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Shudeep Chandrasekhar
Shudeep Chandrasekhar
Articles (120) 

Microsoft Is Dead, Long Live Microsoft

The new Microsoft is positioning itself as a one-stop-shop for enterprise customers

The Microsoft (NASDAQ:MSFT) we know does not exist anymore. Welcome to Microsoft 2.0, created by CEO Satya Nadella, a software as a service company - or maybe it would be better if we called it simply Microsoft-as-a-Service.

Gone are the days when everything about Microsoft was actually about product; the time has arrived when the company is constantly thinking about how to push those products as monthly or annual service rather than as standalone software.

When Nadella took over, he started by stating how he sees everything through a cloud first, mobile-first strategy. But that strategy is looking more and more like an “as-a-service” one.

Microsoft earned billions of dollars using the OEM licensing model, where Windows was preinstalled in computers and Microsoft made money by charging users for the license. That model is outdated, and today, mobile operating systems such as Android are being given away for free. To earn revenues, Google (NASDAQ:GOOG) (NASDAQ:GOOGL) has created an ecosystem around it consisting of applications and advertising.

With PC sales declining, this is one of the biggest revenue streams that Microsoft needs to replace, and they seem to have taken the as-a-service route to mitigate the slowdown on the commercial licensing and consumer licensing model.

windows 10 as a subscription

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Source: Microsoft Blog

As of this week, Microsoft has decided to offer a Windows 10 subscription option to Enterprise users. It’s interesting that they’ve only opened this up to companies; the likelihood of a Windows 10 consumer version as a monthly subscription will clash with their free upgrade offer that ends on July 29. But I believe it is inevitable that they will open this up to the general public sooner or later, if only to make the annual fee look more attractive. This is standard SaaS pricing protocol, and applies for Office 365 as well as Azure, so there’s no reason for Windows 10 not to go the same way.

One of the biggest benefits for enterprise users, however, is that they can pick and choose the services they want without having to pay for the entire package. Case in point is Facebook (NASDAQ:FB) CIO Tim Campos announcing that the company will be using Office 365 for all of its 13,000 employees around the world, but will be using their own Facebook Messenger for video calls and chats. That leaves Skype for Business and Yammer out of the bundled plan they will be paying for. Other companies may want Skype, but may opt to sign up with Google Apps for Gmail or Drive service, which allows real-time document collaboration like nothing Microsoft or anyone else has.

The shift to an Operating-System-as-a-Service itself is a significant one because everything operates on the cloud. Whether we want it or not, every new service that is up for subscription adds to the growing volume of data sitting on the cloud. But it also does another thing that’s mostly overlooked - it puts all the other services from that company at arm’s length.

By putting Windows on their own Azure cloud and offering it as a SaaS, Microsoft also ties in the Azure service and makes it available at the click of a button. These interconnected services will soon see companies gravitate toward not necessarily the best service possible, but the most convenient one possible. If you’re already on an Office 365 subscription, for example, Azure - and now Windows 10 - are just one click away. And the bigger your company, the more sense it makes because you can divest yourself of all that redundant hardware and software that you’re paying millions of dollars to maintain each year.

Let’s take the case of a small start-up whose employees use Mac PCs for their work. They still need a productivity suite, and may use Google or Microsoft for that. They may also be using Amazon (NASDAQ:AMZN), IBM (NYSE:IBM) or Microsoft infrastructure services for their IT operations. Now, imagine how easy it will be for the company to start getting everything they need from the same vendor - Microsoft - instead of using Mac for work, Amazon for infrastructure and Microsoft for their office suite. Admittedly, some companies may well do that, but Microsoft is making sure that their own “one stop shop” is the more attractive option.

The sheer breadth of their as-a-service bundle should be enough to pull most companies into their client list.

A lot of people think that Nadella’s mobile first, cloud first mantra is about what the company wants. No. It’s about what the consumers want. They want mobility and they want access from anywhere in the world on any device in the world. But most of all, they want convenience - and that’s exactly how Microsoft is positioning itself.

And there’s no better person to put that into words than the Chief Information Officer of Facebook Tim Campos:

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“We collaborate on everything online—no files, no fragmented information stores—and we provide our employees with the ability to work anywhere and in any way they want,” Campos wrote in a blog post. “Our IT has to be flexible and available over the web, on mobile and across platforms — wherever our employees need it. This is why we’ve implemented Office 365.”

I use both Microsoft 365 as well as Google Drive. Gmail is still my preferred email service because I personally feel that Outlook has a long way to go before they can match the ease of use that Gmail offers. On the other hand, when it comes to office productivity, it is Google’s product that I find lacking in finesse and capability. The collaborative nature of Drive, Docs, Sheets, etc. is unmatched, but it doesn’t let me do things as easily and quickly as MS Office does.

But I believe this will be a long war in which only Microsoft and Google are the real combatants. No other company has the enterprise productivity tools and cloud offerings that these two possess. Others may have one or the other, but not everything that a company’s employees need to be more productive at work.

In a sense, that’s what these two companies are becoming, and for now, Microsoft seems to have the edge.

