Update: Gates Says He’s Very Happy With Microsoft’s Nadella [Bloomberg TV, Oct 2, 2014] + Bill Gates is trying to make Microsoft Office ‘dramatically better’ [The Verge, Oct 3, 2014]
This is the essence of Microsoft Fiscal Year 2014 Fourth Quarter Earnings Conference Call(see also the Press Release and Download Files) for me, as the new, extremely encouraging, overall setup of Microsoft in strategic terms (the below table is mine based on what Satya Nadella told on the conference call):
These are extremely encouraging strategic advancements vis–à–vis previously publicized ones here in the following, Microsoft related posts of mine:
- Microsoft Surface Pro 3 is the ultimate tablet product from Microsoft. What the market response will be? [this same blog, May 21, 2014]
- What Microsoft will do with the Nokia Devices and Services now taken over, but currently producing a yearly loss rate of as much as $1.5 billion? [this same blog, April 29, 2014]
- Microsoft BUILD 2014 Day 2: “rebranding” to Microsoft Azure and moving toward a comprehensive set of fully-integrated backend services [this same blog, April 27, 2014]
- Microsoft is transitioning to a world with more usage and more software driven value add (rather than the old device driven world) in mobility and the cloud, the latter also helping to grow the server business well above its peers [this same blog, April 25, 2014]
- Intel’s desperate attempt to establish a sizeable foothold on the tablet market until its 14nm manufacturing leadership could provide a profitable position for the company in 2016 [this same blog, April 27, 2014]
- Intel CTE initiative: Bay Trail-Entry V0 (Z3735E and Z3735D) SoCs are shipping next week in $129 Onda (昂达) V819i Android tablets—Bay Trail-Entry V2.1 (Z3735G and Z3735F) SoCs might ship in $60+ Windows 8.1 tablets from Emdoor Digital (亿道) in the 3d quarter [this same blog, April 11, 2014]
- Enhanced cloud-based content delivery services to anyone, on any device – from Microsoft (Microsoft Azure Media Services) and its solution partners [this same blog, April 8, 2014]
- Microsoft BUILD 2014 Day 1: new and exciting stuff for MS developers [this same blog, April 5, 2014]
- IDF14 Shenzhen: Intel is levelling the Wintel playing field with Android-ARM by introducing new competitive Windows tablet price points from $99 – $129 [this same blog, April 4, 2014]
- Microsoft BUILD 2014 Day 1: consistency and superiority accross the whole Windows family extended now to TVs and IoT devices as well—$0 royalty licensing program for OEM and ODM partners in sub 9” phone and tablet space [this same blog, April 2, 2014]
- An upcoming new era: personalised, pro-active search and discovery experiences for Office 365 (Oslo) [this same blog, April 2, 2014]
- OneNote is available now on every platform (+free!!) and supported by cloud services API for application and device builders [this same blog, March 18, 2014]
- View from Redmond via Tim O’Brien, GM, Platform Strategy at Microsoft [this same blog, Feb 21, 2014]
- “Cloud first”: the origins and the current meaning [this same blog, Feb 18, 2014]
- “Mobile first”: the origins and the current meaning [this same blog, Feb 18, 2014]
- Microsoft’s half-baked cloud computing strategy (H1’FY14) [this same blog, Feb 17, 2014]
- The first “post-Ballmer” offering launched: with Power BI for Office 365 everyone can analyze, visualize and share data in the cloud [this same blog, Feb 10, 2014]
- John W. Thompson, Chairman of the Board of Microsoft: the least recognized person in the radical two-men shakeup of the uppermost leadership [this same blog, Feb 6, 2014]
- The extraordinary attempt by Nokia/Microsoft to crack the U.S. market in terms of volumes with Nokia Lumia 521 (with 4G/LTE) and Nokia Lumia 520 [this same blog, Jan 18, 2014]
- 2014 will be the last year of making sufficient changes for Microsoft’s smartphone and tablet strategies, and those changes should be radical if the company wants to succeed with its devices and services strategy [this same blog, Jan 17, 2014]
- Will, with disappearing old guard, Satya Nadella break up the Microsoft behemoth soon enough, if any? [this same blog, Feb 5, 2014]
- Microsoft products for the Cloud OS [this same blog, Dec 18, 2013]
- Satya Nadella’s (?the next Microsoft CEO?) next ten years’ vision of “digitizing everything”, Microsoft opportunities and challenges seen by him with that, and the case of Big Data [this same blog, Dec 13, 2013]
