Reading between the lines of Nadella's state of the union missive

Microsoft CEO Satya Nadella is warning of 'tough choices,' while doubling down on Microsoft's focus on 'digital work' software and services, according to his latest internal message to the troops.
Written by Mary Jo Foley, Senior Contributing Editor

GeekWire has a copy of a new "fiscal 2016 state-of-the-union" e-mail missive sent by Microsoft CEO Satya Nadella to the troops on June 25.

(I've asked Microsoft to verify its authenticity and have yet to hear back, but I feel quite confident it's the real deal. Update: A Microsoft spokesperson confirmed the memo GeekWire has posted is real.)

Most of Nadella's mail is meant to be inspirational. There are a lot of words about caring about customers, making a difference, blahblahblah. (Yes, I am channeling former CEO Steve Ballmer there.)

As of today, the new official Microsoft mission statement is now: "To empower every person and every organization on the planet to achieve more," according to Nadella.

The more interesting part of today's memo -- which follows by a week Nadella's announcement about the company's latest reorg -- are a couple of between-the-lines tidbits.

Last year, a week after Microsoft announced its latest reorg, the company announced it was cutting 18,000 jobs. There is nothing in today's Nadella note that mentions the word "layoffs." But since last week, I've heard from several of my contacts that they are expecting layoffs, though not likely as extensive as the ones that happened last year.

"We will need to innovate in new areas, execute against our plans, make some tough choices in areas where things are not working and solve hard problems in ways that drive customer value," said Nadella in today's email.

"Tough choices" is many times a sign for layoffs and/or product-line phase-outs.

Many have been wondering how long Microsoft will continue to back its Windows Phone platform, given its low market-share penetration. I, myself, think Microsoft needs to keep making phones as long as the company intends to continue to offer its own mobile operating system platform, as no other OEMs have rushed in to champion Windows Phone.

Today's memo never calls out "Windows Phone" by name. And Nadella does talk about the future of the "Windows device platform," and "our devices." He does say Microsoft intends to bring its "first-party gaming efforts" across PC, console, mobile and new categories like HoloLens. But "mobile" doesn't have to mean "Microsoft mobile," in this case.

There's no explicit mention of Surface, either. Does that mean Microsoft might cease to make its own tablets? I've heard from more than one of my contacts that this is an internal debate inside the company -- though how serious of a debate it is, I am not sure.

The question: Should Microsoft go back to relying on OEMs to make the devices Windows runs on? Since Nadella considers first-party hardware a way to showcase software -- and recently folded the Devices business into Windows -- there's a case to be made that the company might go this route. That said, it's tough to make that call when your OEMs are doing things like silently disabling Windows Update or continuing to preload PCs with crapware.) Hmmmm.

My two cents: Microsoft seems to have turned the corner with its Surface line, as it is now a billion-dollar business, revenue-wise. So I'm a bit skeptical Microsoft would drop its tablet line after investing quite a bit of time and money on getting it going.

There's another part of today's Nadella memo that caught my eye. And it has to do with productivity.

Last year, Nadella talked about Microsoft being a productivity and platforms company, going forward. But he and other Microsoft officials made sure to say that productivity didn't equal business-focused products only. There was lots of talk about "Digital Life+Work." Hey, even Minecraft could be considered a productivity offering, according to Microsoft's very expansive definition of productivity from a year ago.

But look at the emphasis in today's memo:

"First, we will reinvent productivity services for digital work that span all devices. We will also extend our experience footprint by building more business process experiences, integrated into content authoring and consumption, communication and collaboration tools. We will drive scale and usage by appealing to 'dual-use' customers, providing productivity services that enable them to accomplish more at work and in the rest of their life activities with other people."

Nadella is still talking up the "dual-use" idea. But there's a much stronger emphasis on work-focused products. Nadella calls out "digital work" very explicitly, as well as "business process experiences."

This isn't a bad thing. Business-focused software and services continues to be where Microsoft makes the lion's share of its money. Windows Server, SQL Server, System Center, ERP/CRM, Visual Studio, SharePoint, Exchange -- each of these is a billion-dollar or bigger business for the company.

If you're wondering if "One Microsoft" is still a thing, it definitely is, according to today's memo. And of the various changes that Microsoft has made in the past year-plus, I'd say the reduction of competition inside the company between people supposedly on the same "Team Microsoft" has been one of the biggest.

Anything else any of you tea-leaf readers see in Nadella's latest memo?

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