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July 17, 2014

Microsoft Continues Transformation, but Fast Enough?


Today, Microsoft announced it is cutting 18,000 jobs from its payroll.  Wall Street approves, but analysts should be asking if the move is fast enough for the company.

About 14 percent of the company's 125,000 employees will be let go this time around. Most of them, around 12,500, are coming from Nokia's devices and services business that Microsoft bought in September 2013. 

The last time Microsoft conducted a big layoff was five years ago. In 2009, the company cut more than 5,000 jobs during the recession.

Microsoft CEO Satya Nadella says the workforce reductions are driven by two outcomes: workforce simplification, and Nokia Device and Service integration synergies and alignment. The company will simply the way it works to "drive greater accountability, become more agile and move faster,"  Nadella said in an early morning company memo. Fewer layers of management are expected to accelerate the flow of information and decision making. The expectation is with leaner and more efficient business processes and support models, Microsoft will get more productive, impactful teams across the company.

Nokia's assets will be aligned to Microsoft's strategic direction -- i.e., everything will become products running Windows. Phone hardware will be aimed at delivering high-end phones with "breakthrough innovation", and select Nokia X designs will become Lumina products, running Windows for the "affordable" smartphone space.  Everything mobile will point back at Microsoft cloud services, including Office 365, Windows Azure, OneDrive, and Bing.

Microsoft's strategy is all well and good, but the clock is ticking. Apple and Google control the mobile world between their respective operating systems, while Windows remains, well, Windows. Tied into iOS and Android are content stories and recurring revenue services.  Microsoft has played the adaption game, porting Office to both operating systems, and using the apps to bring users to Office365, but it's been a reactive move rather than an innovative one.

The long game that all three companies are playing for is a combination of hardware refresh and the desire for people to have a single platform for both content consumption and content creation.  Mobile is strong in content consumption, but lacks when it comes to content creation -- the majority of the world doesn't build documents, Powerpoint, video, and apps on tablets or phones, but on Windows platforms.

Microsoft's Surface Pro 3 comes closest to bridging the gap between consumption and creation, but at a price tag the average consumer balks at. However, when you compare it to a full function PC environment, work needs to be done in seamlessly integrating it with larger displays and local storage.  Far too many businesses and average people will want to keep their documents, photos, and videos stored locally for convenience, rapid access, and independence -- cloud services go down, reliable broadband isn't ubiquitous.

Fortunately, Apple and Google have problems of their own in bridging the gap. Apple has two different operating systems and two different platforms to deal with, plus it lacks the enterprise penetration on the desktop and server room Microsoft has.  However, Apple's deal with IBM may shake up the status quo, giving Apple a wider reach into the business sector.

Google has been steadily nibbling away at Office through its cloud offerings, but Chrome and cloud are both limited by the need for reliable bandwidth.  Google also doesn't have the portfolio of standalone, high-performance software packages built over the years for Windows and Macintosh. However, everyone is building cloud-based solutions, so the need for stand-alone packages will diminish over time.

Each of the three has advantages, but momentum is clearly with Apple and Google, with Microsoft having to retool and implement faster ways to do business.  When the smoke clears, Microsoft may look more like Apple does today, but with a continued emphasis on business and a growing reach in emerging market through affordable Nokia-based devices.




Edited by Adam Brandt

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