The new-look Microsoft: More integration needed if 'devices plus services' is to succeed

Devices and services are the future for Microsoft. But what will that strategy look like? And how can the company sell more Surface tablets?
Written by Simon Bisson, Contributor

Microsoft's CEO Steve Ballmer has said it clearly: Microsoft is a devices and services company now.

It's taken its first steps into a new world with the launch of a subscription version of Office that's tightly integrated with its Microsoft Account, with its Office 365 cloud servers, and with its Azure service platform. That follows on from the launch of its first computers — the Surface family of tablets.

Microsoft needs to concentrate on integrating hardware, software and the cloud.

But there's still a disconnect. Sure, Windows 8 uses Microsoft accounts to share information between your PCs (and therefore with your Surfaces) and while Surface RT's bundled version of Office is designed to use SkyDrive, it's not a full part of the Office 365 ecosystem. Even Surface Pro is a standalone device, with a click-to-run promo version of Office 2013 that can be linked to an existing Office 365 account — but with no direct way of selling the service to a new user.

Surface doesn't seem to have set the world on fire, if the recently leaked numbers are anything to go by. So how can Microsoft take advantage of its ecosystem to boost sales, and to get people excited about its platform and its new strategy?

First, Microsoft needs to get rid of the disconnect and concentrate on integrating hardware, software and the cloud. The company is selling devices and services in separate boxes, rather than a blended devices-and-services model. Although it's easy to mix and match PCs with services, you're billed for everything separately — and you're having to manage integration and deployment yourself.

If you're a small business seeking a turnkey solution, wouldn't you expect Microsoft to provide you a bundled Surface Pro with an Office 365 account and an Intune licence for management? Maybe you'd want something like Software Assurance with access to other pieces of business software as part of the deal? And how about some extra cloud storage, above and beyond the free SkyDrive? And let's not forget the Surface Pro.

Being a software company is one thing, as Microsoft knows. Being a hardware company is another. But being a devices-and-services business is something new in the IT industry.

You could think of this model as the anti-Chrome. Google is saying that for small businesses and individuals what the cloud can do is strip out features to make management almost unnecessary, bundling a basic control panel and devices as a subscription service. Microsoft, meanwhile, takes a different approach in offering services like Intune and Office 365 that give users the features they want, but make it easier and cheaper for IT departments to manage things the way they want. Just adding devices to a subscription would change the price, but not the intent.

Targeting small businesses makes a lot of sense for this model too. Enterprises already have their device fleets, their system management strategies and their custom images, so they don't need a bundled, managed mix of hardware, software and services. But SMEs are a different beast — and there are millions of them all over the world, all wanting to reduce their IT costs and simplify infrastructure, while still needing to operate flexibly.

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Being a software company is one thing, as Microsoft knows. Being a hardware company is another. But being a devices-and-services business is something new in the IT industry. The closest model is probably that of a mobile operator, where you purchase a package of hardware and services when you buy a phone. The phone is subsidised, with minimal upfront costs, and you pay for it over time as part of your service subscription.

Bringing that model to PCs is a big shift, and one that's going to take time fine tuning. It's a model that will be extremely price sensitive, and one that's vulnerable to disruption — as the mobile operator price wars in Hong Kong showed, with a race to the bottom that left the market distorted for years. Getting things right will be important, will take time, and will need a lot of commitment from Redmond.

This is all speculation, of course. But still, 'Surface plus Services' has a ring to it.

If Microsoft was actually considering something like this, how would we know? Microsoft's a smart company with an extremely data-driven internal culture, so we'd expect it to start by running anonymous customer surveys, as well as more easily identified surveys to help refine offerings — and of course there will also need to be pilot programmes to test customer appeal, much like the public Office 365 previews.

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