other commonly used MS services. Maybe the price would be a bit higher than that for everything... but the idea is that the account works for the whole family, it is billed as a single bill, it is administrated by the 'head of household', and that there would be discounts based upon how many services everyone was signed up for. If you want to cater to consumers, then you need to cater to families, and this is the way to do it.
Or put another way... Sony cannot offer anything like this, so if a family can pay a single company a single bill for everything, then how many people are then going to buy into a whole ecosystem of MS devices and services, and then NOT get into PS4 or android/chrome/apple based products and services?

3) I know it is largely a dead horse, but fix metro on desktop!
Metro is great on tablets and phones the way it is now (though we welcome maturity and features with time), and even on desktop it can be a much better way to control and administrate the OS and settings. But, at least on the desktop, full screen apps should be an option, not the default. Shrink the Start screen into a metro 5-7" phone-like start menu that lives in the corner where it belongs. Keep the good things like realizable live tiles, remove all of that wasted space, bring in the search bar at the bottom like Win7, and bring the plain app list view from WP. This would make the perfect start menu.
Move account and PC administration options/settings to the charms menu so that we no longer have to be ashamed of the stupidity of pressing "start" to "stop" the computer, and so that all of our settings are in one coherent place rather than a mess of loosely related windows. Allow metro apps to work in windowed mode, and when normal applications are full-screen then allow them to act more like metro apps in hiding much (or all) of the windows UI. Bring the ability to have normal desktop apps in the Windows Store as a safe curated bloat-free place for joe-public to get things without installing 100 toolbars and malware. Basically; bring us the advances of win8 (because they are advances), but without tying our hands in the process.
Also, the days of $140 Windows is over. OEMs like Dell and HP don't pay $140 for Windows. Large businesses with VLAs don't pay $140 for Windows. OSX has always been cheap, and is now free. Linux for home users is free. Chrome OS which is taking over at least Amazon's portion of laptop sales is free. On top of that, the minute we can get desktop apps and useful metro apps in the Windows app store then MS is going to make tons of money in the adds of free programs, and a nice healthy cut from paid programs, so the barrier to entry needs to be lowered. Free may not be appropriate, but I feel like the $40 I paid for copies of win8 were worth the money... but even as a fan of win8 I would not fork over $140 for it. Even as a fan I would not pay $80 for the non-pro version. Make a single version for all, make the price accessible to all, and ensure that killer applications like Office can be found in the store.

4) Kill off Xbox One early, and merge Xbox and PC gaming.
I know, it sounds crazy, but hear me out. Xbox hardware becomes the "Surface PC" which becomes the default standard $500 gaming and office PC from here on out. Release a current revision for it each and every year while ensuring that AAA titles will run at basic settings on a box for at least 5 years. Fix and expand WEI so that it is useful, and have it become the defacto standard for what games a device can play and at what settings. If you want xbox gamer score, achievements, and community in your games then you have to buy them via the Windows Store, and if you want multiplayer support, the ability to share games with friends, and other advanced features then you need a live gold account. To even the playing field only allow matches based upon input devices when in competitive games. Lock down the store enviornment to prevent hacks and cheating, and have the OS be proactive in filtering commands coming from inappropriate devices (like keys and mice in a controller game).
The obvious trick here is that not everyone would have kinnect. Voice functionality and basic chat can be done via a simple headset or web camera... MS would need a compelling reason for people to get kinnect, and I don't think they have one yet. Xbox One is 90% the way there to make this possible... a merge just needs to happen.
As technology advances then xbox/surfacePC becomes a processing server hidden in the basement, and we use our phones to stream/coordinate the console/PC and input devices to whatever screen in the house we want to play on. Which brings us full circle back to the first point where our phones control everything, and everything else (including our computers) simply become inputs, outputs, or resources for it to control or coordinate.
Think merging xbox and the PC isn't worth it? Tell that to Steam who has tens of millions more users than xbox could possibly dream of, most of whom are on the Microsoft's own Windows platform. While the Steam Box may well end up a failure due to limited linux game availability, bringing the full Xbox experience to Windows would be breathtakingly successful if done right.

