Anticipating the Free PC: Microsoft as a Services Company

    AT&T in its prime was a services company: You got the telephones for free and paid a monthly fee for services that covered the cost of the hardware. Because the hardware was a cost center, it didn’t change very often and was designed to last for decades. Outside of cable companies, this was a very different world back then but the trend pendulum swings and it is starting to swing back to services. And while we are calling it “the cloud” this time and it is far more than just phones, the result could be that hardware is free and we are back to a monthly charge for access.  

    What brought this up was some back-of-the-envelope analysis on the Microsoft Surface tablets and the realization that combined with services like Office 365 and Azure, Microsoft could afford to fully subsidize the hardware as part of a services agreement. BYOD, in effect, gives hardware to IT for free and ideally that hardware would be connected back to services like Office 365 and Azure, so the future may be closer than you think.

    There is a tradeoff to going down the full-services approach that BYOD partially eliminates, so given the industry is headed towards a future that is very similar to our past, let’s revisit PCs as a service. 

    Benefits of a Full-Service Approach

    The key benefits of a full-service approach like what IBM and AT&T initially provided is that someone else owns the responsibilities associated with keeping the hardware running and expenses typically tied closely to use, which also typically tracks with revenue. Most of the expenses become variable and this allows the firm to better protect margins as profits wax and wane. Most problems land on the provider’s desk and updates are something the provider worries about as well, since, to the provider, change represents cost and the amount of change is severely curtailed and you tend to, overall, receive a very predictable result.  

    IT is mostly focused on providing the role of translator and facilitator between line executives and the service provider. While, in the old world, much of the technology resided on-site, in this new world only the client hardware and some of the networking gear would be on-site and all general servers would be located at the provider (in this case a Microsoft regional data center) and that frees up internal space and power resources.   

    While, historically, IT services were very inflexible, current-generation offerings like Azure tend to represent the state-of-the-art in flexibility and provide IT and line executives with capabilities (short of hardware control) that can exceed what they can afford to provide on-site. If you haven’t reviewed Azure, this isn’t your grandfather’s IBM experience; it is impressively flexible in both capability and billing options, so it is worth a look. 


    There are two big ones. IT immediately becomes far smaller in that anything associated with hardware management becomes redundant. Programming, which has been moving into line areas for some time anyway, remains with the company and may become more responsive to the business as it shifts more solidly to line management control, but most of IT goes the way of telephony and car fleet management and shifts to the service provider. In terms of agility, there is a long-term risk of the service provider becoming excessively focused on cost and stagnant. That certainly happened with IBM and the mainframe in the 1980s, with AT&T before its collapse, and we saw this with Internet Explorer during the lengthy version 6 run. No company is immune to this and while in the last cycle it took decades to emerge, the IE 6 example suggests the gestation period is far faster now. Offsetting this is the emergence of social networking customer support programs and the customer loyalty metrics, which are being implemented by companies like EMC.  

    This suggests a mitigation process that would include selection based on the strength of these related customer satisfaction tools. It also suggests a ranking of vendor by customer satisfaction and loyalty to provide a strong offset for the risk the vendor would become complacent, forcing a catastrophic vendor change at some near-term future point.  

    Wrapping Up: Preparing for Free Hardware and a True Cloud World

    The world of full IT as a service is coming, ready or not, but it should immediately provide a forcing function for you to look more closely at the vendors you have and that might provide these services in regard to how they treat customers. A services approach tends to decouple the financial incentives tied to customer satisfaction; upset customers tend to replace vendors and this happens far more quickly in a more traditional IT/vendor relationship. The natural vendor lock-in services arrangement tends to put off visibility of major problems to vendor executives until they become catastrophic and excessively painful, so a mechanism to provide early reporting is critical to avoid this outcome.  

    A company like EMC, with a massive focus on customer satisfaction, would, therefore, be vastly superior to a firm like Oracle, which has a massive focus on quarterly sales, because, under a service, Oracle loses all interest in keeping the customer happy and instead focuses in increasing quarterly billings until the charges become so high its customers abandon Oracle or fail. This goes directly to the near failure of IBM in the late 1980s and points to the danger of the specific cloud model that Oracle is pursuing.  

    Currently, Microsoft is neither as good as EMC nor as bad as Oracle, but to truly be successful it will need to shift to a tighter focus on customer satisfaction and loyalty than it is currently demonstrating, which will either delay this transition or cripple Microsoft’s participation in it.  

    In the end though, we are seeing the emergence of a brand-new world, one where a vendor’s focus on your needs should easily trump the technology or product it provides. Our success in this new world will be directly tied to how well we, and our chosen vendor(s), learn how to prepare for this trip back to our future past (now there is a sentence). 

    Rob Enderle
    Rob Enderle
    As President and Principal Analyst of the Enderle Group, Rob provides regional and global companies with guidance in how to create credible dialogue with the market, target customer needs, create new business opportunities, anticipate technology changes, select vendors and products, and practice zero dollar marketing. For over 20 years Rob has worked for and with companies like Microsoft, HP, IBM, Dell, Toshiba, Gateway, Sony, USAA, Texas Instruments, AMD, Intel, Credit Suisse First Boston, ROLM, and Siemens.

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