Microsoft execs make their 'One Microsoft' pitch to Wall Street

Microsoft execs make their 'One Microsoft' pitch to Wall Street

Summary: Microsoft execs are continuing to drill home the message that Microsoft needs to be in consumer and enterprise, as well as hardware plus devices. Do you buy it?

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Microsoft management has said they believe the company needs to be a player in not just devices and services -- but also both consumer and enterprise -- to continue to grow.

mscustomersegments

Some of Microsoft's investors aren't onboard with that belief. (See ValueAct, Microsoft's next likely board member.) They think Microsoft should stick to its enterprise strengths. 

At Microsoft's Financial Analyst Meeting (FAM) -- its pow-wow for Wall Street analysts -- Microsoft execs attempted to drive home the company's "One Microsoft" view and the reasons for it.

Microsoft officials showed the slide embededed above in this post during FAM that showed just how strong Microsoft is in the enterprise. The Softies claimed 55 percent of Microsoft's current customer base is enterprise, compared to 20 that is consumer. Small business is a surprisingly low (but growing) 6 percent. That said, execs also showed another slide that indicated that Microsoft generated $15 billion in sales of consumer services (which included sales of its Office 365 Home Premium subscription service) in its fiscal 2013. (Microsoft officials said they now have two million Office 365 Home Premium subscribers, up from 1 million in May 2013.)

Microsoft CEO Steve Ballmer told FAM attendees that from a profitability perspective, "we will be led by our work in enterprise services and devices." But he added that Microsoft is aware that consumer services are important to the customer and "they're a path to enterprise services."

Consumer services are "a path to device success," Ballmer said. "But in some senses, we will lead as we go to market and we will certainly lead in terms of how we hope to generate profit through devices and through enterprise services."

"The one thing that is actually toughest understanding how to make money as consumer service company," Ballmer acknowledged. "Google does it. They have this incredible amazing dare I say monopoly that we're the only person left on the planet trying to compete with. Other than that, most of the consumer services companies just don't make enough profit to really register at this scale." (He did note Facebook might be one of the next to figure it out.)

Ballmer showed this Microsoft chart to emphasize that the company is competing with both consumer and enterprise companies, and competing well:

mscompared

Terry Myerson, the Executive Vice President of Microsoft's new OS division, noted during a FAM panel discussion that Windows is both a consumer and an enterprise product.

"There's so much of our effort, the windows we build is used on the client, used in the cloud, used in data centers. Having that diversity is essential to delivering Windows' franchise," he told FAM attendees.

There is a "graduation process" between consumer and enterprise, said Satya Nadella, Executive Vice President of Enterprise and Cloud, also speaking on the FAM engineering panel.

"Yammer has taught us a lot and you'll see that in a lot of the product design. This is (neither) an enterprise product or a consumer product. (This) is not the way we're going to approach these things."

My ZDNet colleague Larry Dignan has the charts showing how Microsoft intends to break out its financial reporting segments, post-reorg. The five new segments largely align around consumer/enterprise lines, Dignan noted. While consumer and enterprise may be symbiotic, Dignan argued, they aren't unified. 

What do you think, Microsoft watchers?

Topics: Enterprise Software, Cloud, Microsoft

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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52 comments
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  • It is a smart move on Microsoft's part

    Like aircraft companies that create planes for both the military and civilian markets, their future is not determined by a single market of customers.
    John Zern
    • MS needs to speak out against its haters

      You would think that most investors know the value of diversifying.

      A lot of haters just want MS to be broken up so that it becomes less formidable. Some investors want MS to be broken up so that they can make a quick buck off of the company. I wish spoke persons for MS would say to the media and investors, "Why do you listen our haters? Why don't you look at our track record over the years and see that we've always adapted and come out on top? The best predictor of a company is its track record, not what its enemies says about it in the market place."
      P. Douglas
      • Microsoft, just get out of Dodge!

        Nearly 4 years has past since analyst Mark Anderson made his famous remark:

        “It’s time to declare Microsoft a loser in phones. Just get out of Dodge.”

        Since then it has become even more obvious that Microsoft has failed at phones. If you fail at phones, you fail at tablets too. That's the dynamic of the business, as the two are connected.