This is the Microsoft that you will be investing in - not the staid old software vendor they used to be. And these are the products and segments that serious investors should be looking at to see how well they’re performing. I can recommend a BUY for Microsoft right now because they’re much closer to achieving that goal of mobile first, cloud first. Google is a double-edged sword at this point - they desperately need to diversify from their advertising-heavy revenue model, but they just don’t seem to have a goal or even a direction in mind for the company. That’s a bold statement, I’ll admit, but anyone that has been following the company knows this to be true.

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Comments

garylyn
Garylyn - 2 years ago    Report SPAM

Good analysis but you are overlooking one very important and impossible for Google to overcome factor; interoperability with the monopoly legacy base of existing business systems. Microsoft Office 365 has near perfect interop with this legacy base, and Google has near zero.

Go ahead and see for yourself. Take an "in-process" Office document from an existing workflow or business process, and open it in Google docs. Sure, the collaboration and mobile access is great. But the document must be taken "out-of-process" ofr gDocs to operate on it. Worse, there is no way of re-inserting or roundtripping that document back into a legacy workflow.

The reason for this is that gDocs converts the native Office document to a "bespoken" format, enabling collaborative editing, and then converts it back to the native Office format on finish. The conversion process guarantees that the document will be broken. The cost of this lost re-insertion capability breaks the workflow. And work stops.

Office 365 doesn't convert the document. It is able to operate directly on a native "in-process" document because the internal layout engine is native with near perfect interop with the legacy Office editors and the systems they service.

This is a huge problem for Google. For customers deciding between a Google Cloud or a Microsoft Cloud interop is the difference between an easy loss-less mobile/Cloud transition and a costly, very disruptive rip-out-and-replace of legacy business systems. Microsoft doesn't have to match the extraordinary collaborative and mobile capabilities of gDocs. They only need to preserve near perfect interop.

Microsoft spent a fortune protecting the Office formats, interfaces and protocols from anti-trust demands and lawsuits. The amount spent protecting the monopoly is thought to be over $14 Billion in fines, penalties and settlements. Much of which are protected by non-disclosure agreements.

Yes, interoperbaility matters. Alot.

It's long been said that Microsoft Office dominates the business systems and processes of near 98% of all legacy productivity automation. Google has had near a fifteen year lead on developing next generation platform software-as-a-service systems. Yet, within a two year period Microsoft was able to come out of nowhere, easily overtake Google, and is now challenging Amazon for Cloud supremacy. Interop matters.

Unfotunately with documents, there isn't an SQL like solution. Document information maybe far more valuable than database bits in that documents hold human expertise and analysis as well as factual data. Yet, these business documents are bound and tied to the originating applciation, quite inaccessble to the many new applications and services needing to act on this information. These documents belong to Microsoft, and $14 Billion dollars later, they continue to be Microsoft's special monopolist provence.

It's not for lacking of trying that Microsoft's monopoly is able to make the transition to a Cloud based productivity platform. Platform shifts are incredibly disruptive, and for sure thousands of companies and open source communities have tried to crack open the great monopolists grip on business documents.

It seems to me though that Google shares in a very common mistake so many make. That is, instead of starting with the interop problem, Google started with the new platform promise. And as a result, gDocs does have superior new platform capabilities. Unfortunately, there is no way to achieve interop without having to rebuild everything. Interop is not a "feature" that can be added on. It has to be the foundation.

Microsoft on the other hand has proven that Cloud platform features can be added on to an interoperable service. Messaging, mobility and collaboration can be added to a product designed to be first and foremost near perfectly interoperable.

The good news is that it is possble to write competitively and near perfectly interoperable native editors. It's almost funny that in Microsoft's maniacle desire to protect their formats, interfaces and protocols, they enabled the triangulation needed to develop native implementations competitive with the legacy Office editors. The question is, will Google ever figure this out.

Thanks for the interesting post.

~ge~

Shudeep Chandrasekhar
Shudeep Chandrasekhar - 2 years ago    Report SPAM

Thanks for the detailed and insightful commentary, GE. Yes, I'm in complete agreement with you about interoperability. I've personally been frustrated by the Word to GDocs conversion issue when you're trying to go back and forth - especially when tables and charts are involved.

You've pointed out a very prohibitive challenge for legacy Office users to shift over to Google Apps as a viable cloud solution in preference to Office 365.

Thank you for sharing.

garylyn
Garylyn - 2 years ago    Report SPAM

It's funny but conversion based solutions like PDF, LibreOffice and gDocs work fine as long as they are at the "end-of-process" Thr frustration and work stoppage come in when there is a need to re-insert the document into a workflow. And I think that's where most business users expectations are.

The good new is that Microsoft inadvertently assisted in an amazing triangulation of the Office native formats resulting in outside applications truly capable of working directly on native documents. No conversion. The three components of this triangulation are RTF, binary conversion blockage, and Office Open XML. All three are critical to cracking the secrets of the native document layout engines deployed by Microsoft. It could even be said that the OASIS Open Document format is the most incredibly successful failure in tech history. The ODF XML failed. But in doing so the missing pieces were provided by Microsoft when they countered ODF with Office Opne XML. BAM! Secrets finally revealed.

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