A View from Microsoft's Analyst Meeting

Rob Enderle

This week I'm at Microsoft's Financial Analyst Meeting in Redmond, Wash. At these events, companies bring in the financial analysts and hope to convince them that their future is bright in order to encourage more favorable investment recommendations. This one is particularly important because Microsoft's executive team has been under pressure because Apple and Google have appeared to be outperforming the company. In the most recent quarter, though, Microsoft showed sharp improvements while Google's expenses exceeded expectations, shifting some of this pressure over to Google. Even Apple has been having serious iPhone problems both domestically and with its worldwide rollout, suggesting Microsoft has a strong opportunity if it can execute.

 

Areas the analysts wanted Microsoft to focus on were cell phones/tablets, Bing, servers, and Windows. I'll give my perceptions of each.

 

Bing

 

Microsoft's strategy with Bing has shifted from being a Google clone to providing better and advanced searches. The company's studies showed that about 60 percent of the time, people were having to do multiple searches on things like comparing products or services. Development efforts have been focused on this audience and to provide better and increasingly graphically enhanced results that appear faster and can be more easily understood. Bing should, as a result, be increasingly favored by those who do more complicated research over those who are simply trying to find a single link or article.

 

Thoughts: Running directly at Google made no sense. Analyzing where Google isn't and building against Google weaknesses are a better strategy. However, the goal isn't search, it is advertising revenue and Microsoft didn't really address that.


 

User Interface: Xbox Kinect for the Enterprise

 

One of the interesting demonstrations was using a system based on the new Xbox motion interface, but for an automated emergency technician. The system identified that there were two people in front of it and was quickly able to ascertain that it was the child that had the problem. While watching the demo, it was clear that the technology would need to evolve a lot. Otherwise, it would scare the holy crap out of most patients. It also showcased a technology that could, much like voice-response systems replaced telephone attendants, replace receptionists in open areas and people such as bank tellers or airline counter employees at some future time. It could be a strong improvement to the kiosk or static board approach to the same issue. The reality is these jobs are going away, and it might be better to have a system that is more people-friendly than we see now.

 

Thoughts: One of Microsoft's historic problems is the inability to collaborate across the company. This demonstration showcased a level of collaboration that the firm desperately needed in order to use its full strength. While this kind of improvement may take years to become evident in revenue, it shows a strong move in the right direction.

 

Container Computing

 

The container computer effort, which basically is a data center in a box housing up to 800 servers with a full data-management software stack, is an amazing exercise in engineering. The current generation of development includes a hose-fed evaporative cooler that can work in about 80 percent of the world and it consumes 5 gallons of water an hour (largely through evaporation). Vastly cheaper, faster to install, and faster to upgrade as a unit than conventional approaches, this apparently has a lot of companies rethinking the way they build data centers. They basically could become warehouses filled with these server containers in a Microsoft future.

 

Thoughts: Azure, Microsoft's cloud initiative, was initially perceived by hosting companies as a competitive risk. They didn't seem to understand that it was Microsoft's intent to transform the data center with cloud technology into a much more agile structure that could be used by these hosting companies and large enterprises as opposed to replacing them with a Microsoft hosting service. Apparently this container initiative is convincing hosting companies that Microsoft, rather than being a threat, actually has something that could dramatically lower their costs. It was one of the more powerful presentations at the event.

 

Windows 7 and Quality Improvements

 

Microsoft presented Windows 7 as the most high-quality product it has ever produced and the most successful. Adoption has been aggressive with consumers and appears to be picking up sharply with corporations.

 

Thoughts: This focus on quality appears to be spreading across the company as a result the focus and success of Windows 7. Microsoft appears to be taking quality far more seriously this decade than last. Still lagging efforts like those at EMC where Net Promoter Score has become an executive-level metric, this is the kind of direction most customers likely wish Microsoft had started far sooner. The farther this goes, the more successful Microsoft will likely be.

 

Tablet/Smartphone

 

Steve Ballmer personally took on both targets and the new Windows Phone 7 platform was extensively demonstrated to a relatively positive audience. He positioned the iPad as similar to a Linux netbook and something that Microsoft would overcome with far more choices, but there was little in the way of proof points. The Windows Phone was much more complete and appeared to have a number of ease-of-use advantages over both the iPhone and Android.

 

Thoughts: The tablet positioning didn't seem well thought out, suggesting that Microsoft hadn't truly grasped that the Apple iPad was a large iPod and not a crippled laptop. The phone was much stronger with the only sustaining concern being whether the advantages it has would still exist by the time it arrives late in the year. Microsoft remains exposed until it can bring compelling products to market in both categories and while the presenters seemed to grasp this, there remains some doubt whether everyone is on the same page with what "compelling" means.

 

Wrapping Up:

 

Microsoft demonstrated impressive work with its quality and cloud efforts, particularly with its server containers. Financially, it remains strong and with more than $40B in cash reserves, has an enviable cash position. However, the areas that the company is being measured on appear to be consumer efforts as defined by iPad-like tablets and smartphones. In the first, it might not be accepting a reality that differs from the Windows-based one it has locked down on and the second, while vastly more competitive, still might be too late to market. The phone is the larger opportunity, the one that could have the strongest positive impact. But while Microsoft is far from failing, it hasn't yet made the bar for assured success.



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