Over the years, I've learned that the best way to get an accurate picture of what Microsoft is really up to is to look at the places where the company is legally required to tell the truth.
I've found interesting nuggets, for example, by digging into SEC-mandated quarterly financial reports. But those revelations are typically couched in language that has been vetted by a veritable army of lawyers so that it satisfies the letter of the law and still obscures relevant facts.
For a complete, unfiltered view of what a public company is doing, though, nothing beats a subpoena that compels the company to hand over internal communications. That's what happened earlier this month when a document in the ongoing battle between Microsoft and the US Federal Trade Commission over the acquisition of Activision Blizzard briefly became public.
There are fascinating details about every aspect of Microsoft's business in this document, including meaty stuff about its cloud products and the Xbox gaming platform. I zeroed in on some revelations about how the company plans to squeeze extra revenue out of its enormous installed base for Windows.
Increasingly, Microsoft is treating Windows as a giant billboard where it can promote and cross-sell other products. Don't believe me? Here's Nadella's summary of the initiative in the memo titled "Microsoft's Growth Strategy: Plan of Record":
Windows expands the PC and acts as a seamless integrative hub for all our products and services…
There are currently more than 1.3 billion active Windows devices, with ~750 million owned by consumers. Our priorities are to maintain the competitiveness of the Windows ecosystem and to grow the adoption, engagement and monetization of our applications that rely on the ecosystem. Adoption of Windows 11 will both provide better experiences for users and monetize our applications and services more effectively. We have significant room to improve the adoption and monetization of key high-value services on Windows PCs, including Gaming (Game Pass on PC), OneDrive ("Backup your PC"), consumer productivity (M365 consumer subscription) and advertising through the browser and feed.
This really shouldn't be a surprise, of course. If you're a humongous global software company selling a mature product in a market that's no longer growing and where there's significant downward pressure on the price of the product, you need to start looking elsewhere for the revenue that will keep that business unit relevant.
One obvious solution for Microsoft is to do to Windows what the company has already done with its Office product, transforming a buy-it-once license into a subscription service. Some of that work has already been done on the enterprise side, where customers typically buy Windows Enterprise edition licenses with Microsoft 365 E3 and E5 subscriptions.
Microsoft is actively working to push Windows to the cloud, with Windows 365 already available for enterprise customers who want to give their employees a "full Windows PC experience via their browser." That could be a consumer business someday, but it will be years before a cloud-based version of Windows is ready for mass adoption by a global consumer market.
So, what to do in the meantime? Meet Microsoft Plus, which is what some MBA in Redmond decided to call the collection of consumer services that the company wants to cross-sell, upsell, and promote through PCs running Windows. This is what's listed under the "Current Priorities" heading for the Modern Life solution area (the MBA-speak is very thick in this document).
In this new era of the PC, we envision serving over 1.5 billion people daily with productivity devices, software and services across work, life, education, and play via an integrated and personalized Windows + experience.
Microsoft Plus Services Attach: Grow attach and usage of Microsoft and 3rd party services such as Microsoft 365 Personal/Family, Xbox Game Pass, and Microsoft Edge/Bing through integration on Windows 11.
In fact, there are multiple instances in this memo that refer to greater integration between Windows 11 and these Microsoft Plus services. This is part of the plan of record for the Search, Advertising, News, Edge (SANE) group:
Our primary objective is to create differentiated and personalized content, search and shopping scenarios to drive greater usage intensity from our existing hundreds of millions of users. We will increase usage of Bing and Edge by differentiating our products for high value consumer needs (e.g., making Edge the best browser for shopping). In addition to improved differentiation, we aim to create more usage and attract new consumers via enhanced integration into the Windows shell as part of Windows 11.
We're already seeing some of this "enhanced integration in the Windows shell" with the messy Windows 11 Widgets feature, which includes news headlines and ads from Microsoft's advertising network as an unremovable option.
What about Microsoft Teams? It's been embedded into Windows, too, as part of Microsoft's effort to fight off the threat from Google's Chromebooks:
We are sharpening our focus on Windows, which in some way helps drive nearly half our Company's revenue overall. In the commercial space our priority is to drive Windows 11 adoption. In the consumer and education spaces we are taking on Chromebooks with the integration of Teams into Windows 11.
And no, Windows 10 is not immune from this pressure to integrate. A review of results for the Microsoft 365 Consumer group includes this nugget:
With fewer PC activations than expected, it drives weakness in perpetual sales. … Selling Microsoft 365 outside of new PC sales and activations remains a focus area for the team, which includes working with Windows on product changes within Win10 given size of that active user base. Product experiences and new premium value for Microsoft 365 remain in focus, as does driving attach of our lower priced OneDrive/Storage offering.
You might have already seen complaints from some folks about "ads" in Windows for OneDrive subscriptions. Expect more of this sort of thing.
This sort of stuff isn't unique to Microsoft, of course. Apple is aggressive about pushing its own services on Macs and iOS devices, and it makes a boatload of money from ads on its App Store. And Google services as well as ads are a key part of the Chromebook experience. But this is relatively new territory for Windows.
So far, Microsoft hasn't succumbed to pressure to put actual third-party ads in the Windows shell. But you have to believe someone in Redmond is working on those options. Can't leave money on the table when there's a revenue shortfall in Q4.