- Leading PC vendors of the past: Go enterprise or die! [this same blog, Nov 7, 2013]
- Microsoft could be acquired in years to come by Amazon? The joke of the day, or a certain possibility (among other ones)? [this same blog, Sept 16, 2013]
- The question mark over Wintel’s future will hang in the air for two more years [this same blog, Sept 15, 2013]
- The long awaited Windows 8.1 breakthrough opportunity with the new Intel “Bay Trail-T”, “Bay Trail-M” and “Bay Trail-D” SoCs? [this same blog, Sept 14, 2013]
- How the device play will unfold in the new Microsoft organization? [this same blog, July 14, 2013]
- Microsoft reorg for delivering/supporting high-value experiences/activities [this same blog, July 11, 2013]
- Microsoft partners empowered with ‘cloud first’, high-value and next-gen experiences for big data, enterprise social, and mobility on wide variety of Windows devices and Windows Server + Windows Azure + Visual Studio as the platform [this same blog, July 10, 2013]
- Windows Azure becoming an unbeatable offering on the cloud computing market [this same blog, June 28, 2013]
- Proper Oracle Java, Database and WebLogic support in Windows Azure including pay-per-use licensing via Microsoft + the same Oracle software supported on Microsoft Hyper-V as well [this same blog, June 25, 2013]
- “Cloud first” from Microsoft is ready to change enterprise computing in all of its facets [this same blog, June 4, 2013]
I see, however, particularly challenging the continuation of the Lumia story with the above strategy, as with the previous, combined Ballmer/Elop(Nokia) strategy the results were extremely weak:
Worthwhile to include here the videos Bloomberg was publishing simultaneously with Microsoft Fourth Quarter Earnings Conference Call:
Inside Microsoft’s Secret Surface Labs [Bloomberg News, July 22, 2014]
Will Microsoft Kinect Be a Medical Game-Changer? [Bloomberg News, July 22, 2014]
Why Microsoft Puts GPS In Meat For Alligators [Bloomberg News, July 22, 2014]
To this it is important to add: How Pier 1 is using the Microsoft Cloud to build a better relationship with their customers [Microsoft Server and Cloud YouTube channel, July 21, 2014]
as well as:
Microsoft Surface Pro 3 vs. MacBook Air 13″ 2014 [CNET YouTube channel, July 21, 2014]
Surface Pro 3 vs. MacBook Air (2014) [CTNtechnologynews YouTube channel, July 1, 2014]
In addition here are some explanatory quotes (for the new overall setup of Microsoft) worth to include here from the Q&A part of Microsoft’s (MSFT) CEO Satya Nadella on Q4 2014 Results – Earnings Call Transcript [Seeking Alpha, Jul. 22, 2014 10:59 PM ET]
Mark Moerdler – Sanford Bernstein
Thank you. And Amy one quick question, we saw a significant acceleration this quarter in cloud revenue, or I guess Amy or Satya. You saw acceleration in cloud revenue year-over-year what’s – is this Office for the iPad, is this Azure, what’s driving the acceleration and how long do you think we can keep this going?
Mark, I will take it and if Satya wants to add, obviously, he should do that. In general, I wouldn’t point to one product area. It was across Office 365, Azure and even CRM online. I think some of the important dynamics that you could point to particularly in Office 365; I really think over the course of the year, we saw an acceleration in moving the product down the market into increasing what we would call the mid-market and even small business at a pace. That’s a particular place I would tie back to some of the things Satya mentioned in the answer to your first question.
Improvements to analytics, improvements to understanding the use scenarios, improving the product in real-time, understanding trial ease of use, ease of sign-up all of these things actually can afford us the ability to go to different categories, go to different geos into different segments. And in addition, I think what you will see more as we initially moved many of our customers to Office 365, it came on one workload. And I think what we’ve increasingly seen is our ability to add more workloads and sell the entirety of the suite through that process. I also mentioned in Azure, our increased ability to sell some of these higher value services. So while, I can speak broadly but all of them, I think I would generally think about the strength of being both completion of our product suite ability to enter new segments and ability to sell new workloads.
