Microsoft is not enjoying its Office After Party

Microsoft needs to leverage Office better and faster.

Microsoft has been a relatively consistent loser when it comes to fighting battles outside of its Office/ Windows’ moat. The list of defeats is long but worth remembering: Zune v. iPod, Windows Phone v. iPhone / Galaxy, or Windows Mobile OS v. Android / iOS are just some of the high profile head to heads the company has ventured into without winning. However, it is also true that its Office product acts as a highly reliable “cash cow” and profit center that management could leverage whenever needed. Thus, the success of Microsoft’s flagship product enables management to take bold bets into new forays (i.e. Skype and Nokia acquisitions). Nevertheless, the record is mixed on its ability to create new business segments that challenge Office’s market dominance, scale and long term sustainability. One could argue that Microsoft’s Cloud business is meant to be the “promised land” segment that the market has been eagerly waiting for years. Despite its growing share of Microsoft’s revenues, the cloud business is not one in which Microsoft has a clear first mover advantage or presence that could challenge the likes of Amazon Web Services. In other words, Microsoft has not been able to come up with a true blockbuster product for a while. For all of the aforementioned reasons, Microsoft’s long term prospects are not as promising as that of other tech giants.

 

The years under Mr. Ballmer’s leadership ossified Microsoft’s dependency on Office. Had it not been for the very public debacle that followed Nokia’s acquisition, it will not be far-fetched to imagine a world in which Mr. Ballmer was still heading the firm. Fortunately, new leadership came in and revitalized the company with a fresh vision of where the company should go. Since Mr. Nadella took office, the stock price of the company has skyrocketed and its corporate mojo has taken a 180 degrees turn. Microsoft should not let another big business opportunity pass (i.e. self-driving vehicles or artificial intelligence). In the world of network effects, very few players end up capturing a disproportionate share of the market. Microsoft is surely aware of this reality. Thus, it is in the hands of management to correctly identify and jump into up and coming trends. Management has the financial resources at its disposition, but one could argue that the battle for talent has Microsoft on an unequal footing. Microsoft’s recent history of flops might dissuade engineering talent from joining the Company. This is a big problem at the IT level because the battle lines are often being drawn by the ability that companies have to retain and attract talent to run its projects.

 

In conclusion, one should feel wary about Microsoft’s long term prospects. Pessimism about its future would only be tempered by tangible successes in nascent fields. Unfortunately, the Company has both a technological and talent disadvantage relative to the other big industry players. Microsoft has not won significant software and hardware battles in the last couple of years. One could argue that could change anytime, but in the world of technology forgetting how to win often leads to becoming a follower (and followers are likely to disappear in this winner takes all world).

 

Readings:

https://www.sec.gov/cgi-bin/viewer?action=view&cik=789019&accession_number=0001193125-16-662209&xbrl_type=v

http://www.theverge.com/2016/5/25/11766540/microsoft-nokia-acquisition-costs

http://www.slate.com/articles/technology/technology/2012/10/microsoft_zune_how_one_of_the_biggest_flops_in_tech_history_helped_revive.html

http://www.businessinsider.com/amazon-cloud-bigger-than-microsoft-google-ibm-combined-2016-10

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Student comments on Microsoft is not enjoying its Office After Party

  1. An interesting take on Microsoft’s prospects. I think Microsoft are doing some really exciting things under Nadella at the moment – it feels like they’ve got a cohesive hardware strategy for the first time in years, and they really surprised people with their announcement of Hololens in the AR space, which could be a very important next step for the industry. I’m a little concerned about how much value they’ll truly be able to extract out of the Linkedin acquisition, but overall I think Microsoft have turned into a pretty exciting place to work these days. Thanks for the post!

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