Monday, 30 July 2012 19:36

Our Prediction Of Microsoft's Cloud Movement Spelled Out In Their 10-K Filing

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Going as far back as the initial Build release of Windows 8 we picked up a change in Microsoft’s business plans and their push in the market. It was not a subtle shift as some will have you think. It was the type of shift that borders on the desperate. It is like seeing someone that knows they have run out of time grasping at anything to make something stick. At that time we knew that something had to change and it brought back a conversation I had with a couple of investors while waiting in line for an nVidia press conferences at CES in 2011. The conversation was about modular components and how manufacturers could create an independent revenue stream by allowing for modular upgrades and online services.  For some reason we ended up talking about Azure and how it had become something of a failure for what Microsoft had wanted it to be.

Why this conversation came to me I cannot say, but it was the equivalent of a light going off in my head (As Groo would put it “Lightbulb”). I started to look at Microsoft’s problem was a position of how to make what is broken work. I took a look at the list of items that Microsoft had working and what was failing. On the working side we have the Microsoft Enterprise systems (Windows Server, Exchange, SQL, CRM, Dynamics, etc.) There is no denying that Microsoft with their heavily

integrated enterprise solutions has a big chunk of the market. In fact when talking about Microsoft solutions I often mention how they tie into each other making them more scalable than many other products on the market. Microsoft also has a very successful workstation and home desktop system, Windows is the most installed operating system on the market, period. To these you could possibly add a successful messaging and webmail system with Windows Live (Messenger/Hotmail) and of Course the XboX/XboX Live, and Office.

On the fail side you have the Zune (every version), Windows Phone, Azure, and Microsoft’s Office 360/ One Live (their cloud security and technical support package). These products failed pretty hard compared to the services that were out there which were less expensive and had more consumer confidence. Even hosted Microsoft Exchange services from GoDaddy and others had better consumer reception than Microsoft. The problem is that building and developing all of these was expensive. The investment for these is not something you can simply dump and expect to recover from. The billions of dollars that Microsoft would have lost if they simply scrapped these items would have been devastating… which is why we saw the crazed look of desperation in Microsoft’s “eye” at build. They HAD to act and find a way to utilize these items.

Bring in Windows 8 -
With Windows 8, Windows Phone 8, Windows RT and the next version of XboX Microsoft is creating an ecosystem using the fundamental pieces it has in place. The new music service will be Zune with a new name and slightly altered face. XboX Live will move into the Azure Space to become a service infrastructure that Microsoft has to run anyway. They have brought in Skydrive to use their existing cloud storage. Windows Live will change and be more of a messaging hub but also use Microsoft accounts for login which are now being pushed as the preferred login type for Windows 8. By making Windows 8 RT Windows Phone and the XboX OS all look alike with Metro at their core Microsoft hopes to force a shift to their products. Once there Microsoft will slowly phase out the desktop and you will be stuck working in the cloud with Metro. Make no mistake; Microsoft is becoming a service provider instead of a software company. Windows 8 and possibly future versions of Windows will become more and more cloud based so you may find yourself paying monthly just to run your computer. By

The move is logical for Microsoft who needs to increase their continuous revenue stream and knows that XboX Live has been good for them. They feel that expanding this will bring them more revenue. The problem is that no one told the OEMs or the consumer. Consumers are not going to be all that happy about paying monthly to run their systems or access their files. The requirement to login with a Microsoft Account access many features of Windows 8 is high on the list of complaints from people that are actively using the software. OEMs are feeling cheated with the launch of surface, the heavy integration of Office 2013 with Office 360 and Microsoft’s push to lock out the lucrative OEM bundles. If you remember Microsoft tried this with Windows Vista and Windows 7. Both had significant backlash and we will see the same thing here.

Right now we have two game companies that are already looking to Linux for future development (Valve and Blizzard), one OEM that is re-launching their Linux based systems (with Ubuntu) and whispers that more will follow them. They are not just hedging best here, but are actually working to counter the damage that Microsoft is going to do to them with Windows 8 and its cloud push. As we said in October of 2011; Microsoft needs to rethink Metro, the Cloud Push and their OEM partnerships. They need these companies to survive as they simply cannot stand on their own. Steve Ballmer should take a look at where trying to force OEMs into doing something they do not want can get you.

Now all of this might sound a little farfetched, but it was where we saw Microsoft in October of 2011 based on their announcements for Windows 8 on the Building Windows 8 Blog. It also happens to be spelled out pretty clearly in their 10-K filing

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