The only thing I would add is it’s the combination of our SaaS like Dynamics in Office 365, a public cloud offering in Azure. But also our private and hybrid cloud infrastructure which also benefits, because they run on our servers, cloud runs on our servers. So it’s that combination which makes us both unique and reinforcing. And the best example is what we are doing with Azure active directory, the fact that somebody gets on-boarded to Office 365 means that tenant information is in Azure AD that fact that the tenant information is in Azure AD is what makes EMS or our Enterprise Mobility Suite more attractive to a customer manager iOS, Android or Windows devices. That network effect is really now helping us a lot across all of our cloud efforts.
Keith Weiss – Morgan Stanley
Excellent, thank you for the question and a very nice quarter. First, I think to talk a little bit about the growth strategy of Nokia, you guys look to cut expenses pretty aggressively there, but this is – particularly smartphones is a very competitive marketplace, can you tell us a little bit about sort of the strategy to how you actually start to gain share with Lumia on a going forward basis? And may be give us an idea of what levels of share or what levels of kind unit volumes are you going to need to hit to get to that breakeven in FY16?
Let me start and Amy you can even add. So overall, we are very focused on I would say thinking about mobility share across the entire Windows family. I already talked about in my remarks about how mobility for us even goes beyond devices, but for this specific question I would even say that, we want to think about mobility not just one form factor of a mobile device because I think that’s where the ultimate price is.
But that said, we are even year-over-year basis seen increased volume for Lumia, it’s coming at the low end in the entry smartphone market and we are pleased with it. It’s come in many markets we now have over 10% that’s the first market I would sort of say that we need to track country-by-country. And the key places where we are going to differentiate is looking at productivity scenarios or the digital work and life scenario that we can light up on our phone in unique ways.
When I can take my Office Lens App use the camera on the phone take a picture of anything and have it automatically OCR recognized and into OneNote in searchable fashion that’s the unique scenario. What we have done with Surface and PPI shows us the way that there is a lot more we can do with phones by broadly thinking about productivity. So this is not about just a Word or Excel on your phone, it is about thinking about Cortana and Office Lens and those kinds of scenarios in compelling ways. And that’s what at the end of the day is going to drive our differentiation and higher end Lumia phones.
And Keith to answer your specific question, regarding FY16, I think we’ve made the difficult choices to get the cost base to a place where we can deliver, on the exact scenario Satya as outlined, and we do assume that we continue to grow our units through the year and into 2016 in order to get to breakeven.
Rick Sherlund – Nomura
Thanks. I’m wondering if you could talk about the Office for a moment. I’m curious whether you think we’ve seen the worst for Office here with the consumer fall off. In Office 365 growth in margins expanding their – just sort of if you can look through the dynamics and give us a sense, do you think you are actually turned the corner there and we may be seeing the worse in terms of Office growth and margins?
Rick, let me just start qualitatively in terms of how I view Office, the category and how it relates to productivity broadly and then I’ll have Amy even specifically talk about margins and what we are seeing in terms of I’m assuming Office renewals is that probably the question. First of all, I believe the category that Office is in, which is productivity broadly for people, the group as well as organization is something that we are investing significantly and seeing significant growth in.
On one end you have new things that we are doing like Cortana. This is for individuals on new form factors like the phones where it’s not about anything that application, but an intelligent agent that knows everything about my calendar, everything about my life and tries to help me with my everyday task.
On the other end, it’s something like Delve which is a completely new tool that’s taking some – what is enterprise search and making it more like the Facebook news feed where it has a graph of all my artifacts, all my people, all my group and uses that graph to give me relevant information and discover. Same thing with Power Q&A and Power BI, it’s a part of Office 365. So we have a pretty expansive view of how we look at Office and what it can do. So that’s the growth strategy and now specifically on Office renewals.
And I would say in general, let me make two comments. In terms of Office on the consumer side between what we sold on prem as well as the Home and Personal we feel quite good with attach continuing to grow and increasing the value prop. So I think that’s to address the consumer portion.
On the commercial portion, we actually saw Office grow as you said this quarter; I think the broader definition that Satya spoke to the Office value prop and we continued to see Office renewed in our enterprise agreement. So in general, I think I feel like we’re in a growth phase for that franchise.
