Microsoft: Radical shift to devices, risk ahead of Windows 8

Microsoft: Radical shift to devices, risk ahead of Windows 8

Summary: Microsoft makes it official: The company is now a devices and services company. Unfortunately, that transition away from high margin software licenses may be rocky.


Microsoft CEO Steve Ballmer made it official: The company is shifting its model to focus on devices and services ahead of the Windows 8 launch. The importance of this shift can't be understated: Microsoft's revamp will make or break the company.

Ballmer said in a shareholder letter:

Last year in this letter I said that over time, the full value of our software will be seen and felt in how people use devices and services at work and in their personal lives. This is a significant shift, both in what we do and how we see ourselves — as a devices and services company. It impacts how we run the company, how we develop new experiences, and how we take products to market for both consumers and businesses. The work we have accomplished in the past year and the roadmap in front of us brings this to life.

Wait!?! Microsoft doesn't see itself as a software company when most of its revenue comes from licenses. Can this be?


Ballmer said Windows 8 will be a device and services play---and sounds almost like Amazon.

We will continue to work with a vast ecosystem of partners to deliver a broad spectrum of Windows PCs, tablets and phones. We do this because our customers want great choices and we believe there is no way one size suits over 1.3 billion Windows users around the world. There will be times when we build specific devices for specific purposes, as we have chosen to do with Xbox and the recently announced Microsoft Surface. In all our work with partners and on our own devices, we will focus relentlessly on delivering delightful, seamless experiences across hardware, software and services.

A great example of this shift is Windows 8. Windows 8 will come to market Oct. 26, 2012, with beautiful hardware that will light up with our consumer cloud services. Windows 8 unites the light, thin and fun aspects of a tablet with the power of a PC. It's beautiful, it's functional, and it's perfect for both personal and professional use. Xbox Music, Video, Games and SmartGlass apps make it possible to select a movie from a PC, start playing it on the TV, and finish watching it on a phone. SkyDrive, our cloud storage solution, effortlessly connects content across a user's devices. Bing's powerful search technologies in Windows 8 will help customers get more done. Skype has a beautiful new Windows 8 app and connects directly into the new Office.

Microsoft also said it will take this services and devices approach for the enterprise.

Let's give Microsoft props for its radical shift. Windows 8, devices and services remake the company's model completely. Unfortunately, devices and services can be lower margin endeavors. The bottom line is software makes more dough. Devices are hit or miss. Windows upgrades are typically no-brainers. Ditto for Office.

The risks here are obvious:

  • Microsoft will have some revenue issues as it shifts to the cloud and a services model. Look at Adobe as how this shift affects the financial outlook.
  • The company beyond Xbox is largely unproven on the devices front. Surface could be a hit like Xbox. Or it could be Kin.
  • Windows 8 may be a binary event. The OS will either be a hit or confuse users completely. There may not be much of an in between.
  • Partners---the ones who make the hardware---could be alienated. 
  • Ballmer's track record is spotty. Ballmer missed the search and mobile curves. Microsoft now has competitive offerings, but is behind Google on search and mobile. And now we're supposed to bet that Ballmer knows devices too?

Topics: Enterprise Software, Hardware, Microsoft, Mobility, Windows

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  • Software remains the key, atleast in the near-future.

    For MS Software remains the cash cow, devices and services will be added bonus in the near future and will be potential cash-cows in the long term.

    Larry D's risk points are crap.
    • the one risk point tramples all other - Microsoft's devices are crap.

      there you have it in short.
      • How are they crap?

        My Microsoft built devices are all still working.
        The one and only, Cylon Centurion
        • ALL of them?

          How many ms devices do you have? No red ring of death yet?
          • No XBox.

            I don't own an XBox. But I still rock Microsoft mice and keyboards, and no matter how many times they get banged around the box they're usually in, they still work. Also my Zune HD works and keeps a charge as if it was right off the assembly line.

            XBox RRoD's could be mitigated if Microsoft would allow entry into the case to clear the dust that gathers in it. But for some reason they don't, which is why I keep my gaming and my streaming to my PCs.
            The one and only, Cylon Centurion
          • Microsoft mice and keyboards

            The last time I bought Microsoft hardware, it turned out to be Logitech hardware with a Microsoft stencil on it. Now wonder it works so well. ;-)
          • I've heard this one before!