________
Anywho, sorry for the long rant, but if MS wants to survive the next 10 years then they at least need to get the first 3 points right. If they want to thrive then they need to get the fourth point figured out as well. That's how I see it.

ejlee072006 says:

They will be ait.. Remember when apple was down 20%?? Its the way it is. Windows8 is awesome,the problem msft has is that they are late..its sad to say msft will always play catch up..

kullkid92x says:

Im not buying anything Chris Umiastowski says. A couple of weeks ago he had a post on androidcentral talking about Chromebooks like he was a huge fanboy lol and criticizing Windows and Microsoft.

Did he seriously just say in 5 years the gaming console market will move to Android? LOL c'mon man how can you make that type of prediction? based off what?

His chromebook post was based on straight up fanboy-ism there was no hard facts to back it up. Of course Windows is struggling YoY, there is a HUGE market trend happening right now to mobile/tablet devices. And hardware is much more advanced now, people buy a PC or Laptop and they use it for 5 years, the Windows market is stagnant. With over 90% of the marketshare you are bound to start declining. Pfft Chromebook getting big marketshare in 5 years lol my ass.

Microsoft has a branding issue its something they are working very hard to fix. The recent "One experience for everything in your life, the new Windows" that is something they NEED to keep showing and saying in every commercial they air. Its important to have a recognized brand name/slogan that is how you succeed in the consumer market.

Nobody knows what the next two years will bring lol let alone a decade.

DaWn o WaR says:

I'm an Xbox, windows Phone, Windows tablet ... But as far as stocks/earnings go, I just don't see the same growth potential in Microsoft as I see in Google and Amazon. Its sad really. I own all Microsoft products, and own Google/Amazon stock ... No MS. They need a driven CEO with a clear, bold, vision. THEN this article might be different in the future.

It's very strange that when you look at the profitability of these companies, the fact remains that Microsoft for the past decade has and is more profitable than Samsung, Google and Apple. That's a fact and a hard reality. This means that the stock prices of Google and Apple are inflated and overhyped. The future potential of these companies reflected in the share prices are doubtfull and debatable. The Ceo of Google said last year that it is very difficult to bring innovations succesfully to the market. Look at Google's automated cardriving technology. It is still not marketed and car companies are developing their own technology. Look at Google drive, Google TV, Google Docs, Google fiber, Google Cube etc. 94% of Google reveneu and profit stil come from ads (search). Even Android is not considered profitable by some analists, Google smartphone division (Nexus and Motorola) are still bleeding huge losses. Microsoft is the only company with a lot of divisions of which most have a revenue of more than a billion and profitable. There is this myth that consumer oriented companies that produce cool gadgets are much more worth investing in than companies that have growing and stable revenues and profit.  It's the difference between investors who are in fhe market for a quick buck compared to say Warren Buffet. Apple lost it's shine last year when the stock price dropped from nearly $800 to $ 450 and so investors turned to Google. It will not take long before Google's stock price starts to tumble from above $1000. And that's because the future expectations and worth of these companies cannot be realised, because they would have to innovate continually and market them succesfull at the same time. Google, despite it's many innovations still has not marketed it's innovations succesfully and has proven how difficult it is to make innovations profitable. Android is in that sense a failure since Samsung (95% of all Android profits) and Microsoft (licensing fees of about 2 billion on Android and Chrome technology) are thebig winners. Microsoft has invested in Cloud technology, Outlook, Windows 8, Skydrive etc. Skydrive came one year after Google Docs and surpassed Docs by a margin of two to one. Google still has a lot to learn about making innovations profitable, Apple is since the first Iphone and tablet not innovative enough. Microsoft is pouring it on at the moment. One might say, only the future will tell, but untill now it does not look good for the future worth of Apple and Google.

 

Chris Yahya says:

Wow LTT (long term Thinking) is that 5G network?

Relevancy in the consumer market is not only a question of PC sales. Yes Consumer PC sales are slow, but the world economy is still lagging, especially in Europe with unemployment of more than 12% (Spain 60%, iItaly 50%, Greece 65%, Ireland 30% etc). But the situation is getting better, analists we're suprised at the numbers of PC sales. Once the world economy starts picking up steam, the soft sales years will be forgotten. W8 PC's (including the hybrid PC tablet) are also getting cheaper when compared to tablets of rivals. Despite slow sales Microsoft still has 90% of the global PC market, which means that for the past decade rivals have not been able to make a dent in Microsoft's dominance of the PC world, which amounts to 1.5 billion PC's.