Walter Pritchard – Citigroup
Hi, thanks. Satya, I wanted to ask you about two statements that you made, one around responsibly making the market for Windows Phone, just kind of following on Keith’s question here. And that’s a – it’s a really competitive market it feels like ultimately you need to be a very, very meaningful share player in that market to have value for developer to leverage the universal apps that you’re talking about in terms of presentations you’ve given and build in and so forth.
And I’m trying to understand how you can do both of those things once and in terms of responsibly making the market for Windows Phone, it feels difficult given your nearest competitors there are doing things that you might argue or irresponsible in terms of making their market given that they monetize it in different ways?
Yes. One of beauties of universal Windows app is, it aggregates for the first time for us all of our Windows volume. The fact that even what is an app that runs with a mouse and keyboard on the desktop can be in the store and you can have the same app run in the touch-first on a mobile-first way gives developers the entire volume of Windows which is 300 plus million units as opposed to just our 4% share of mobile in the U.S. or 10% in some country.
So that’s really the reason why we are actively making sure that universal Windows apps is available and developers are taking advantage of it, we have great tooling. Because that’s the way we are going to be able to create the broadest opportunity to your very point about developers getting an ROI for building to Windows. For that’s how I think we will do it in a responsible way.
Heather Bellini – Goldman Sachs
Great. Thank you so much for your time. I wanted to ask a question about – Satya your comments about combining the next version of Windows and to one for all devices and just wondering if you look out, I mean you’ve got kind of different SKU segmentations right now, you’ve got enterprise, you’ve got consumer less than 9 inches for free, the offering that you mentioned earlier that you recently announced. How do we think about when you come out with this one version for all devices, how do you see this changing kind of the go-to-market and also kind of a traditional SKU segmentation and pricing that we’ve seen in the past?
Yes. My statement Heather was more to do with just even the engineering approach. The reality is that we actually did not have one Windows; we had multiple Windows operating systems inside of Microsoft. We had one for phone, one for tablets and PCs, one for Xbox, one for even embedded. So we had many, many of these efforts. So now we have one team with the layered architecture that enables us to in fact one for developers bring that collective opportunity with one store, one commerce system, one discoverability mechanism. It also allows us to scale the UI across all screen sizes; it allows us to create this notion of universal Windows apps and being coherent there.
So that’s what more I was referencing and our SKU strategy will remain by segment, we will have multiple SKUs for enterprises, we will have for OEM, we will have for end-users. And so we will – be disclosing and talking about our SKUs as we get further along, but this my statement was more to do with how we are bringing teams together to approach Windows as one ecosystem very differently than we ourselves have done in the past.
Ed Maguire – CLSA
Hi, good afternoon. Satya you made some comments about harmonizing some of the different products across consumer and enterprise and I was curious what your approach is to viewing your different hardware offerings both in phone and with Surface, how you’re go-to-market may change around that and also since you decided to make the operating system for sub 9-inch devices free, how you see the value proposition and your ability to monetize that user base evolving over time?
Yes. The statement I made about bringing together our productivity applications across work and life is to really reflect the notion of dual use because when I think about productivity it doesn’t separate out what I use as a tool for communication with my family and what I use to collaborate at work. So that’s why having this one team that thinks about outlook.com as well as Exchange helps us think about those dual use. Same thing with files and OneDrive and OneDrive for business because we want to have the software have the smart about separating out the state carrying about IT control and data protection while me as an end user get to have the experiences that I want. That’s how we are thinking about harmonizing those digital life and work experiences.
On the hardware side, we would continue to build hardware that fits with these experiences if I understand your question right, which is how will be differentiate our first party hardware, we will build first party hardware that’s creating category, a good example is what we have done with Surface Pro 3. And in other places where we have really changed the Windows business model to encourage a plethora of OEMs to build great hardware and we are seeing that in fact in this holiday season, I think you will see a lot of value notebooks, you will see clamshells. So we will have the full price range of our hardware offering enabled by this new windows business model.
And I think the last part was how will we monetize? Of course, we will again have a combination, we will have our OEM monetization and some of these new business models are about monetizing on the backend with Bing integration as well as our services attached and that’s the reason fundamentally why we have these zero-priced Windows SKUs today.