        With phones and tablets a failure, what is Microsoft doing in the consumer business at all? Maybe it should sell Xbox and Bing as well.
        Vbitrate
      • This may require finesse

        I hope that if they do this, they make sure to distinguish between actual hate and legitimate criticism. Many people/organizations wind up failing to draw this distinction, and suffer as a result, because they take legitimate criticism as personal attacks.
        Third of Five
      • Haters?

        So the millionaires and billionaires that invested in Microsoft are 'haters' that shouldn't get a say in how it's run?

        What an odd view. Are you aware of how businesses are run at all? How economics work? Basic math?

        Just a basic glance at Microsoft's finances tells you that consumer businesses lose money and enterprise makes billions. Most leaders would concede to reality at some point, just like IBM did, successfully. Nothing lasts forever, after all, wasting billions to hold onto lost glory is how companies really fail.

        Adding in Nokia like MS just did is just as drastic as splitting up, and FAR RISKIER. They're a completely different company now, more like Apple than Google.
        solomonrex
        • "Are you aware of how businesses are run at all?"

          Are you?

          "Just a basic glance at Microsoft's finances tells you that consumer businesses lose money"

          statements like this make me doubt you have any clue. where does one need to look to see that?
          vpupkin
    • FUTURE customers, not legacy customers will determine Microsoft's fate

      The customers they've lost are the general consumers. They want to hang on to Enterprise customers, and to do that they should upgrade their operating system by getting rid of Windows and using the number one operating system in the world, Linux. They could make modifications, Microsoftify it, just like their competitors do, but as long as they try to push the clunky Windows crap, Microsoft is going to have problems. It's a new world and Microsoft needs to adapt, or perish. The only folks that are interested in running legacy Windows applications are corporate system administrators with legacy skills who also need to adapt, or retire. Anyone who's ever had to administrate Active Directory or Share Point or create virtual machines on a Microsoft server knows how god awful Microsoft technology is....or if they don't know, they've never tried Linux. Well, maybe they have tried Linux and they didn't realize it. Google, Facebook, Amazon, all the stock exchanges, and most of the rest of the world run Linux.
      StevenAbaby
      • silly

        I love linux, use it everyday, but this is just silly.

        They need to add the unix-style command line to Windows, no doubt, it's the only OS not to follow that basic standard, and it would be a far better product for most IT pros that way.

        But they're not adopting Linux unless they simply coopt Android for their mobile devices ... which they should do.

        There's nothing fundamentally wrong with the Windows buxiness, it's just been commoditized. It will be a cash cow for decades if they don't change drastically. They need to work on the integrated services like ios and Android have, and they're doing that.
        solomonrex
        • "They need to add the unix-style command line to Windows"

          seriously? windows does not have command line interface? what a shame. no wonder enterprise consumers don't buy windows... oh wait, but haven't you just said that "enterprise makes billions" for Microsoft?
          vpupkin
        • Unix style command line

          powershell. They adopted a gui-less configuration years ago. With Linux, you can set things up in a gui, init 5, then run the server in init 3 (terminal mode). But this is trivial. What's not trivial is me sharing a network file with you with neither of us knowing about the network server: i.e. Google drive.
          StevenAbaby
  • It's half smart

    Apple & Google dominate mobile devices!

    If Microsoft can't beat them in the enterprise, by what logic does anyone think they can do it in the commercial arena?

    Microsoft needs to beat Apple & Google in both Mobile & Cloud in the enterprise and take those lessons forward to beat them elsewhere!

    If they can't destroy Apple & Google in the enterprise, THEN they should modify their plans.
    Dewey2000
    • They did destroy apple and Google in the enterprise

      But time doesn't stop. Apple came back again with the iPad. It's a perfect example of how consumer products get into the enterprise after a couple years. 5 years from now apple will probably have less than 5% of the enterprise tablet market. Then they will try to come back again with another consumer first product.
      Johnny Vegas
      • The iPad is not a consumer product

        It is actually an general purpose product, that is loved and used by both consumers and enterprises. After all, if you think for a moment: both the consumers and the enterprises are actually *users* of computers. Everything else is fluff.