China, with the lifting of the ban on sales of gameconsoles, sales of the Xbox One will surge. The game console market is divided    between PS and Xbox. New comers like steam have a long way to go to be a threat to the Xbox, especially since anyone with a PC can run Steam games. 

With the acquisition of Nokia's smart- and feature phone division, Microsoft has become the worlds second phone vendor behind Samsung selling 200 million feature phone and approximately 30 million smartphones a year. With the feature phones Microsoft has a trojan horse to penetrate the emerging markets if they execute the right strategy (low end priced feature or smart phones strategy).

But we tend to forget one important thing. Microsoft's succes in the enterprise market will work as a an excellerator for microsoft's products and succes in the consumer market. This was also the case with the PC, first relevant to businesses and so doing to consumers. So Microsoft is relevant in the consmer market and will remain thus in the long term also. And last but not least they can always acquire relevancy with their big sum of cash.

KrightonX says:

Windows and PCs will be around for the next 50 years probably longer. Evolving the landscape and continuing to erode the iPhone/OSX/Linux/Ubuntu dunes as they're trendy and relatively useless when take a look at what consumers need and want.

Everything Microsoft does could fail and it would not change the fact that a PC needs Microsoft to be useful in both business and in gaming.

Linux TV? Apple Game Console that runs OSX? Ubuntu Surface?  How meager and frail. I'd commit suicide.

KelvBlue says:

The convergence of the WinRT and WP will bring forth Microsoft's OEM Lieutenants into the game, it will pave a pathway for them into the mobile, ARM tablet world on top of the PC. If one should worry, it will be Intel, hence they are pushing out dual boot Windows and Android.

Sonic98 says:

Microsoft will be just fine. Xbox came out after PS4 and costs $100, and it's still right on it's heels. This is pretty good for the console everyone was whining that no one would buy. It turns out all these people didn't know what they were talking about, and the average gamer wasn't as concerned about all the bad press on most of the blogs like the people who post and read on them every day.

 

Windows Phone continues to grow. The company that needs to be worried is Apple. At some point people will get over this iPhase. The only reason that it's lasted so long is because most of the people in tech sales and tech media are pretty much just Apple fanboys. They're the same people who have been trying to tell everyone they know how great Macs are for the last 15+ years. They hype up everything Apple and try to downplay products from everyone else. Microsoft won't have to deal with this stupid different phones for different carriers nonsense anymore, as was announced a couple months back. All they need to do is make sure they have all phones on all carriers from multiple manufacturers. The problem in the past has been that Nokia was the only one pushing their devices, and you never really knew what carriers you could get what phone. They need to make sure their phones are on every carrier, and they need have their phones on carriers like C-Spire, Cricket, Boost, and the like. That's probably really where Android has all their market share, not the Big 4.  The 520 line is a great sale, but they also need another no-contract phone that works on all carriers for maybe $100 more, a good mid-range phone. Also, when I moved to WP8, I was actually surprised what apps WERE NOT missing from WP8. Over time the lies of WP8 having no apps is bound to decrease. Then of course there is the phone/RT merger. 

 

As for tablets, Surface is doing much better. It's amazing what a competitive price and fanboys of other products not bashing something twice a day can do for a product. Not to mention that people seem to like the full Windows 8 tablets from companies like Dell and Lenovo. Microsoft is doing better in tablet because the products are better. And again the merger of Phone and RT as well as the stores will help.

 

As for Windows 8, future versions of Windows will do even better. Much of their problem with Windows 8 was the usual "bad talk or overscrutinize " any Microsoft product we've become accustomed to since maybe Win98. 8.1 was pretty much well reviwed and received by everyone except the handful of blogs who just can't bring themselves to say anything positive about MS. The usual "it's an improvement, but maybe not enough" crowd. Update 1 will be even more of an improvement. And a big chuck of PC users will be even more used to Metro/Tile interfaces by the time Win9 comes out because of the growth in phones and tablets. In due time the One Microsoft vision will pay off for them because the only reason any Apple product is product is so popular is because most people switched over from using another. The same could be said for Android on tablet. The more people get used to one version 8 product from Microsoft, the more likely they are to use another.