            But I have been unable to find any proof of it. I would be interested to see this and even if it's so it there own design as I sell them side by side and they are not the same products.
            Or are you saying any company who don't actually BUILD there own devices are a sham? HMMM , think carefully before answering.

          • Woops

            In answer to the keyboard mouse statement!

          • All of mine are too

            I currently have 3 Xboxes, 2 with Kinect, 1 CoD special edition. I did have 3 other Xboxes, but sold them as I upgraded to later models with more memory/special editions. And I did not have a red ring of death, though I knew of several who did. Microsoft keyboards and mice are the best I've found. I still have the entertainment 8000 wireless, backlit, media capable keyboard & mouse and it is working great.
          • I had a RROD...

            .. But Microsoft took it back OUT OF WARRANTY (the extended one), and repaired it free of charge. Paid for shipping. Had it back within 2 weeks with a Month extension code to XBox Live for the trouble.

            Contrast this to my Acer laptop. Which had a touchscreen flaw right out of the box. They repaired it for free, but required me to pay all of the shipping and kept my laptop for a month, and I remained in the dark on its status until the day it shipped back.

            Points to be taken from this:
            1) The X-box hardware failure for me occurred outside the extended warranty window.
            2) Microsoft acknowledged the product flaw and made it right when it occurred.
            3) No device is subject perfection off the assembly.
            4) If I get a flawed device from Microsoft, at least I know they'll stand by their product. Clearly, I can't make this claim for Acer.
          • The Xbox shows some good and bad

            MS handled a bad situation about as well as could be imagined. I know, they fixed my brother's Xbox four times for free.

            That said, the failure on those things was well over 100%. That is, for every customer who somehow escaped RRODing, there were several who had multiple failures -- at least in my pool of friends and family.

            Contrast that with my launch window PS3 60GB, which I use almost constantly as a media streamer and Blu-ray player, which has worked without a hiccup since day one (not to mention my still-working GameCube and SNES consoles).

            The XBox may just be the single worst piece of consumer electronics ever sold on such a large scale.

            That said, MS keyboards are the best ever made.
            x I'm tc
          • Um... doing the math...

            ...your "well over 100%" is faulty given that you can't have a failure rate of "over 100%" as 100% means they ALL failed and given you clearly acknowledged that there are people who never suffered the RROD (my xbox never suffered the RROD) the percentage MUST be somewhere far south of "well over 100%".

            Just saying, if you're gonna try and use percentages, at least use them in a reasonable manner.
          • Microsoft: Radical shift to devices, risk ahead of Windows 8

            repaired my own xbox a long time ago when the power switch stop working. found the pcb trace was eaten/etched by solder paste residue (pcb not cleaned properly after solder batch), just put jumper and presto, it is still working 'til now (mostly as dvd player). my point, the system was designed properly, but sometimes manufacturing q/a becomes lax that we the consumers ended up owning crappy products... from all manufacturers!
          • We have in our house

            3 XBox's tied to three TV's share video and WMP. Works fine Two are Gen II and the 3rd is Gen III (I think it's black...) all working just fine.

            I have a Gen II Zune well my daughter does - it works great and is 80g and still working. 4 MS Keyboards - work great and 4 MS Mice all work great. No issues. From hardware they are as reliable as my Apple products.
          • Forgot one XBox Gen III came with Kinect

            and is working great...
          • I have an XBox 360 and a couple of zunes...

            ...and none of them have ever failed. They work as well as the day I picked them up. Also I have MS mice and keyboards, purchased MS HD webcams and such and they ALL continue to just work.
        • Do you call yourself Cylon Centurion...

          ... because your Xbox is showing the red light of death?

          (By your command ;-)
          Harvey Lubin
      • ?

        What devices are you talking about exactly? I still vastly prefer my zune hd to my ipod, my girlfriend's windows phone is a tank.

        The problem is going to be Windows 8. I see record numbers switching to Mac if it's ever forced on people. Then Mac runs the risk of no longer being so exclusive. Everyone is at risk!
        • "Running to Macs"

          They said the same with Vista, and no one ever did in droves. There is nothing wrong with Windows 8. Metro apps are in no way forced upon you, and desktop features are better than any OS before it.
          The one and only, Cylon Centurion
          • Desktop Features

            Better than any OS before it? I'm curious, CC ... in just what way is the Win8 desktop better than any O/S before it? I'd really like to know. I don't say this sarcastically, I just don't see it.
            Max Peck