        Apple were smart with the iPad, because they knew Microsoft are closely watching the Macintosh (and it's various server incarnations). They kept the mac low profile, while preparing the iPad (and generally iOS) as an high profile very well designed and specified OS. Something about which Microsoft daydreams!
        By the time they released the iPad, it was too big shock for Microsoft. Then, Balmer, being arrogant helped, by pretending "it is not big deal" and that they can do better.
        But: the enterprise looks at all of the Microsoft promises with Surface/Windows 8, then look again at the iPad and... place orders with Apple. What is worse, they spent their software development on iOS, not Windows.
        danbi
    • The enterprise is its stronghold. Mobile is its future.

      As Ballmer pointed out, Microsoft has almost no presence in mobile... but it's a huge opportunity. Any profit they make in mobile, any gain in market share... is new revenue, new profits. It's why Windows 8 & Metro had to be done. It's why they must stick with it.

      Fortunately for Microsoft, the enterprise is conservative--it moves slowly and sticks with what's practical & economical. It is Microsoft's stronghold. And it looks like Microsoft's firewall has held up. Apple tried to break through... but failed. Sure, executives brought their iPads to work... but they didn't really do "work" on those iPads... because they weren't compatible with the network, the software on PCs, etc.

      Yes, Microsoft was slow to mobile... but because it is so entrenched in the enterprise... it had time. Just enough time to launch its counterattack--Windows Phone, Windows RT, & Windows 8.

      In the meantime, its competitors overwhelmed the much smaller RIM/BlackBerry... and now Microsoft has its opening. With BlackBerry out of the way, Microsoft will leverage its strength in the enterprise into the mobile market. Slowly, but surely... the enterprise will start using Windows Phones, tablets & convertibles... because they work with their PCs & software & network.

      And THAT'S how Microsoft will gain ground in mobile... and from there... into the consumer market.
      cybersaurusrex
      • Mobile is the future

        But MS can be huge in mobile, even without an OS.
        While mobile ecosystems can be responsible for the generation of huge amounts of money, as mobile devices become more powerful, with more uses, entering in enterprises, ... more money can be made out of them.
        Services and software for mobile will only grow in the following years, MS even losing the mobile OS/platform battle can still (I'm sure they will) generate a lot of money out of it.
        AleMartin
      • Re: Any profit they make in mobile, any gain in market share...

        What about loses?

        By now, we know they have written off 1 billion on the Surface RT. This is how much of the expected profit they declared "not possible". We don't yet know how much they actually spent for producing these devices, for all the research and development that went up there.. We know that for marketing alone they spent over a billion. That number is surely huge.

        So yes, profit in mobile will be nice. But this is still many years ahead. And investors don't necessarily want to see their money wasted.
        danbi
  • No Mention

    There is practically no mention in regards to consumers or innovation. The word that just keeps leaping out is "profit." Everything that Microsoft now take on is only about how to make a profit.

    Looking to innovate and create new technology? No. Not unless there is a clear path to monetization. Looking to keep customers and consumers happy? No. Must "break" things in order to force said market into purchases, thus, increased profits. Looking to maintain a happy relationship with the Enterprise and businesses. No. These are the ones that we can fiscally rape in search of greater monetary gains.

    What's the next hot thing? Microsoft has no idea nor do they care. What they do know is when another competitor sees and seizes a new paradigm, it is up to the Microsoft machine to copy it to the point where it is good enough to make a profit. Once that is done, they no longer care about it and are happy to just ride the mediocrity wave until all dies down.

    The one group that Microsoft seems to cater to is the shareholder. Making the shareholder more money and happy is the new motto for 2013 and beyond.
    DarienHawk67
    • Sounds a lot like Apple...

      ... and Google, and Nike, and BlackBerry, and GM, and literally every profitable business in existence...
      ForeverCookie
      • Yeah except Microsoft. That was complete garbage

        from DH67. There's tons of innovation in WP and W8. And Microsoft spends more on research than anyone, much of which they never productize because it doesn't fit their current product strategy. His clear path to monetization statement is crap. So is the rest. MS does tons of stuff to meet its enterprise and consumer market needs, and at very reasonable prices. Compare SQL server to Oracle. Who's the rapist? Compare hyper-v to VMware. Who's the rapist? O365 to google docs. On and on and on.
        Johnny Vegas
        • In that case, you should also

          compare SQL server and PostgreSQL. Who's the rapist?
          compare Xen to hyper-V. Who's the rapist?

          MS just keeps raising the price on the enterprise just to stay profitable with all the failures they keep pumping out.
          jessepollard